Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail


What it is:

To "monetize" something is to convert non-revenue generating assets into sources of revenue.  In economic terms, monetize means to convert any event, object or transaction into a form of currency or something with transferable value.  

How it works (Example):

For example, over time, a company may develop any number of systems or assets that are part of the company's overhead and infrastructure, supporting the company in selling its products or services.  Examples of these may include a safe storage system or an innovative and efficient distribution system or an information system to track sales, monitor projects, track personnel time, account for funds or even report on company activities.  These systems are typically non-revenue generating, in that they are not sold to generate revenues independently of the company's core product or service.  

But sometimes a company may be able to find an independent market for these systems.   When the company begins to package and sell these traditionally non-revenue generating systems, the company "monetizes" them, creating new sources of revenue for the company.

In another example, a flow of traffic to a destination, such as tourists to a historic site, can be monetized by capturing retail sales from those tourists en route to the historic site.  At the same time, Internet surfing "traffic" to popular websites has been "monetized" by selling advertising space and getting site visitors to view the advertisement. 

Why it Matters:

The process of figuring out creative ways of monetization is about as old as capitalism (which is only about 300-400 years old in its current form).   The processes of monetization -- that is, thinking systematically about how to convert something into cash -- is a valuable part of a business's strategic planning process.

Similarly, the capital markets are constantly innovating and finding new ways to monetize market transactions, using letters of credit, standby guarantees, derivatives and swaps to allow for the creation of new tradable financial products.

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