Digital platforms can achieve sustainable growth through ad-funded, subscription models: IIM study

New Delhi, Nov 2 (PTI) Digital platforms can balance profitability with privacy using pay-or-consent models, which allow users to either pay for an ad-free experience or consent to targeted ads, researchers at the Indian Institute of Management (IIM), Lucknow, have found.

As global debates intensify around user privacy and data-driven advertising, this research provides insights into the dynamics of pay-or-consent models. Such models can be optimised by digital platforms for business sustainability and ethical data usage.

The findings of the study have been published in the prestigious journal, Annals of Operations Research (Springer).

According to Suresh K Jakhar, Professor, Operations and Supply Chain Management, IIM Lucknow, as digital platforms navigate the crossroads of profitability and privacy, the research offers a structured lens to balance both.

"We show that respecting user privacy need not come at the cost of growth. In fact, platforms that design consent-driven, transparent business models can build stronger trust, higher engagement and sustainable profitability," Jakhar told PTI.

To study how privacy sensitivity shaped user and platform behaviour, the research team built a formal model for the ecosystem including the creator, platform and viewer.

"The developed model helped in providing measurable thresholds to help platforms decide when to rely on ads, when to introduce subscriptions and how to design hybrid models that respect user comfort while maintaining profitability," he added.

The study found that subscription models outperform ad-funded models when users' privacy concerns are high. Conversely, when privacy concerns are low, ad-based models yield better results.

Combining limited, non-intrusive ads with moderately priced ad-free tiers can maximise both profit and user satisfaction.

"Platforms using less sensitive, contextual data can retain users' trust while still monetising effectively. In addition to key findings, the study offers practical parameters, such as price points, ad intensity and data sensitivity, that digital platforms can tune to optimise revenue without alienating privacy-conscious users," Jakhar said.

The findings of this study are relevant to platforms offering video, music, podcasts and digital news services, where evolving user expectations and new data protection laws are pushing businesses to rethink their ad models.

"With major digital platforms experimenting with ad-light and premium subscription options, this research underscores a broader market shift towards consent-driven experiences," he said. PTI GJS DIV DIV