May 18, 2022
X.LA Team
min read

Where is the Revenue Sharing Business Model Used Today?

Revenue is the sum total of the money a business accrues through sales, gains from investments or leases, royalties and other ancillaries.

Where is the Revenue Sharing Business Model Used Today?

What used to be shooting home videos for fun — remember America’s Funniest Home Videos? — became a full-time job with the arrival of YouTube. The vlogging fever caught like wildfire since one could get rich by becoming a famous YouTuber. What YouTube did differently than standard 9–5 jobs was it offered its creators a share of the revenue it generated.

The scope for unprecedented and rapid growth is always there with a revenue sharing model. YouTube continues to make its money from the advertisements it places on a YouTuber’s videos and then shares a percentage of that revenue with the creator. Many web-based products use the same strategy. They build partnerships with promoters, reviewists, bloggers etc., and split proceeds with them if their efforts lead to a customer buying the product. The revenue sharing terms can of course, vary, but the basic idea is, if you help a business make $100, you get to keep a percentage of that revenue as your remuneration.

What is Revenue Sharing?

Revenue is the sum total of the money a business accrues through sales, gains from investments or leases, royalties and other ancillaries. A revenue share business model refers to the practice of sharing percentages of the revenue with partners, shareholders, employees and other beneficiaries of an organization. One should not, however, confuse revenue sharing with profit sharing as the proceeds distributed through both these models are different. While revenue sharing includes both losses and gains, a profit sharing model only entails the splitting of gains with the beneficiaries.

Large and small businesses looking to reduce the upfront cost of marketing will often apply a revenue share model with stakeholders and partners. Such a practice allows both the parties to move forward with aligned goals motivated by the visions of shared success. Companies often execute revenue sharing or profit sharing plans with employees to inculcate a sense of ownership in them. Revenue sharing has proved itself to be a robust model for employee retention, setting up marketing goals, channeling success through symbiotic growth.

The Business Benefits of a Revenue Sharing Model

A revenue sharing business model can be used as a tool to attract partners and investors. This enables the management team to rely on an added set of resources who will work towards growing the company revenue owing to their vested interest. Businesses bear a hefty cost to market their products. As an alternative solution, young businesses or a startup can reduce this cost by building partnerships with angel investors, consultants, influencers even, through a revenue sharing model. It not only distributes the onus of marketing a project, but also reduces the overall cost of marketing.

A revenue sharing model is a better approach than entering a partnership with investors on a debt-based ROI model. The interest of a loan is fixed. This may adversely affect the bottomline if the revenue is slow on a particular month. However, in a revenue sharing model, the percentage of return depends solely on the total earnings generated for the month. So the bottom line remains practically untouched, even during periods of poor cash flow.

Where Is the Revenue Sharing Model Used Today?

Most companies enter into revenue sharing terms with shareholders. In the cases of paying a part of the company revenue to employees or contributing toward their retirement plan, the revenue sharing model also comes into practice. The model is also widely used in other fields as well like sports, game development, online media, web product marketing etc.

Employee Retirement Plan — A company generates a part of its revenue through market investments. Most of the time, these investments are deducted from an employee’s gross salary. A percentage of the proceeds from these investments again go into the employee’s retirement plan thus motivating them to continue work and not jump ship. It’s a strategy businesses in many countries implement to retain employees, facilitated by the environment of mutual growth.

Sports — Revenue sharing is a common practice in professional sports where organizers split the revenue generated from ticket sales with the visiting team.

Game Development — Game studios lacking the funds to hire and pay fixed salaries to game developers often strike a revenue sharing deal with contributors.

Online media — Content creators on YouTube work via a revenue sharing model where YouTube pays a portion of the revenue it generates from advertisements streamed on a creator’s platform. Spotify is another platform that shares its revenues with its rights holders, distributors and artists.

Web Product Marketing — Web products often partner with affiliates to generate more sales and pay them a percentage of the sales revenue. There are many websites that also pay contributors a part of the revenue generated through advertisements, like YouTube.

How Does a Revenue Sharing Agreement Work?

A revenue sharing agreement typically contains information on the parties involved, duties and responsibilities, terms and conditions, the percentage of revenue sharing, length of agreement, penalties, terms for amendments and governing laws and jurisdiction. The parties, the assigner and the assignee sign the agreement and the process commences.

The Problems with the Existing Revenue Sharing Contract Model and Solution

The current model of a revenue sharing agreement is expensive, time-intensive and non-scalable. Not to mention, it is centralized, and anything centralized is vulnerable to corruption. Take YouTube for example. Over time it has transformed into another exploitative, money-hungry tech giant that’s making it harder and harder for creators to monetize their content.

As simple as it may sound in theory, in practice, many businesses often find it difficult to find collaborators agreeing to contribute in lieu of a share in the revenue. This is because manual revenue sharing contracts are based on trust which a business can easily break. A business, also, has no way to prove to potential partners/contributions that the terms of an agreement are absolute.

Revenue share will be a part and parcel of Web3 and demands are going to explode given the future of employment will very likely be based on profit-sharing and incentive models. Almost any Web3 business will do well with a revenue share smart contract in place to scale, automate and securitize partnership agreements.

X.LA Foundation, the Web3 venture of Shurick Agapitov — gaming industry evangelist and former founder of Xsolla — is set out to launch its roster of revenue share smart contracts that will tackle business operations of Web3 companies.

X.LA Revenue Share Smart Contracts: Brief Overview

Shurick Agapiov envisions web3 as the union of metaverses that will thrive on user-generated content or user participation. To make sure nothing goes amiss in the monetary relationship between the developers of these metaverses and their users, X.LA introduces a set of revenue share smart contracts. These smart contracts are designed to tackle the future of financial relationships between project owners and contributors which are going to get more complex. Some of the most winning features of X.LA Smart contracts are:

  • They offer users no-code minting tools to develop smart contracts with minimal technical knowledge.
  • They can handle complex and multiple revenue-share partnerships involving a large number of attributing vendors and referrals.
  • They offer users multiple brackets to tackle the several forks of a revenue share partnership that may branch out in the lifetime of a product.
  • Supports governance protocols for Revenue Share Smart Contracts in case an amendment needs to be implemented.
  • The X.LA business engine helps business and creators/contributors to find each other and enter a revenue sharing agreement.

Wrapping Up

Applications of the revenue sharing model can be found in the fields of sports, video games, online marketing, entertainment etc. Companies use it in employee management and in attracting investors and shareholders.

With the advent of Web3, a large-scale expansion of the revenue share model is imminent. Web3 promises to decentralize the wealth that information technology and the internet-of-things create, among its users. Such a reality will come to fruition with the conjoined effort of many businesses that will create value for users through rewards and incentives. To meet this rising demand, X.LA Foundation has developed a set of revenue share smart contracts that will handle multiple facets of the revenue share economy.

The arrival of the Web3 is motivating young entrepreneurs and businesses to ideate projects built on blockchain and cryptocurrencies in the metaverse. Along with it, it’s high time to rethink the logistics of revenue sharing and applying it to new projects.

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