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The monetization of innovation

Author

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  • Zucchi, Francesca
  • Warusawitharana, Missaka

Abstract

We develop a dynamic model for digital service firms, which invest in monetization to generate revenues from services that customers may not fully pay for. A key novelty of our model is that customer acquisition by firms need not translate directly into the generation of revenues. Our model explains why such firms often build a large customer base and become highly valued while continuing to suffer losses, fueled by substantial upfront SG&A expenditures with sizable though risky growth potential. Counterfactual analysis reveals that hurdles to monetization—such as regulation aimed at protecting customer privacy—make firms smaller and less innovative, whereas direct revenues from customers support technological advancement.

Suggested Citation

  • Zucchi, Francesca & Warusawitharana, Missaka, 2026. "The monetization of innovation," CEPR Discussion Papers 21924, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21924
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    File URL: https://cepr.org/publications/DP21924
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    Keywords

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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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