There is a basic understanding widespread among executives and employees about new technologies like Artificial Intelligence, due to the coverage in the media by major tech companies that generate big headlines and fear about the impact these new technologies will have on society.
However, there is still quite a bit of ignorance and confusion about how digital business models function: these models, sometimes disruptive, can generate competitive advantages in the market for companies that successfully develop them, being the foundation on which to build a Digital Transformation process.
The aim of this article is primarily to define and clarify what a digital business model is and its main characteristics, as well as to present you with ten digital business models that you could apply in your organization, adapting them to your particular business context. We will try to assist you with real examples in well-known companies.
A digital business model is a system through which a company can generate, capture, and deliver value within a digital economy. It uses the latest technologies to make processes more efficient through digital channels, but essentially, technology plays a minor role in relation to customer experience.
There is confusion between what are digital offerings and digital business models: a digital offering is simply adding a digital version to existing products and services, such as having a digital catalog, introducing a chatbot, or using digital payment methods, among others. However, when we talk about a digital business model, we are referring to something radically different, to new perspectives for creating value for the customer, to generate a strategy that allows us to differentiate ourselves in the market.
A business model primarily seeks to create new ways of delivering value to the customer: its main motivation is to generate new and better relationships with our customers through personalized products and services that truly meet their exclusive needs.
With this in mind, the first thing we should ask ourselves when developing our digital business model is: How are we going to generate value for our customers within our digital ecosystem: apps, platforms, social networks, websites, etc.?
How to recognize a 100% digital business model?
For entrepreneurs starting to develop a new business in the digital realm, as well as executives thinking of transforming their traditional business; we strongly recommend using the Business Model Canvas tool, with which you can get a working template with the main elements that make up the foundation of the business you want to develop.
And here is our selection of digital business models:
This is probably the most widespread model today, as we are witnessing a transformation from an ownership-based economy to an access-based economy. The model is based on the customer paying a fee (usually monthly) to access a certain service or platform, and if they stop paying, the user will lose access. Usually, the access costs are relatively low, and that's where the hook is, as the company will be able to obtain fixed and recurring income in the long term based on its customer base.
Examples: Netflix, Spotify, Amazon Prime, etc. Advantages: A fixed customer base, predictable and sustainable income, scalable business. Risks: If it is a model based on a technological product, it requires a lot of investment until it starts generating profits.
This model mixes two concepts: free and exclusive content (premium). It is based on having customers access the service for free and others, by paying, will have access to the entire service without restrictions. It is a way to attract users to first get to know your product and then later convert them into paying customers once you have demonstrated that you solve a pain point.
Examples: Dropbox, MailChimp, Linkedin, etc. Advantages: Revenue can be diversified, for example, a free layer with advertising revenue and an exclusive paid layer. Increase the user growth base. Remove market entry barriers. Risks: Possible high service maintenance costs, having a large number of users who do not want to pay for any service.
This model is very widespread on the Internet, where the premise is that you only pay to access certain services and products for a limited time. It's like paying a kind of rent, as the customer is not interested in owning that product. It can be applied to all types of products and services: movies, transportation, vacation rentals, food, freelance professionals, last-mile services, etc.
Examples: Uber, Apple TV, Airbnb, etc. Advantages: Fast and efficient service. Customer satisfaction in getting exactly what they are looking for. The service can improve based on user feedback. Risks: Need for highly efficient resources and processes to deliver the service on time. High technology requirements.
The model is based on selling products and services online through a virtual store. It is a fairly simple model to implement and does not require a large infrastructure. Even, there are possibilities to sell without having a store of your own through social networks or third-party platforms. This model has been implemented by many SMEs, which have managed to expand to new markets, reducing the costs they had with a physical business.
Examples: Amazon, Alibaba, Shopify, etc. Advantages: Lower infrastructure costs, greater product offerings, and the possibility to grow without restrictions. Risks: Difficulties in accessing customers, investment in online marketing, greater competition, etc.
This business model is based on the development of a platform, the most common model is one that connects customers (e.g., interested in buying luxury items) with providers (luxury brands), known as a bilateral market, in jargon: (Two-sided market).
The marketplace makes it possible for supply and demand to meet. For it to work correctly, it is necessary to have a significant number of both providers and customers, being its main difficulty, especially when starting to generate activity.
Examples: Etsy, eBay, Meetup, etc. Advantages: Multiple monetization options, high scalability, reduction of operational processes (only platform management is necessary), etc. **R
isks**: The chicken and egg problem (deciding which segment to target to get started), lower commissions than in E-commerce, less influence over the products or services offered, etc.
This model is still little known, but is emerging with great future potential towards an economy that will set aside competition in favor of cooperation: a group of companies or organizations can work together to achieve certain objectives: sharing resources of all kinds such as capital, assets, personnel, knowledge, etc.
Examples: Indiegogo, Wikipedia. Advantages: Cost reduction, collaboration drives innovation, risk mitigation, etc. Risks: Establishing a trust framework between both parties, legal and contractual requirements, difficulties in establishing common criteria and objectives, etc.
This model is based on enriching physical products with digital services, although its business base continues to be the offering of experiences. We have clear examples of this in the automotive industry, for example, Tesla vehicles have software updates that add new extras to the vehicle. In agricultural machinery, we have John Deere, which offers an automatic GPS-guided system in the tractor to facilitate the farmer's work.
Examples: Tesla, John Deere, Starbucks, etc. Advantages: Higher customer satisfaction, greater control in pricing, offering of new services. Risks: High degree of investment and innovation, which can pose a risk if the sector is not deeply understood.
This model is based on the sale of products that are personalized to the customer's needs and is one of the pillars of Industry 4.0: being able to mass-produce but at the same time with personalized batches for different market segments. It is the basis of the success of well-known large companies such as Ikea, Dell, etc. The potential of Artificial Intelligence opens a door to developing fully personalized offers based on the user's profile.
Examples: Spotify, Ikea, Lego, etc. Advantages: Greater customer satisfaction, cost reduction: mass production for different individuals. Risks: Greater difficulties in operations: stock management, sales predictions with a large number of options, etc.
This model is based on the monetization of data generated by user activity on a particular platform. It is the main business model of major Internet platforms (Facebook, Twitter, etc.) to then offer advertisers the possibility to advertise through them, although other variants of this model would be the direct sale of data to third-party companies interested.
Examples: Facebook, YouTube, Instagram, etc. Advantages: Only requires the generation and retention of the user base. Risks: High development and maintenance needs of the product to improve the acquisition and retention rate of users.
This business model is a variant within E-commerce, Brick means brick and in contrast to click, it means that the customer has the possibility to access the product or service indistinctly through a physical or digital channel. These two business models are not incompatible, and proof of this is that there are numerous successful companies that use it, making the customer experience more comfortable.
Examples: Bauhaus, Apple, Zara, etc. Advantages: Greater customer satisfaction and diversification in billing. Risks: Integration between offline and online operations can generate costs.
I hope you have found this analysis of digital business models that you could apply in your company interesting. Although you may think that these models are very complex and are exclusively reserved for large technology companies which have large amounts of investment, nothing could be further from the truth: these models can be taken as a reference and adapted to the realities and needs that a company has in its particular context.
If you need help analyzing which business models would fit best with your business philosophy and analyze the impact and scope of the same, we recommend that you get in the hands of experts to carry out this digital transformation process with all the guarantees. Do not hesitate and contact us.