Today’s society lives in and with the Internet. The high affinity of people to digital offers influences the market and impacts the company’s value creation logic. To meet this challenge, companies increasingly need digital business models. They are the crucial means by which companies can seize new growth opportunities and develop recurring sources of income to assert themselves in the face of increasing competition.
A Highly Disruptive Matter
Despite a fundamental understanding of digital technologies such as process automation, iBPM and Artificial Intelligence (AI), many executives still feel in the dark about the functionality and implementation of digital business models. What complicates matters in many executives’ eyes is that digital business models are highly disruptive because they are accompanied by a paradigm shift in the development and design of products and services, which is driven by a high level of technological innovation and the efficiency of the networks.
What Is A Digital Business Model?
A digital business model is a form of value creation based on developing customer benefits through digital technologies. Digital business models use digital technologies to deliver better products and services and personalized, meaningful experiences for customers. New models can also replace one-off offers with subscription-based services.
Or new types of services are made available to customers on demand. The essence of a digitally transformed business model is to harness the power of digital technologies to provide immediate and personal solutions that create deep and lasting relationships with consumers. The focus of a transformed business model is simply on the customer.
Properties Of Digital Business Models
In contrast to digital offers, such as a customer app or a chatbot for establishing contact, digital business models have specific characteristics that differentiate them from digital submissions. The value of the service offered is created through digital technologies. The Internet made the prerequisites for the success of Facebook, Google, etc. Online ordering of goods in stationary retail is a step towards digital transformation, but by no means an independent digital business model.
If the energy consumption can be read out via an app, it is a digital offer from the electricity provider. For example, if you can organize passenger transport using an app, it is a digital business model. Digital channels form the basis for digital business models. But only when the USP is digitally created and monetized, when the customer is ready to pay for services and offers made online, can one speak of a digital business model.
Types Of Digital Business Models
The importance of digital transformation for securing competition and the future inevitably implies the development and implementation of digital business models. They sustainably promote the growth of companies. The trick, however, is to find a suitable business model for the company.
Free Model (Ad-Supported Model)
Google and Facebook are probably the best-known examples of an advertising-financed and free business model. In this model, the free service user becomes himself a product that is sold by paying with valuable information about himself. With this information, it’s easy to lure companies into buying ads to target specific user groups.
This model is one of the most common digital business models. Companies provide users with a free basic version of their product or service, subject to restrictions. Extended functions or resources can only be used as a paid version (Premium). An excellent example is Spotify, which can only be used ad-free with a monthly subscription.
On-demand business models offer virtual products or services that people can consume at will on a platform by subscribing or paying fees for each transaction. For example, you can watch videos in online video shops such as Amazon Video, Apple TV + etc., for a price for a limited time.
Amazon is the forerunner of a classic e-commerce model and is now the best-known digital business model on the web. An e-commerce model is based on the sales approach of selling products through an online shop.
Sellers and buyers use a third-party platform to sell their products and services in this two-sided marketplace model. Examples are Uber, eBay or Etsy. However, this two-sided platform model has to manage the balancing act of carefully scaling demand and supply simultaneously to attract both sides. If you have no sellers, you are not engaging in buyers. If you have no buyers, you lose the sellers.
Access-Over-Ownership Model/Sharing Model
This model is about sharing. You use a product, service or offer for a fee for a specific time without actually owning it. An example of this is renting an apartment through Airbnb. This is one of the most disruptive business models because you generate income from property you don’t own.
The subscription model is used in particular for software and memberships. The user can use content, services, or updates for a predefined period for a fixed monthly or annual fee. Prominent examples are Netflix or Office 365. This business model is designed for long-term customer loyalty and enables regular income generation. In return, the provider is obliged to regularly offer the customer new added value to keep him going. This is a very trying matter.
For example, Netflix regularly invests millions in producing new films and series to remain attractive. Companies looking for digital business models that guarantee rapid monetization are in good hands with freemium, e-commerce or subscription models. The offers are fixed and can be easily controlled. And since the provider has to focus exclusively on the demand side, income can be generated directly.
The Goal Of Digital Business Models
Agile startups are increasingly entering the market and setting the digital pace. Medium-sized companies, in particular, have to arm themselves against the increasing competition from this side to be able to react appropriately to the inevitably changing customer needs and expectations. There will be no more business as before, given the constant technological innovations.
If you don’t want to lose touch, you have to adapt to the new market conditions and see digital business models as an opportunity. This is the only way for companies to find and take their role in an increasingly digitally networked ecosystem.
Startup Metrics In Demand
Scaling is the mantra of digital business models, where traditional success criteria no longer apply. Instead, start-up-like metrics such as product-market fit must be created. This implies that the value and growth hypotheses of the underlying scaling path must be validated, especially at the beginning. Experimentation and pivoting are the key to finding a suitable digital business model. Of course, this also requires a rethinking of the willingness to invest so that an immediate return is foregone and the income is reinvested immediately.
Advantages Of Digital Business Models
In digital business models, the value proposition’s creation, delivery, and recording are based on digital technology. The effective use of digital technology enables customers to have a unique value proposition that has the following characteristics: All products are available immediately; there is no transaction time or delivery delay. All products or services are available in any geographic location and across different locations and end-user technologies.
Digital business models can be easily duplicated and automated, making it possible to scale to more customers. The scalability is only marginally related to additional investments or fixed costs. Thereby the marginal costs, So the cost of manufacturing a different product is very low for the digital business:
Think In Terms Of Data Strategies
Digital business models enable companies to identify and realize new and untapped sources of income, sales methods and monetization opportunities. The chosen technological basis must offer the flexibility and modularity required for the selected approach. Digital business models enable companies to monetize their data by creating scalable, revenue-generating data assets.
But this requires a rethink. What is needed is no longer thinking in terms of productivity and efficiency data, but rather commercial data strategies, that is, using customer and market information to gain value and drive growth in both upstream and downstream markets.
Rapidly changing consumer habits, driven by ongoing disruptions and uncertain economic times, are putting companies under more pressure than ever to adopt scalable digital business models. By converting an idea into a shared vision, today’s companies can develop digital products and processes that offer real added value while reducing risk to a minimum.
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