Today’s most successful brands are adopting new technology, enabling them to transform the way they do business. 

Next-generation technology such as Artificial Intelligence (AI) can be a game-changer when it comes to the customer experience. AI powers applications like chatbots, which can help answer questions for your site visitors. AI can even recognize and answer multiple forms of the same question and can be trained to give instant responses using your preferred voice and tone.

This type of innovation may be included in what’s known as a digital business model, a form of creating value based on the development of customer benefits using digital technologies. 

The goal of these digital solutions is to provide significant advantages that customers are willing to pay for and to ultimately improve aspects of your organization. This could range from how your company acquires customers to what products or services you provide. 

Most importantly, digital business models employ and rely on technologies that not only deliver better products and services but also provide personalized and meaningful customer experiences. A digital strategy is critical to your brand’s success. 

Characteristics of Digital Business Models

How do you recognize a digital business model? 

For starters, digital business models are known for having the following four distinguishing characteristics: 

  • The value is created using digital technologies. When a service is based on digital technologies, it’s recognized as a digital business model. Take Amazon, Google, and Facebook, for example. These giants wouldn’t exist without the internet. 
  • The digital business model is new to the market. An example of this would be when you request transportation via an app (such as Uber or Lyft) that matches your request with a driver. 
  • To become a customer, you need to use a digital channel. Digital business models often rely on digital channels (such as Amazon) that show advertisements when you search online.
  • The unique selling proposition (USP) is created digitally. This means that a customer is willing to pay for your products or services, and many times monetized online.

What type of digital business model should you employ?

The best course of action is to first consider your customer profile when selecting the technology that’s right for your brand. This may include things like pain points, interests, buying patterns, and demographic characteristics.

The following are five of the most popular digital business models:

Free-Model (ad-supported)

A free business model is one that makes use of and is supported by ads from platforms like Google and Facebook. The idea behind this model is to offer a service for free, making the user the end product. The online user provides valuable information that helps the company easily display targeted ads.

Freemium Model

This model is commonly used and allows users to get free access to a basic version of a product. This version may be somewhat limited, but the user has the option to upgrade and pay for a premium version should they want additional features. A great example of this is Spotify — you can use it for free, but if you want higher quality and no ads, you need to pay a monthly subscription. 

On-Demand Model

This model refers to a virtual product or service such as online video stores like Amazon Prime Video or Apple TV where you can watch a video for a certain period of time. Another example of this model is the freelance and gig economy platform Fiverr, where you book an individual and get charged based on the project.

eCommerce Model

Amazon was one of the first and most successful companies to adopt this digital business model of selling physical products online. Today, eCommerce is one of the best-known business models on the web.  

Marketplace Model

This model refers to a two-sided marketplace where sellers and buyers use a third-party platform to trade goods and services. Examples of this business model are service-based Uber and product-based eBay and Etsy. 

How to Create a Digital Business Strategy 

No matter your brand, creating a successful digital business strategy is crucial to success in 2021 and beyond. 

When you leverage the power of technology to build your business, you will undergo what’s known as a digital transformation. There are so many exciting and new technologies continuing to emerge, which makes forging a digital business model a necessity for your strategy. 

“Every industry and every organization will have to transform itself in the next few years. What is coming at us is bigger than the original internet and you need to understand it, get on board with it, and figure out how to transform your business.” – Tim O'Reilly, Founder & CEO, O'Reilly Media

4 Important Dimensions for Creating a Digital Business Model: 

  1. WHO is your target customer and what are their needs? 
  2. WHAT is the value proposition and which products does it generate? 
  3. HOW is the value proposition delivered?
  4. WHY is the business model profitable? 

5 Steps for Developing Your Strategy: 

1. Prepare a Detailed Business Plan.

Outline what your business is, your goals and visions, and how you plan to achieve them. 

2. Identify Your Target Audience.

Narrow your audience down to two or three buyer personas. Outline the solutions that your company will offer. 

3. Develop a Strong Value Proposition.

How will your company stand out among the competition? Establish what differentiates you. 

4. Determine Key Business Partners.

Select key partners and strategic alliances that can best help contribute to serving your customers. 

5. Allow Room for Innovation.

When developing your business model, leave room for future innovation. It’s important to ensure that your plan meets the needs of your customers.

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About the Author


Simplilearn is one of the world’s leading providers of online training for Digital Marketing, Cloud Computing, Project Management, Data Science, IT, Software Development, and many other emerging technologies.

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