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. 

Digital Offerings vs. Digital Business Model

Sometimes we confuse digital offerings with digital business. A digital offering is an addition to existing offerings, such as a product pp, chatbot, control interface, etc. On the other hand, digital business models create value, bring a fresh perspective, and provide USP to the customers.

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:

1. 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.

2. 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. 

3. 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.

4. 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.  

5. 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. 

6. Digital Ecosystem Model

Digital ecosystems are currently one of the most complex yet robust digital business structures. Alibaba, Amazon, Apple, Google, Tesla, and other ecosystem orchestrators exploit the customer with various services across several platforms. Due to the "vendor lock-in" impacts their ecosystems produce, they may upsell existing clients and attract new ones with their knowledge and data.

Consider what services you use from Amazon, Apple, Google, Alibaba, and other companies, and how difficult it would be to meander from their digital services and choose something else. The lock-in effect is also a significant revenue driver in the future. You don't have to be an ecosystem orchestrator; you might be an ecosystem user or a supplier of ecosystem modules. PayPal is an excellent example of a modular supplier. It allows for frictionless payment across various digital business models and ecosystems.

7. Sharing Model / Access-Over-Ownership Model

It's all about "sharing," but in a professional sense. This approach enables you to pay for a product, service, or offer for a specified time without actually owning it. Renting a car (e.g., Zipcar), an apartment (e.g., Airbnb), or even industrial gear are examples.

Due to its ramifications on ownership and the resulting revenues you may produce, this was one of the most disruptive business models. Instead of only creating costs, an automobile may become a cash source.

8. Model of Experience

Adding value to items that would not be feasible without using digital technologies. Tesla, for example, revolutionized the automobile sector by incorporating digital services and even a digital ecosystem into its vehicles, which is now a primary engine for its business model.

Another approach to the experience model is to mix several experiences to build a new customer-centric ecosystem.

9. Model of Subscription

We're all familiar with Netflix and Office 365. These are excellent instances of the traditional subscription business. On a monthly/annual basis, the user receives access, updates, services, etc. Subscriptions are particularly popular for content, software, and memberships.

10. Model of Open-Source

One of the most successful open-source examples is Firefox. The software is available for download, usage, and contribution to the global community. Because it is free and many people contribute, it spreads quickly. Usually, it attracts many (free) resources to improve the software. Firefox's business strategy relies on search engines for royalties and partnerships.

Because you might not be able to exploit the software for a sustainable business model, open source isn't necessarily a business plan. Red Hat distributes Linux for free and then makes money via training, services, and hosting.

11. Model for Generating Hidden Revenue

Customers may not always be able to see revenue generation at first glance. Other value streams may emerge as a result of data collection and analysis. We know that there may be hidden business models underlying platforms and digital services. As we saw with the Mozilla example, where the open-source browser earns money from licenses to integrate other search engines.

It's critical for businesses to understand their potential and whether there are further opportunities to combine an existing business model with another to produce additional revenue. However, concealed money production might backfire when dealing with data and unknowing customers. Cambridge Analytica is a beautiful example of a backlash like this, which resulted in serious ramifications for both organizations.

Apart from these, a few more business models exist.

  1. Club Affinity- collaborations with other organizations
  2. Services with Automation- automating services that humans traditionally perform
  3. Digital Business Model of Bundling - related products are packaged together.
  4. Crowdsourcing- making contributions rewarding and straightforward users for their contributions (usually money or a charitable goal).
  5. Digital Business Model of turning Data-Into-Assets- applying cutting-edge technologies to old industries
  6. Digital Business Model of Disintermediation- instead of using an intermediary to supply a service or product

The opportunities for success are abundant as digital becomes the new normal. However, knowing your destination is critical before choosing the digital business model and setting out on our entrepreneurial journey.

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.

About the Author

SimplilearnSimplilearn

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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