11 Digital Business Models you should know incl. examples

What are the characteristics of digital business models? How do they differentiate themselves from digital offerings and what should you know?

Digital Business Models incl. examples – Here is what you need to know, we explain the characteristics of digital business models and give advice on how to start and where to be cautious.

While most executives now have a basic understanding of technologies such as artificial intelligence, machine learning, big data, IoT and digitisation/digital transformation, there is still sometimes confusion about how digital business models work. These new business models are some of the most disruptive business models of our time, driven by technology and the power of networks.

As we all know, technology is not the driver of these business models. In fact, technology plays only a secondary role. As in digital ecosystems, digital business models serve only the customer experience. So we just have to ask ourselves one question: How can we create value for customers with digital tools such as platforms, apps, websites and more?

The power lies in direct access to the customer and to the data. You can put your offer right in their hands, you can send them messages in their pocket and they can consume your product instantly because it is simply delivered and consumed digitally.

Another important point is that digital services can be easily created, duplicated and automated. This means that there are no big costs if you want to expand your business to more customers. In fact, that’s the beauty of digital business models: They can scale without much effort – you can sell your product 100 times or over 1 million times and not break a sweat.

What are Digital Business Models?

Digital business models are how companies create, deliver and capture value in a digital economy. To do this, digital business models typically use various digital technologies to create and deliver their products and services digitally. There are many different dynamics in digital businesses because the products offered usually have no marginal cost, which has different implications for price and supply and clearly differentiates them from traditional business models.

One consequence is that the barriers to entry for these businesses are much lower than for traditional businesses. This lower barrier to entry is due to the fact that the cost of starting a digital business is much lower and you don’t need as much physical infrastructure. The reach of a digital business is also much greater, as with a website or app you can potentially reach customers all over the world without physically leaving the country.

Another consequence is that digital businesses, which can expand very quickly, are often based on economies of scale. That’s because they don’t need as much physical infrastructure to grow, and they can easily reach more customers. Digital businesses can also often be automated or outsourced to reduce costs, making them more profitable than traditional businesses.

However, there are some disadvantages to digital businesses. One is that they can be very competitive because, as mentioned above, it is easy for new players to enter the market. In addition, new technologies or changes in customer behaviour can quickly disrupt digital businesses and displace existing successful business models, as switching costs for customers are also high. Finally, digital companies are often less loyal to their customers than traditional companies because they tend to have a shorter lifespan (also a lower customer lifetime value – CLV) and are less likely to build long-term customer relationships, so a strong brand is often important.

Important to understand: Digital business models can usually be combined. Companies can use different models, but they usually fall into one of three categories: product-centric, service-centric or process-centric. Product-centric companies sell physical or digital products to customers, service-centric companies provide services, and process-centric companies provide a process or platform that enables other companies to create and deliver digital products or services.

6 Digital business model characteristics

Digital business models are very different from traditional models and digital offerings. They have certain characteristics that make them unique and define how they work in the digital age:

  1. Creating value through digital technologies: The core value of a digital business model is based on the use of digital technologies. Companies such as Amazon or Google are inconceivable without the internet. Their offerings, while sometimes including physical or ancillary services, are primarily based on digital platforms and tools.
  2. Innovative character: While not required, a key characteristic of digital business models is often that they bring innovative solutions to the market that disrupt traditional offerings. For example, transport brokerage through apps such as Uber has revolutionised the traditional taxi service by providing a fully digital solution to transport needs.
  3. Digital customer acquisition and sales: Services and products are primarily accessed through digital channels. Digital business models often use these channels exclusively for marketing, sales and customer service, especially in models designed for rapid customer growth such as the freemium model or marketplaces.
  4. Digital Unique Selling Proposition (USP): The value that customers see in digital services and offerings and are willing to pay for is an indicator of a digital business model. Customer value is generated and monetised digitally.
  5. No Physical Limitations – Global reach without borders: Digital products and services know virtually no boundaries. This global reach allows digital business models to easily expand into international markets. While localisation is important for a better user experience, many digital models, such as SaaS software, even eliminate the need for localisation.
  6. Scalability: A key feature of digital business models is their enormous scalability. Digital goods can be copied or used almost indefinitely, which distinguishes them from traditional business models. This scalability allows for rapid growth and efficient market penetration.

11 Types of digital business models

1. Advertising model (“Ad-supported free model”)

The ad-supported model offers free services to users, with revenue coming from advertisers who pay to display their ads to those users. This model is commonly used by social media platforms and search engines. Google, for example, offers free search and a range of free tools such as Google Drive and Gmail, but makes money by serving targeted ads based on user data. Facebook and Instagram follow the same model: They offer free social networking services and use user data to serve personalised ads.

2. Freemium model (SaaS business model)

In this model, the basic service is provided for free, but premium features are locked behind a paywall. Spotify offers a free version with limited features and advertising, but for ad-free listening and better audio quality, users must pay for Spotify Premium. Similarly, Dropbox offers a limited amount of storage for free, with additional storage and features available for a subscription fee. Evernote also follows this model, offering basic note-taking functionality for free, but charging for features such as offline access and more storage.

Freemium is one of the most common in the SaaS world, where most online services offer a free entry package and then try to upsell users to premium subscriptions.

3. Usage-based / on-demand model

This is where customers pay for exactly the amount of services they use. Amazon Web Services (AWS) charges users for the resources they use (e.g. API calls, storage, server capacity). Similarly, ride-hailing services like Uber and Lyft charge for the distance travelled and the time spent, while streaming services like Amazon charge for access to their content libraries or specific films that can be watched ‘on-demand’.

We also see the on-demand model in the gig economy. Here, for example, you book a consultant and automatically receive an invoice based on how long you need the help. (Upwork, UpCounsel, Fiverr, etc.).

4. E-commerce model

This model involves selling physical products online. Companies like Amazon and eBay started by selling their own inventory. Another example is Apple, which sells its own products such as iPhones, iPads and Macs directly to consumers through its online store.

In contrast to a marketplace model, such as Amazon’s today, where other companies offer their goods on the Amazon Marketplace, pure-play e-commerce models are based on a one-way sales approach. One company sells its own goods to customers.

5. Marketplace model (peer-to-peer, two-way marketplace)

In this digital business model, a platform connects buyers (demand) and sellers (supply) and charges a fee, membership or other consideration for each transaction. Amazon and eBay have evolved into this model, offering third-party sellers the opportunity to sell on their platforms. Another example is Etsy, which connects artisans with buyers interested in handmade and vintage goods.

The biggest problem with this business model is its complexity and dynamism. If you don’t have sellers, you’ll never attract buyers, and if buyers can’t find sellers, you’ll lose buyers. So a two-sided platform must carefully scale supply and demand simultaneously to attract both sides. Crowdfunding is a special form of marketplace, because knowledge or resources are collected and distributed from one side to the other. More on this later.

6. Ecosystem model

A company offers a range of interrelated services that create a network effect that binds customers. Apple’s ecosystem includes hardware (iPhones, iPads, Macs), software (iOS, macOS) and services (App Store, iTunes, iCloud). Similarly, Google offers an ecosystem that includes Android, Chrome, Google Search, Google Docs and the Google Play Store. Microsoft’s ecosystem includes Windows, Office 365 and Azure cloud services.

Digital ecosystems are one of the most complex, yet powerful, digital business models in existence today. Ecosystem orchestrators such as Amazon, Alibaba, Google, Apple, Tesla and many others engage customers with different services across different platforms. They can then use the knowledge and data to upsell to existing customers and attract new customers through the “vendor lock-in” effect of their ecosystems.

Think of the services you use from Google, Apple, Amazon, Alibaba, etc. and how hard it would be to leave their digital ecosystem. This lock-in effect is also an important factor in future revenues. But you don’t have to be an ecosystem orchestrator, maybe you are a user of ecosystems or you provide modules for an ecosystem. A good example of a module provider is PayPal, which enables seamless payments for many different digital business models and ecosystems.

Additional read: What is a digital ecosystem? – Understanding the most profitable business model

7. Access-Over-Ownership Model / Sharing Model

This model allows consumers to access goods and services for a period of time without owning them. Airbnb allows people to rent apartments for short periods of time, while Zipcar allows people to rent cars for a few hours or days. Similarly, Rent the Runway allows you to rent designer clothes and accessories – so the possibilities are endless, from watches to clothes, cars, houses and boats.

This has been one of the most disruptive business models because of the impact it has had on ownership and the revenue you can make from a commodity. Imagine: A car could suddenly be a source of revenue instead of just a cost.

8. Experience model

This model aims to enhance physical products with digital services. Tesla not only sells electric cars, it also offers software updates that improve the cars’ performance and add new features. The Nike+ Run Club app provides a digital experience by tracking your runs, offering personalised coaching and connecting you to a community of runners.

Another take on the experience model is to combine different experiences and create a new customer-centric ecosystem that leverages the physical product to build a digital offering.

9. Subscription model

In this widely used business model, customers pay a recurring fee for access to a product or service. Netflix charges a monthly fee for unlimited streaming of TV shows and movies. Adobe Creative Cloud offers access to a range of creative software such as Photoshop, Illustrator, etc. for a monthly or annual fee. Microsoft Office 365 also charges an annual or monthly fee for access to its productivity software. However, it can also be an annual licence for software (e.g. ERP, Windows, Office).

10. Open source model

This is where the software is provided free of charge, with the source code open to modification by anyone, or where the “community” ensures that the code continues to evolve. Revenue for open source vendors can come from associated services such as training, support or premium features (e.g. hosting, premium plug-ins). Mozilla Firefox is a free and open source web browser whose revenue comes from partnerships with search providers, e.g. Google pays Firefox to be their default browser. Linux distributions such as Red Hat and Ubuntu are offered for free, with revenue coming from support, training and business services.

11. Hidden revenue model (data monetisation)

Some companies generate revenue in ways that are not immediately apparent to the user. For example, as explained in the open source model, Mozilla Firefox makes its revenue through partnerships with Google and is paid to have users use Google by default. Google gives Android away for free to device manufacturers, but makes money from sales in the Google Play Store (commissions on app sales, ads in the App Store) and data collection for targeted advertising. Users need to be aware of the potential misuse of data; as the Cambridge Analytica scandal has shown, hidden revenue generation can also lead to perverse incentives and potential abuse.

Special mention: Crowd sourcing / crowd funding model

Crowd sourcing is another phenomenon that would fall into the category of “digital business model”. It is like open source business models, where you harness the potential of the crowd. A good example is Wikipedia, where anyone can contribute, edit and improve articles. In this way, Wikipedia has a large knowledge base without paid authors or staff. The crowd can also be used to raise money for projects, and popular platforms include Kickstarter, GoFoundMe, etc. …. These platforms are usually a combination of different digital business models such as marketplaces, ad-supported platforms or subscription models.

Choosing the right digital business model

That’s always the answer when you don’t have a straight answer. So what is the best/right/most profitable/successful business model? – Well … IT DEPENDS

Each business needs to look at what kind of offerings they want and where they want to optimise. Two-sided marketplaces are extremely complex and take longer to grow, freemium is widespread and can be combined with ad-supported business models, or of course you can go straight to a SaaS subscription model. As we have seen with Spotify, SaaS works well if you can offer enough ‘free’ to attract customers and the premium creates ‘enough value’ for someone to pay. Digital ecosystems are perhaps the most complex and risky business models because they require massive investment, a large user base and the orchestration of many partners and streams, but they can also be some of the most powerful business models when they work.

When thinking about new business models, it’s always good to think about the customer and the unique value proposition you want to have. Make sure you don’t overthink it and keep it simple and clear rather than developing too many business models at once. Find something the customer is interested in and start by offering something of value – free or paid, it’s up to you – but at least start offering something and later on you can decide how to monetise it if it works.

Especially with platforms, marketplaces and digital ecosystems, it’s important to note that immediate monetisation can hinder growth and lead to a supply/demand gap. Sometimes digital business models need critical mass (a large enough number of users) and a critical base to leverage a monetisation model, and therefore require some time and investment before they can even start generating revenue. This is why there are 2 different strategies:

For earlier/faster monetisation, it is therefore better to choose freemium, e-commerce or subscription models. They are easier because the supply side is already fixed/better controlled, you can generate revenue directly and only need to focus on generating the demand side.

Business models that are more long-term and rely on network effects are usually two-sided platforms, two-sided marketplaces and especially digital ecosystems. They need to grow for a long time before monetisation makes sense and therefore have a long funding gap to overcome. In the long run, however, they can outperform other companies financially because they use the network effect, which could also be called the “winner takes it all” effect, to dominate a market because of their size and make it difficult for new competitors to enter because they first have to catch up. (Example Facebook and Google+ – Facebook has already conquered the market and Google had no chance with its social media platform due to the network effect).

Implementing digital business models

In theory, creating digital business models sounds easy and nice. We just take a couple of programmers, come up with an idea and come up with a solution where people pay us a lot, we get a lot of data and we just go viral. But the reality is that moving to or enhancing a digital business model represents a significant change in the way a company operates and often leads to cultural disruption. So before you even go towards digital business models you should ensure that your team and management is prepared for this shift.

There are certain points you should always address when you think your culture is ready:

  1. Assessment and alignment: Begin with a thorough assessment of your current business model, key internal resources and key personnel, and identify areas where digital technologies can have the greatest impact. This includes understanding not only your core competencies, but also the unmet needs of your customers and how digital solutions can address these gaps.
  2. Technology Infrastructure: Developing or upgrading your technology infrastructure is critical, as in most cases companies are not prepared for this shift. Be aware that this includes investing in infrastructure, people, but also expertise such as robust cybersecurity measures to protect data and systems before even thinking about integrating AI and analytics to enable data-driven decision making. A solid technology foundation not only supports current digital initiatives, but also provides the agility to adapt to future trends – so make smart choices.
  3. Focus on customer experience: Design your digital products or services with a laser focus on the customer experience. Use user-centred design principles to ensure ease of use and engagement. Personalisation should be a core feature, using data to tailor experiences to individual users. Seamless multi-channel interactions allow customers to engage with your brand on their terms, increasing satisfaction and loyalty.
  4. Innovation and agility: Foster a culture of innovation in your organisation. Encourage experimentation with new digital business models, products and services. Start small, get early feedback, try working with customers and perhaps even adopt agile methods for rapid development, testing and deployment. This rapid iteration approach reduces risk and enables continuous improvement of your digital offerings.
  5. Partnerships and ecosystems: The internet is crowded, so you need to form strategic partnerships and participate in digital ecosystems to extend your capabilities and reach. Working with technology providers, industry partners and start-ups can bring in new ideas, technologies and market opportunities. Being part of a digital ecosystem can also enhance your value proposition by offering customers a more comprehensive suite of solutions.
  6. Monetisation and value capture: Clearly define how your digital business model will and won’t generate revenue. Whether through a subscription model, freemium offerings, data monetisation or new digital services, your monetisation strategy should be aligned with the value you deliver to customers. Also consider innovative pricing strategies that reflect the value exchange between your business and its customers.

The Future is about Digital Business Models

Digital business models represent a paradigm shift in the way in which value is created, delivered and captured in the modern economy. Their power is undeniable, driving the success of some of the largest and most influential organisations in the world. The emergence of platforms and digital ecosystems has not only revolutionised industries, but also paved the way for unprecedented global connectivity and innovation. These models have enabled businesses to scale at an unprecedented rate. They have reached customers around the world with a level of efficiency and customisation that was previously unimaginable.

But the transition to digital is challenging, especially for traditional companies whose operations, culture and expertise have deep roots in historical business models. For these organisations, going digital requires significant changes to culture, people and infrastructure. Many aspects of digital transformation can be achieved with relative ease and minimal cost. However, the real hurdle is often overcoming the mindset gap. Despite the obvious benefits and opportunities, this gap can stifle innovation and hinder the transition to digital business models.

It is important to note that it is crucial to address this mindset gap. The world is clearly moving towards a digital-first approach to creating value, and companies that fail to adapt risk being left behind. Every company needs to develop a strategy that incorporates the use of digital business models, regardless of size or industry. In addition to adopting new technologies, this strategy should aim to cultivate a digital culture, attract and develop the right talent and continually evolve to meet the changing needs of the digital economy.

There is immense potential for growth, innovation and competitiveness in the transformative power of digital business models. However, realising this potential requires more than just technology investments; it requires a holistic approach to change management that emphasises agility, customer centricity and a forward-thinking mindset. By embracing these principles, organisations can bridge the gap between the traditional and the digital and unlock new opportunities to create value in an increasingly digital world.

Benjamin Talin, a serial entrepreneur since the age of 13, is the founder and CEO of MoreThanDigital, a global initiative providing access to topics of the future. As an influential keynote speaker, he shares insights on innovation, leadership, and entrepreneurship, and has advised governments, EU commissions, and ministries on education, innovation, economic development, and digitalization. With over 400 publications, 200 international keynotes, and numerous awards, Benjamin is dedicated to changing the status quo through technology and innovation. #bethechange Stay tuned for MoreThanDigital Insights - Coming soon!

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