9 disruptive business models explained – new opportunities for companies

Consider changing the business model with changing economies around you

Companies are often faced with the question of whether their current business model is still appropriate. We show the currently most successful and also most distributive business models and how they earn money. We also give examples of companies already working with these business models.

News, Social Media, or regular pub discussions. Lots of people are currently discussing “disruptive Business” models and sometimes they are even already fed up with the disruptive world. But why is this topic, so important for everyone and what do we have to know about it? This article should help to understand why these new disruptive business models are so important and why everybody should at least have an understanding of the basics of the most successful business models.

Especially in tough times, it is necessary to have an understanding of where the business could develop. Looking at business models is crucial to understand how to newly position your company and how to generate extra income. New business models can also help companies to be more resilient to market dynamics and also diversify their portfolio.

Additional read: 11 digital business models you should know incl. examples

Disrupt or be disrupted

The quote “Disrupt or be disrupted” is being said a lot in Silicon Valley. Everybody there is constantly looking for an opportunity or niche to disrupt industries with new innovative business models. So it’s no wonder, that there is a lot of talking is going on in this field. But let me say one thing first: There are usually never completely new business models involved. Existing business models are typically simply used for a new industry, a new product, or a new service.

As an example, one can also see here how certain industries have already had to deal with a disruptive business model. So the classic taxi service was put under a lot of pressure by Uber, as they had a platform and connected the drivers and guests via the Internet, instead of dialing a new number in each city or looking for taxis.

Successful disruptive business models often focus on the customer again. New technologies have changed customer behavior, and thus this change also enables models that meet these needs. Subscription models, platforms, digital ecosystems and many more are worth mentioning.

Another principle is also important. Many successful companies also combine these business models and use different models for different parts of their companies. The right combination of innovative products and innovative business models can play a major role in success. – But so is the question, what is really a disruptive business model?

What is a disruptive business model?

Disruptive business models are a type of disruptive innovation that brings a new idea or technology to an existing market. Disruptive market entrants usually capture unmet-demands in the existing market. This can either be a Low-End or High-End repressed demands where either the more price sensitive customers or the more premium customers gets addressed.

The following graphic shows 9 significant business models that can be disruptive for industries and that everyone should at least be familiar with. Either focusing on Low-End Disruption (e.g. Freemium) or High-End Disruption (e.g. User Experience Premium).

9 Disruptive Business Models explaind - short graphic
9 Disruptive Business Models explained – Source: Benjamin Talin

9 disruptive business models for companies

This list of disruptive business models are neither exhaustive nor complete. Here we will actively address only the 9 most important business models that have been responsible for the most important innovations in many markets and briefly explain why it works, what the reason is, and which companies are an example of this business model. The goal is that everyone can understand the most important business models and also the basic principles are shown.

1. Freemium Model

One of the most frequently used business models. The consumer receives a product or service free of charge. Either only basic functions are offered and for premium functions, no branding or extension of the services, the customer must then pay. This way you can quickly reach a broad customer base, scale your business into new markets, and generate incomes when converting customers into paying ones.

This model is especially applicable for products or services that have low marginal costs (additional costs per additional customer) or where marketing and customer information has a higher value than the operating costs. The key for such models is also the conversion. You need to find a free solution that is attractive to a customer, but also not perfectly satisfying, so they are willing to pay for the premium.

Typical examples: Spotify, Linkedin, Xing, Canva.com, MailChimp

2. Subscription Model

Products and services can usually also be offered as subscriptions. An amount that would normally only occur once is split or a new service is created that is billed periodically. The aim is to bind the customer in the long term. In contrast to the one-time purchase, the customer benefits from improvements and extensions of the service.

Non-divisible products can also be converted into a subscription here. Amazon has already provided an example with this system how products such as detergents, cosmetics, etc. Can also be delivered automatically regularly. Subscription is very powerful as this allows you to generate income over time and grow your company without too much “highs and lows”.

Typical examples: Amazon, Netflix, Internet Provider

3. Free offerings

A model that has gained in popularity, especially through Google. For many entrepreneurs, this is also the most incomprehensible business models, but it has great potential for some services. Since such business models usually evaluate customer data for advertising or personalized offers, it is interesting to use a lot of information about customers.

When you are considering only a free service, then you also need to plan for a long ramp-up phase. This means you are investing for a long period of time before you reach the critical mass of users to have a profitable business.

Typical examples: Google, Facebook

4. Marketplace Model

For some industries, marketplaces already had or have great disruptive potential. The business model used here is usually a digital marketplace that connects the seller and buyer on a common platform. Money is usually generated via brokerage fees, commissions, or fixed transaction costs. However, it is also possible to use membership fees on the platform or to generate money through advertising/premium positioning services.

Typical examples: Amazon, Alibaba, Uber, eBay

5. Sharing Economy – Access-over-Ownership Model – Renting & Leasing

In the classic sense, the sharing economy is referred to as letting. Goods or services that can usually only be purchased or made available to another person for a limited period of time. There is the example of car sharing. The car is made available for a certain period of time and a number of km for another person against payment. In general, this can be applied to all products, whether from private individuals or companies, real estate, or intangible assets.

Typical examples: Airbnb, Sharoo, Mobility, Lyft

6. User Experience Premium

This is a premium model that can be easily observed using Apple. A good customer experience adds value to an exchangeable product. The service, the brand, and especially the experience of the customer are improved and premium prices are charged.

Typical examples: Tesla, Apple and Premium-Brands

7. Pyramid Model

The model is a typical sales model that has been available for years. Especially due to the easy billing by technical aids, these pyramid models can be quickly built up and easily managed. It is especially interesting for products with high margins and which can be easily explained.

Typical examples: Amazon Affiliate, Microsoft, Dropbox

8. Ecosystem – Create your own ecosystem

To bind customers to an ecosystem in the long term through a “lock-in” process in a service is a dream for every entrepreneur. For example, if you have a mobile phone from Apple or with Android, you are probably included in this ecosystem. You buy the hardware and use software that may only be compatible with the same system. This makes the change difficult and also prevents new competition from gaining a foothold.

Recommended reading: What is a digital Ecosystem?

Typical examples: Apple, Google

9. On-demand Model

Time is money, that is the structure of this business model. The immediate access is sold or also the premium access to “time”. The delivery, the product, or the service can be called up at a certain point in time. Video-on-demand, taxi (over) on-demand, and many other systems are good examples. Companies or persons goods or time provide their services for persons without goods and time but with money.

Typical examples: Amazon Prime, Uber, Upwork, Cloud Services

Top-down vs. bottom-up disruption explained

The disruption of markets and industries can take place either from the top down (top-down) or from the bottom up (bottom-up). Both approaches have their own characteristics, target groups and strategic implications. The “top” reflects the high-price segment and the “bottom” the broad low-price segment.

Top-down disruption

In this form of disruption, companies enter the market with high-quality, often expensive products or services aimed at a more affluent clientele. The aim is to occupy a niche in the premium segment and expand the market from there. A classic example is Apple, which began with its high-priced computers and later reached broader customer groups with products such as the iPod and iPhone.

Top technology or premium services are particularly suitable for this type of disruption. It is important to understand here that the lead costs may be correspondingly higher, you may have longer lead times and the existing sales channels or partners may no longer be suitable.

Advantages: Higher profit margins and brand value; target group with higher purchasing power.
Challenges: Need to develop a compelling product that persuades customers to switch; high development costs or marketing costs.

Bottom-up disruption

This involves introducing products or services that are cheaper and more accessible than existing offerings. Companies pursuing this strategy try to capture a larger market share by offering lower prices. An example of bottom-up disruption is Walmart, which has become the largest retailer in the world by offering low prices.

Bottom-up disruption must also take into account that customer acquisition costs (CAC) must be competitive. For this reason, bottom-up disruptions are usually accompanied by innovative marketing or business development strategies, as otherwise customer acquisition can become more expensive than the product. This is why many start-ups that attempt bottom-up disruption fail.

Advantages: Accessibility for a broader customer base; faster market entry due to lower prices.
Challenges: (Potentially) lower profit margins; challenge of ensuring high quality at low cost.

Strategic considerations

  • Market entry strategy: Companies need to carefully plan their market entry strategy based on their target audience, resources and long-term goals. Top-down disruption can be more challenging as it often requires persuasion to entice customers away from established products. Bottom-up disruption, on the other hand, can lead to faster market share, but requires an efficient cost structure.
  • Sustainability and scaling: Long-term success in any disruption model requires sustainability and the ability to scale. Top-down models must continuously invest in innovation and brand value, while bottom-up models must prioritize process efficiency and volume growth.
  • Impact on the industry: Both types of disruption can have a significant impact on existing industry structures. Top-down disruption can lead to a re-evaluation of quality and performance standards, while bottom-up disruption can challenge established pricing structures.

Which approach is better?

The decision between top-down and bottom-up disruption depends on several factors:

  • Company goals: Is the company aiming for high profit margins or broad market influence?
  • Market conditions: What needs and gaps exist in the market? How do existing players react to new competitors?
  • Resources and capabilities: Does the company have the resources to develop premium products or is it better placed to offer lower cost alternatives?

Impact on traditional industries

The emergence and application of disruptive business models always have a significant impact on traditional industries, changing not only the dynamics of the market, but also the way companies operate and create value. We are seeing more and more often that traditional industries have to adapt quickly, resulting in social but also economic realignments.

Market Dynamics

Traditional companies are competing with agile, innovative startups that are not burdened by outdated systems or business models. Like Uber shaking up the cab industry or Airbnb impacting the hospitality industry, these new entrants can quickly gain market share and force incumbents to rethink their strategies and adapt to the new norm. An example of this is the industry in Germany, which for a very long time was designed to build complex combustion engines and cars, which are now being challenged by agile companies, as electric cars have less complexity, need fewer suppliers, and as BYD as an example shows, can also map the entire supply chain themselves. What made the industry strong then is a legacy now – An Innovators Dilemma.

Customer expectations

Disruptive business models driven by technology often bring greater convenience, efficiency and affordability, changing customer expectations. Today’s consumers demand seamless, instant, and personalized experiences as the standard, as set by companies like Amazon and Netflix. Traditional industries therefore face the challenge of meeting these heightened expectations or risk losing customers to more innovative competitors. This simplification is usually difficult to make and results in existing models becoming inapplicable.

Speed

Current IT-driven innovations in particular have become faster. Just 50 years ago it was not possible to enter a market quickly and efficiently. But with global networking, the Internet, digital ecosystems and platforms, companies like Shein can turn an entire market around in a matter of months.

Operational efficiency

Traditional industries often operate with established, proven processes that may not be as efficient or cost-effective as newer, improved (technology-driven) methods. Disruptive business models, such as on-demand or sharing economy models, leverage technology to optimize resource utilization and reduce operating costs. This forces traditional companies to change the competencies they have built and the processes they have optimized over the years, thereby also taking away their competitive advantage.

Regulatory environment

In some cases, disruptive business models operate in regulatory gray areas, which can lead to a competitive advantage. Ride-sharing apps or cryptocurrency exchanges, for example, initially operated with minimal regulatory oversight, which allowed them more flexibility and speed. Traditional industries often struggle with extensive regulations, potentially putting them at a disadvantage. However, as regulators keep pace with technological developments, new entrants and disruptive models are increasingly controlled and regulated, but the time difference, along with the other factors mentioned earlier, can lead to new market leaders emerging in these gray areas.

Workforce and skills requirements

Disruptive business models often require different skills than traditional businesses. Digital platforms and data-driven business models, for example, require expertise in data science, machine learning, and other emerging technologies. Traditional industries are therefore forced to invest in retraining their workforce or recruit new talent to meet the needs of the evolving marketplace, and also as a result lose the competitive advantage they had previously built.

Verdict

Technologies have changed our world and will continue to do so. We have to realize that classic business models like buying and selling at a premium will no longer work alone. It is, therefore, worthwhile to take a critical look at the 9 major trends in business models (further read: 11 Digital Business Models) and to examine them for your own use. So it may be that you can build up new business fields or even use your own knowledge to get involved in other industries.

Once again, it is important to emphasize that these are examples. A successful business model can consist of various elements and combine different income streams.

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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