This post is for you if:
- Your business is not yet digital, and you are concerned about being left behind.
- Your business is digital, but you want to explore other digital business models.
- You are curious about digital business models.
- You want to take a fresh look at your business through the eyes of a digital entrepreneur.
Digital business models are redefining commerce and modern life at an ever-increasing rate. This blog post defines the common elements of digital business models and notes the most common types.
Shifting your business to a digital model requires changes to your core business operations resulting in differentiation from your competition, creating new product or service value, and improving the customer experience. This model is distinct from e-business, where the business model remains the same, but technology is employed only to increase efficiencies.
Here are some defining features of a digital business model:
- Innovation that could not exist without digital technologies.
- Less costly to operate than a traditional business.
- Customers are acquired through the digital medium and retained through positive experiences and engaging interactions.
There are over a dozen potential digital business models. We describe seven of the most common models below. Note that many companies can fit into more than one category. For example, Uber is in both the On-Demand and Sharing model types.
E-Commerce: Companies such as Amazon and eBay facilitate commercial transactions over the Internet.
Freemium: Examples are search engines like Google, social media sites such as Facebook, music apps like Spotify, services such as Dropbox, and other businesses that monetize user data but provide a free service.
Ad-Supported: You can find companies in almost all the digital business models that generate revenue by selling ads on their platforms, including Freemium companies like Facebook and Google. Some digital media companies are entirely dependent on advertisers.
On-Demand: Transportation and travel companies like Uber and Airbnb, delivery services like GrubHub, virtual health care services such as Doctor on Demand, and professional service businesses like Handy are all digital companies that provide immediate access to their goods and services based on customer demand.
Experience: Apple and Tesla are two companies whose success in the digital world is intrinsically tied to innovation, customer experience, and loyalty. This positioning distinguishes them as premium brands in a crowded marketplace and as progressive alternatives to mainstream corporations.
Sharing: This digital model facilitates person-to-person transactions. LinkedIn, Etsy, Lyft, and Airbnb are examples.
Subscription: Based on customer loyalty, this business model provides ongoing access to goods and services where customers pay a recurring fee at monthly or annual intervals. Examples are on-demand companies such as Netflix, media companies like the New York Times and Wall Street Journal, and retailers such as Book Of The Month and HelloFresh meal kits.
When considering digital options for your company, the first step is to conduct a thorough analysis of industry trends. Looking ahead to the next 5 – 10 years, project the trajectory of your own business over the same period. Your goal is to identify strengths, weaknesses, opportunities and threats (SWOT), and then assess how your products and services fulfill the future needs of consumers…and where they don’t. Reflect on how a digital model can be the right solution for these perceived shortcomings.
Next, systematically appraise each digital business model in light of these specifics. While considering your choices, remember that digital models are adaptable to bold ideas and revolutionary thinking. Engage your imagination. Dare to dream big. Play with combinations of concepts, models, and solutions that take advantage of the quadrillions of digital bits flying about on our collective networks. This approach is how those unsolvable problems turn into opportunities and then into fortunes.
Once you have an idea, keep your focus on the goals of digital transformation. These include making your operations more efficient, customer-friendly, profitable, competitive, and monetizing the products and services you offer.
Please review our Google document if you wish to take a deeper dive into this topic. In the document, you will also find descriptions of another eleven digital business models and the seven described in this blog post.