Of technologies such as artificial intelligence, machine learning, big data, IoT, and digitalization/digital transformation, there is still sometimes confusion about how digital business models work. These new ways of doing business are some of the most disruptive business models of our time, driven by technology and the power of networks.
In fact, technology plays only a secondary role. As with digital ecosystems, digital business models only serve the customer experience. Therefore, we only have to ask ourselves one thing: how can we create value for customers using digital tools such as platforms, applications, websites, etc.?
You can get your offer directly into his hands, you send him messages in his pocket, and he can immediately consume your product, since it is easily transferred and consumed digitally.
Another important point is that digital services are easy to create, replicate and automate. This means that when scaling a business to more customers, in most cases, there are no big costs. On the contrary, this is the best thing about digital business models, they are able to scale effortlessly – you can sell your product 100 times or more than 1 Mio and it won’t make you sweat.
There is often confusion between digital offerings and digital business models. In general, a digital offering is just an addition to an existing service or product, such as an app for your product, a support chatbot, or a product management interface. Digital business models, on the other hand, have certain characteristics that help distinguish them from digital offerings:
When the value proposition of the service being offered is (exclusively) digital based, then we have one big metric for the digital business model. Amazon, Alibaba, Facebook, Google, etc. would not be possible without the use of the Internet.
One of the best examples is the difference between digital offerings and digital business models. When you read your energy consumption data through the app, it is your electricity supplier’s digital offer. When you order transport through an application that matches your request with a driver, then this is a digital business model.
To become a customer and use the service, you must use digital channels. Digital business models are sometimes based solely on digital channels. This is especially important for business models that rely on early adoption (freemium) or marketplaces (eg Amazon advertises on web searches).
When a customer is willing to pay for your services and offers that are created online, this is a strong indicator of a digital business model, as customer value can be created digitally as well as monetized.
Different Kinds of Digital Business Models
Everyone knows the “free” business model, as it is used by two of the most famous companies in the world. Google, like Facebook, are good examples of how to use an ad-supported and “free” business model. The idea behind this business model is to offer the service for free and the user becomes the product that is being sold. In the case of Google and Facebook, each user who uses the services provides valuable information about themselves. With this data, you can easily display ads that businesses can buy and target to specific users.
Especially in the software world, this is one of the most common digital business models. Users get free access to the basic version (Free) of the product, which is basically limited in some respects. If the user wants to use more features or resources, he has the option to upgrade to a paid version (Premium).
A great example is Spotify. Everyone can use the service for free (and get ads), but if you want more features and higher quality, then you need to pay a monthly subscription. This is also a great example of how different business models can be mixed.