By now, a general understanding has been established that modern technologies and software exist and represent legitimate products. Everyone has heard the term artificial intelligence and has at least some idea of what it means. However, one thing is often still unclear to many, including some CEOs: What are digital business models and why do they work so well?
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Why do we need to understand digital business models?
The answer to this question is very simple: Because it is no longer possible without it. But why is that? Consumers have now become accustomed to the system and providers are doing their best to put the consumer first. As a result, an entirely new system has evolved. Companies have realized that the technological capabilities that are now available to them are so much more than a website. At the same time, customers have developed a whole new confidence in digital business models. What was called a dodgy “subscription trap” 10 years ago is now Netflix. What used to be the big catalog that people ordered from is now Amazon.
And how have many of these classic companies dealt with this? They refused to embrace progress and began their own demise. Just because some people couldn’t explain why the online service or product was suddenly cheaper or even free.
What are digital business models?
The characteristics of digital business modelsIn order to additionally delineate the concept of digital business models, we look at the various characteristics that shape the meaning. It is only through them that a clearer distinction from classic business models really becomes clear:
- The added value can only be generated digitally. Traditional models, on the other hand, always generate added value in analog form. They may undergo a digital transformation, but this does not change the added value, only the way to obtain it. In short, without the Internet, the corresponding core business of the digital business model would not be possible.
- The USP is generated digitally and is also exclusively digital in nature.
- The corresponding digital business model is based on an innovation. The product is usually new on the market.
- The generation and acquisition of customers takes place digitally. There is now a large number of possible channels that can be used for this purpose by digital business model marketing. There are no hybrid forms, such as offline sales, which attempt to acquire customers by means of analog registration.
- A geographically independent scalability. This is where we need to pay attention. Of course, not every digital business model can easily scale to every country. Legislation, politics and other regulating factors can be a barrier to entry. However, the foundation, the Internet, enables limitless scalability, at least in theory. To put it more simply and tangible, there is no ocean between America and Europe on the Internet.
What types of digital business models exist?While in the beginning there was a lack of definition, there are now more and more possible distinctions. The largest and most established models are the following 11:
- Marketplace (also peer-to-peer)
- Open Source
- Hidden Revenue