Digital business models are business designs that leverage digital technologies for particularly important aspects of its organization. For example, some digital business models use digital tech to acquire customers; other digital business models sell the digital tech itself as a product or service.
Though it might not seem possible, digital technology is more important than ever before. Businesses need to understand how to adopt digital strategies — and that means understanding the most common digital business models outlined below.
Sometimes called the “free” model, the ad-supported model allows businesses to offer their services without charging users fees. Some of the largest digital companies use this model — think: Google and Facebook — because it makes it easy for users to try out the service without any kind of commitment. In an ad-supported model, businesses leverage the power and number of their users to make money from advertisers.
An eCommerce model involves a company selling products to consumers. Not long ago, eCommerce was an exciting prospect, a small but promising opportunity for retail entrepreneurs. Today, eCommerce generates several billions of dollars every year; the average U.S. eCommerce site makes about $150,000 in monthly revenue, and the world’s largest retailer, Amazon, is almost purely an eCommerce venture. Online stores are relatively easy to create and operate, and their potential for growth is high.
The ecosystem model is complex, requiring you to develop a wide range of services and products for your consumers and cultivate high levels of consumer loyalty, but it can be immensely rewarding when you get it right. Developing the right ecosystem of services and products takes time; Apple didn’t start as a digital media company, but today the company sells tech devices and tech services while creating media like music, movies and television series for its users to consume.
Using digital technology is an experience — one that is sorely lacking from many everyday activities. Tesla demonstrated the value of utilizing an experienced model when it added digital services to its cars, giving users access to all manner of digital tools while they are on the go. You might build a digital business around another analog activity.
Unlike the free model, or the ad-supported model, which allows users to take advantage of all digital services without cost, the freemium model gives users a taste of the company’s digital services and hides the rest behind a paywall. You might create tiers of membership, which unlock progressively more services as the price increases. Alternatively, you might charge for individual services beyond the baseline, so users can create the unique experience they need.
Hidden Revenue Model
It isn’t always necessary for users to know how a business makes money. By hiding its method of revenue generation, digital businesses can sometimes compel more widespread acceptance of their products or services. Mozilla, for example, earns revenue from search engines integrated into the browser, but few users are aware that the open-source browser makes any money at all. You do need to be careful with the hidden revenue model, as misleading your audience can backfire and harm your business.
The on-demand model allows consumers to get digital access to a product or service immediately. Netflix did not begin as an on-demand business, but it has since pivoted to an almost total on-demand model after the success of its streaming services. Not all on-demand companies are video streaming, however; you might consider on-demand digital services like graphic design or logistics.
Also called the marketplace model, the peer-to-peer (P2P) model involves connecting two users for mutual benefit. Many businesses using the P2P model help individuals sell items or services, like Etsy or Upwork, and make money by taking a percentage of the sale, charging users for access to the platform or selling advertising space.
An intensely disruptive business model, the sharing model — which is also sometimes called access-over-ownership — gives users the opportunity to use a product or service for the time they need it without investing fully in the product or service for the long term. Zipcar is an excellent example of this; its online platform makes it easy to use a car for a few hours but helps users avoid the significant costs of car ownership. In the sharing model, you gain revenue by charging users a fee for access to your network, and you might charge for discrete uses, too.
Finally, almost all digital companies utilize the subscription model, which requires users to pay on a monthly or annual basis for access to a digital product or service. This is a simple and straightforward way to make money on the web.
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