In the ever persistent digital revolution, established business models are under a ruthless attack. Businesses of all shapes and sizes struggle to adjust to the “disrupt or be disrupted” law of the digitized business jungle.
Yes, business models are not as durable and rigid as they used to be. The rules of the game used to be the same for years. Today, the business world is like Alice who fell down a rabbit hole into a world where none of the rules she was taught applied. However, disruption doesn’t always mean utter chaos. Savvy businesses look at digitalization as an opportunity.
There are hundreds of businesses which accepted the challenge, shook the industry status quo or simply extended the value of their products by applying innovative business models. Here are the most effective digitally driven business models and companies that excelled thanks to them!
1. The Subscription Business Model
This probably isn’t the first time you hear about the subscription business model, it being one of the first digital strategies to take off and make it. However, a few years later, this model is maintaining its position in the forefront.
In its essence, this model disrupts through “locking-in” a customer by offering a product that is usually bought on an ad-hoc basis for a subscription fee that provides consumers with regular access to the product or service. It’s a simple idea which, thanks to numerous digital advances, can be applied to increasing number of industries.
Two notable subscription success stories are Dollar Shave Club and Netflix.
Dollar Shave Club is one of a kind business, a subscription-based online razor store which smartly positioned itself as a men’s lifestyle club. It not only offers razors but also grooming products at a cheaper price that are delivered to subscribers’ doorstep on a regular basis saving them both time and money. The company attracts new buyers by offering the first product including shipping for just $1. However, this investment pays off in the form of many long-term loyal customers.
While Dollar Shave Club was launched with its revolutionary model, Netflix is a perfect example of digital business transformation. First started in the 1990s as a company that distributed DVDs by mail, they took advantage of the 2000s advances in compression technology and improved internet speed and transferred into streaming business. A DVD business with 7 million US subscribers in the 90s transformed into digitally-driven streaming service with 93 million users worldwide, today. Netflix’s main strength lies in delivering on-demand programming online, meaning viewers can select what to watch instead of watching “what’s on.” Nowadays, the company produces its own well-rated TV shows and movies, instead of just offering third-party products.
2. The Free Business Model
Everybody knows the epic story that is the rise of Facebook reign. Facebook is the ultimate example of the very disruptive free business model. How can anyone make money offering something for free? Well, in the digital age, if you are not paying money for the product, it’s because you are the product.
The free business model is built on gathering and selling personal data or attention by providing consumers a free product or a service that in return collects their data or captures their attention. Google works on the same models. It provides a free search platform that, in exchange, gathers data about our behavior and leverages this data through targeted advertising. Instead of transforming your entire business, you can simply extend your business by offering your target audience a platform or forum to find information and advice or simply discuss relevant topics. Not only would this platform offer value to your customers it would also give you a greater insight into trends and behaviors which you can sell or leverage yourself.
3. The “Freemium” Business Model
Freemium business model is another on the list of digital disruptors on the market. Freemium channels its disruption into digital sampling where the consumers use a limited version of the product “for free” (in other words, like in the previous model, the pay with their attention and/or data). To receive a full version of the product, usually devoid of advertisements, they need to pay and thus upgrade to premium. This model can work for any business where the product and/or product distribution costs are lower than the revenue earned from ads and sale of personal data. The most remarkable freemium success stories include Spotify, Dropbox or Linkedin.
4. The Marketplace Business Model
Next on the list is the marketplace business model. The concept is simple, yet its disruptive power strong. Marketplace model creates a space where third-party buyers and sellers can come together and conduct business. In return, the retailers pay a fee either per transaction, per placement or simply pay a form of commission.
The marketplace model reshaped the entire retail industry. It’s alluring because it can be applied to almost any industry and while Amazon and eBay are dominating the market, there is still space for many niche-specific platforms. It’s still not too late to build your own marketplace, especially if there is none in your line of business.
5. The Access-Over-Ownership Business Model
With the rise of digitization, we also started hearing a lot about the ‘sharing economy’ also commonly referred to as the ‘peer economy.’ In this economy, owners rent out a product or space they are not using such as a flat, house, car or bicycle to a complete stranger. Consumers have a temporary access to something at a better price than through a regular purchase.
The access-over-ownership business model acts as a mediator of these peer to peer exchanges and takes a commission from the lenders by providing a legal structure and protection for the transaction. Some of the successful sharing economy business models include AirBnB (accommodation), Zipcar (car sharing) or Peerby (allows you to borrow the items you need from someone in your neighborhood).
6. The On-Demand Business Model
Another disrupter is the on-demand business model by monetizing time-saving and instant-access to services. This type of disruption was enabled with developments of apps, improvements on geolocation and real-time data exchange. It’s based on the premise of earning a commission of people who have money but not time and who are willing to have goods and services delivered to their doorstep.
Famous disruptors who apply this business model include Uber (transport), and TaskRabbit (moving help, furniture assembly, TV mounting, etc.). However, the on-demand business model doesn’t have to focus on the standard delivery or transport aspects, nor it requires you to change your business model completely.
For instance, Japanese insurance company, Tokio Marine Holdings, did not throw away their old business model but simply enriched it with the on-demand aspect to satisfy market needs. More and more customers started to be interested in insurance for short periods of time or very specific activities. The existing sales methods that focused on long-term year-long insurance contracts couldn’t satisfy this need because of their high upfront costs that wouldn’t be able to recoup in a few weeks or days. Thus, Tokio holdings decided to leverage the mobile and location-based technology to create a new line of products. In 2011, the insurance company partnered up with a mobile carrier to offer consumers a line of innovative insurance products, One-Time Insurance. Users could purchase this product quickly and easily via a specialized mobile app that provides them with targeted recommendations based on their location or lifestyle — customized insurance packages on the spot. Today, the company keeps going forward and, this year, introduced the first self-learning chatbot to be available to advise 24/7.
7. The Ecosystem Business Model
When talking about disruption, the ecosystem-based business model must not miss on the list. The ecosystem model can disturb the market when applied both internally on business processes, or externally on your product.
In essence, digital ecosystem model disrupts:
- either by offering an interdependent suite of products or services
- or by interconnecting all your internal processes from manufacture to sales to minimize costs and maximize the value
Probably the most famous example of the product-focused business ecosystem is Apple products. Computers, mobiles, watches, and TVs all interconnected by an exclusive software. The more Apple appliances a person has, the more convenient and automated and interconnected are all daily digital tasks such as file sharing and storage. The model subtly creates great consumer dependency. Google office suite uses the same principle.
On the other hand, you can choose to transform your business model from the inside out by creating an internal digital ecosystem that interconnects the data flow from supply chain to the end consumer. Real-time data and communication allow you to work out frictions in your processes and respond to mishaps and emergencies more quickly. By default, you will be able to reduce your costs, reduce waste, and heighten customer satisfaction and loyalty. Examples include manufacturers applying smart factory practices or online retails opting for holistic real-time management tools like payever.
8. The Data & Analytics Business Model
Data and data analytics rule the virtual world. Who has data and knows how to analyze and apply them has the upper hand in any business. As with the ecosystem, you can work with data both internally and externally.
Firstly, you can digitize your system from manufacture to marketing and customer service to them gather data, analyze findings and use this findings to apply personalized improvements.
Secondly, you can add the power of analytics to your existing product. For instance, General Electric focused primarily on product innovation as a fuel of their growth capacity. The company has shifted their economic model from industrial hardware producer to advanced analytics and data company. GE started fitting their industrial products with intelligent sensors that monitor different parts of the machinery. Leveraging real-time analytics, GE can provide real-time information to increase productivity and efficiency and even propose more effective personalized maintenance schedule. This allowed General Electric adapt their pricing formulas to reflect the value they create. Suddenly they are able to sell “hours of aircraft availability” as supposed to just a jet engine.
Conclusion
Innovative digital business models are taking over the business world. The question is no longer “digitize or not to digitize?” but rather when and what parts to digitize to leverage your capabilities to the fullest.
There are many different digital business models one could follow, many of which probably never thought of yet, and where there are disruption and flexibility, there is an opportunity. Look at your industry, the beliefs and notions residing within it and tried to turn them upside down. The value in the digital world hides in the simplest, most obvious places.
