We live in a world where if something is not on the internet, it doesn’t exist. In this digital age, businesses have had to modify their business models to accommodate the new reality. Digital first built and created a demand for new business models that help customers with quick and convenient access to any product and service online. This helps companies to stay relevant and be able to deliver in an appropriate manner.
For the numerous brick and mortar who went through digital transformation to become digital first model or transformed into a strictly online operation, they needed a proper and functional business model to adapt to. When a company undergoes digital transformation, they need to design a functioning framework that considers how the internet and modern software solutions will enable them to build a bridge between the customer’s needs and their products. The digital business models aid them to respond better to their customers’ needs.
Before we scratch the surface to understand what these digital business models are, lets understand better on what a digital business model is. How your business makes sales and money online to how your company is able to make use of the internet real estate to exchange your products/ services for a profit – is what a digital business model is. In the digital first world, these business models are largely dependent on technological progress and innovations.
We all are rather aware of the eCommerce model, which is one of the most popular ones. It is easy to adopt both by brands seeking to adopt digital transformation and by businesses that start online from scratch. Amazon, Etsy, Flipkart, Myntra are some great examples of platforms that have successful ecommerce platforms and go-to place for customers in India and globally. Along with ecommerce, what is famously taking over these days is also the social commerce model that enables customers to make in-app purchases on social media networks. Main benefit of this is how it does not require a stand-alone online unit/store.
Also read: Amazon and Etsy’s content strategy: Does SEO work?
Let’s discuss the top 5 models known to be successful in the digital world:
1. Freemium Model
One of the popular models for SaaS products and primarily for subscription based services. Freemium is a combination of ‘free’ and ‘premium’ – and became a dominant business model especially amongst internet start-ups, app and smartphone developers. It helps the user to get basic features at almost a free membership – or no cost and then access the richer function/content for a subscription fee.
We have all networked on LinkedIn, shared multiple files via Dropbox and watched many TV shows on online streaming platforms – these are all Freemium business models that we have experienced firsthand. They offer you to subscribe for the paid services at a monthly subscription fee, some brands offer the free access only for a limited number of days/ months in hope that users will get used to the application and will end up converting into paid users.
What works?
Free features are a potent marketing tool, especially for new business or a business launching a new product. They help attract a user base without spending on the traditional and online ad campaigns or a sales force.
Benefits
– Build brand awareness
– Acquire a large audience
-Test the product/service features and get responses to keep making your service better
– Build attractive free models to attract users – gather data and keep building further appealing services to convert free users into paying users.
Brands using Freemium model –
Slack, Dropbox, Evernote are a few examples of brands using the Freemium digital business model.
Also read: Is digital optimization the new digital transformation?
2. Subscription model
One of the ways to make your product become more accessible and affordable to your users/clients is via the subscription-based model. It is essentially a recurring revenue model in which users are paying for the use of the product/ service every week/ month or year. Users here have the choice to renew their subscription after a certain period of time as per the terms and conditions of the brands.
With increase in adoption and adaptation to the new technology advancements, many businesses are moving from one-time purchases to subscription models that are proving to be more cost effective for them. Many different sectors and industries can use this model. This includes cable and dish television services, satellite radio, website, gyms, storage units and many others.
What works?
In the digital first world, many businesses are moving from revenue model (one time purchase) to subscription model – where revenue is more recurring in return to consistent access to the services offered by the business or the product. It helps in building a strong customer relationship by maintaining a direct relationship with each.
Benefits
– Maintain customer relationships
– Recurring revenue than one-time sale
– Gather large customer data, their usage and make improvements.
– Automatic renewals for customers without causing the hassle to renew each month
– Businesses receive the payment in advance
Brand/s using Subscription model:
The New York Times, Netflix and others.
3. Ad-supported model
In this model, while the model offers users free access to the services of the business on their website – the user is also exposed to unsolicited third-party content. To monetize via this model, the businesses ideally host ads from other brands on their site and on their services offered.
A fine example is the Google Play store where we can find thousands of applications for free that offer their services. The game apps on the play store offer rewards to its user for watching an ad, while others use ads as a gateway. Users in this way have to watch the ads before they can access certain functionalities of the app.
What works?
Businesses using this model are able to gain revenue from ad clicks. The more relevant the ads and well-targeted to its users – the more the business is bound to make profits via the ad clicks done by users. What works for the Freemium model also works here for the ad-supported model – the free features on the website are a potent attraction value point for users.
Benefits
– A potent way to build quick audience to your services/ website – offering free access
– Building lasting B2B networks and client relationship for recurring reveunve’s
– Gathering data to improve stats on what your customer click on more and target such businesses for ads
– Offering quality product for free to the users
Brands using this model:
Spotify, Facebook and Google are some extinguished examples of leading global brands that use ad-supported business models and have proven how to be successful.
Also read: GenZ and technology – the new power couple
4. Ecosystem Model
Another promising model in the digital world is the ecosystem model.
The business ecosystem consists of a network of interlinked companies that dynamically interact with each other through cooperation to grow sales and also to survive in the global cutthroat competition. This ecosystem includes suppliers, government, distributors, consumers, products, processes and competitors. The ecosystem’s business models are appearing more often now as companies are seeking to optimize capital and create new forms of value.
Ecosystem business models were mainly considered the context of large tech firms and platform companies. Ecosystem business models are now explored by organizations across industries to create more value and minimize capital intensive internal processes.
What works?
In our digital first world and age of business ecosystems the companies that utilize business ecosystems models will be better positioned to drive innovation and capital efficiency to create customer value. This ecosystem model is based on one main product and gradually launching other related products to provide an all-inclusive experience.
Benefits
-Unlimited growth potential
-Can aid a company become a household name
-Customers prefer full-packages – this model helps companies to get users hooked, making it easier to upsell and cross-sell add-ons and upgrades.
Brand/s that use this model:
There is no better example for this than Google. It is one of the most successful ecosystems. Google started as an investor-funded search engine and launched their own keyword-related ad service later. They also designed supporting products like Analytics tools, Search Console, Google Tag and more. Google further acquired Youtube, Waze and other consumer products focused platforms and software’s.
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5. Platform Model
Also known as peer-to-peer or two-sided marketplace. This digital business model is where a provider creates a digital space to connect third-party buyers and sellers.
The aim of this business model is to generate and enable value interaction between different people, groups, and users by leveraging on network.
What works?
This model helps in building and creating value by facilitating exchanges between two or more independent groups, which are usually the consumers and the producers. Businesses that offer the platform services make a profit from the transactions, subscriptions and advertising. Customers get access to a variety of sellers and hence value such spaces more with wider access to multiple product/service lines.
Benefits
– Offers a great scalability potential
– A successful platform can develop further into additional relevant services
– Offers wide variety of product/ services to consumer under one roof
– Does not require heavy investments in products/ service to design, produce and store since you only offer a platform to brands to sell.
Brands using this model
Airbnb, Uber, Amazon are some of the most successful examples of how to build and scale up a platform business model.
There is another version of the platform model that is the user-generated content model – this is where customers contribute with content that is consumed by other customers. A fine example of this is YouTube, Wikipedia and TikTok.
A few other models one should look at in the digital world are Sharing Model ( examples – Uber, Lyft, Airbnb etc.), On-demand model ( examples – Spotify, Prime Video, Netflix etc.) and others.
What comes across clearly is that every business needs a digital strategy and an efficient business model that is optimized. Building a digital business model will always be a work-in-progress, a constant work for the company. Since new technologies keep coming and innovation is the only constant of our digital world, what defines a successful digital business model and framework is the capability to develop, adapt and scale.
Also read: Lead generation using AI – future of marketing
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