Digital Business Models: All You Need To Know

There is a lot that goes into making a successful business, digital business models are one of them.

However, digital business models are still a mystery to many business people, including CEOs. However, they are important to understand and utilize if you want your business to succeed. 

Digital Business Models All You Need To Know

In this article, we will detail all you need to know about digital business models. So, if this is of interest to you, then read on!

What Are Digital Business Models?

There is no specific definition of what a business model is. However, there are a few commonalities between different digital business models.

The purpose of digital business models is to add value for many customers through digital technology.

You should create a model with many benefits that customers are willing to pay for. Much like a traditional business model, but online! 

Why Is It Important To Understand Digital Business Models?

Digital business models are important to understand because technology is so important to society.

Customers have grown very accustomed to digital business models, and as providers, it is necessary to put their needs first for your business to thrive. 

As a result, many companies have concluded that the technological capabilities they can access have grown beyond simple websites.

Meanwhile, customers have grown much more confident with digital business models, more so than physical business models.

Take big catalogs as an example. Years ago, people used to order products they needed from big catalogs delivered to their homes. Now? They will order everything they need from Amazon! 

Any company refusing to take its business online has brought about its own business failure. So, it is important to understand digital business models if you want your business to succeed.

What Are The Key Characteristics Of Digital Business Models?

In order to fully understand what digital business models are, we must first understand the key characteristics that make them up.

Let’s check out some examples below:

  • Digital business models exist on the internet and cannot exist outside of it. 
  • The USP is digitally generated and can only exist on the internet. 
  • Digital business models based on USP are all based on innovation. On top of that, these products are typically new on the market. 
  • All acquisition and generation of customers takes place online. There are many different channels that can be used to do this, and the process is known as digital business model marketing (see also: Digital Marketing 101: How To Market Your Business Online). There is no such thing as hybrid forms here, like offline sales for example. 
  • Your business will be able to reach people all over the world. With analog business models, you are limited geographically. However, digital business models have next to no borders and you will be able to reach customers far and wide. 

What Types Of Digital Business Models Exist?

There are many different types of digital business models.

Here are the top 11:

  • Subscription
  • On-demand 
  • Free 
  • E-commerce 
  • Ecosystem 
  • Freemium 
  • Access-Over-Ownership 
  • Marketplace (also called peer-to-peer)
  • Hidden Revenue 
  • Open Source 
  • Experience 

Let’s take a look at each of these digital business models in more detail. 

Digital Business Models: Subscription

First on our list is a subscription-based digital business model.

Here for a fee that is paid either monthly or annually, the customer will receive a corresponding product – such as movies, audiobooks, etc – until the subscription is canceled.

A great example of this digital business model is Netflix.

Digital Business Models: On-Demand

The on-demand digital business model is a product range, such as movies, that can be rented or purchased on demand.

The customer only needs to pay for their usage, rather than a subscription to access all movies offered on the site for a month or a year. A great example of this type of digital business model is Amazon Video.

Digital Business Models: Free

With this business model, the product or service is offered for free, and revenue is generated through ads on the respective URLs.

Advertisers will be played by the platform provider to advertise their service or product on the site, and then users are shown these classic display ads.

However, AdBlock services have become increasingly popular in recent years, which has resulted in some providers hiding the free content while an active adblocker is present. 

Digital Business Models All You Need To Know (1)

Digital Business Models: E-Commerce 

The E-Commerce digital business model has become standard practice for businesses. With this type of digital business model, suppliers will sell their products through a digital platform.

This concept has been used by many major businesses, such as Amazon. 

Digital Business Models: Ecosystem

The ecosystem business model, (see also: What Is A Direct Sales Business Model?)also known as the orchestrators business model, is one of the most complex variations.

The purpose of these types of digital business models is to ensure that users stay within their ecosystem, whether that is the ecosystem of Google, Apple, or Amazon, as much as they can. 

Digital Business Models: Freemium

Freemium is a very common digital business model, particularly among software providers. Users will get access to limited content and they must pay to access the full service.

Spotify is a great example of this, offering limited access to their streaming service unless it is paid for. 

Digital Business Models: Access-Over-Ownership

This digital business model is just like a traditional rental business, but digital.

You only need to rent services or products for a certain period of time, and the cost of the service or product will be based on this period. Airbnb is a classic example of this. 

Digital Business Models: Marketplace 

The marketplace digital business model is very similar to the E-commerce digital business model. However, the latter is a one-sided offer, while a marketplace digital business model is two-sided. 

Digital Business Models: Hidden Revenue

The hidden revenue digital business model offers products for a low price or totally free of charge, and in exchange, the user leaves behind their data. That data is then sold to third-party companies. 

Digital Business Models: Open Source 

The open-source digital business model is totally free of charge and anyone can partake in them.

A great example of this is sites like Wikipedia. Anyone on the internet can contribute to open-source business models, and companies will often use them to sell products to generate sales.

Digital Business Models: Experience 

The experience digital business model describes when using a product or service from a particular company is an experience of its own, and being able to say you have had this experience is a driving factor in sales.

A great example of this business model is Tesla.

Tesla cars can be used like other cars, or you can add other digital services provided by the company that will create a completely new experience that cannot be found with any other vehicle. 

Final Thoughts

Digital business models are the result of ever-growing technological advancements in society. They resulted from a blend of customer needs and available technologies.

Companies must use a digital business model if they want to be successful since more and more business ventures are being undertaken online (see also: Online Subscription Business Model 101).

There are a variety of digital business models businesses can choose from, but they must be well-researched so the most suitable one can be implemented into your business to help it thrive.