A business model that is purely based on a digital service or a digital product is called a “digital business model.” These arise from the age of digitization. The concept of digital business models is relatively new and not very clearly defined. For better classification, you should pay attention to the characteristics of digital business models.
Digitization is neither a trend that will pass nor an end in itself. If you tackle digitization in your company correctly, the result will be a digital transformation. In addition to introducing digital tools, this also includes implementing your digital business models within the company.
What Digital Business Models Are There?
From e-commerce, freemium, pay-per-use, and on-demand to sharing: numerous new money-making models based on purely digital products have developed in recent years. Here is an overview of the most important digital business models :
Netflix, Spotify, Xbox Game Pass: These are examples of digital subscription models. The users pay a monthly fee to the company to use a digital service (e.g., video streaming) and, in return, receive unlimited access to the music, video, or games library. The right of use expires upon termination of the subscription.
Pay Per Use
In the B2C and B2B areas, there are more and more digital services based on the pay-per-use process. This means that customers only pay for individual uses, for example, a machine. This eliminates the high acquisition costs and long-term obligations associated with rental or leasing models. Pay-Per-Use is also known as an on-demand model. For example, renting a movie online for a few hours or days without taking out a subscription is called video-on-demand.
Freemium means you can use a digital product – such as cloud software – for free. However, the functions will be limited, or you will not have all rights to use them. You only unlock everything for a fee, a fixed price, or a subscription payment. In the games area, there is a variation called free-to-play. Online or smartphone games can always be played entirely free of charge. For certain advantages such as special equipment or shortcuts you have to pay small amounts again and again.
If your product is entirely free and can be used without restrictions, you can refinance it through advertising banners and other forms of advertising. This model is mainly used for websites and many mobile apps. You can add a freemium approach to the free model, for example, by charging a fee for deactivating the advertising banner.
E-commerce has been booming for over 20 years – and there seems to be no end in sight. This digital business model has caught on. There are different variants. If you operate an online shop, your company usually only sells its products to customers. If you offer a possibility for third parties to use your online platform for sales, it is a marketplace model like Amazon or eBay.
Car sharing, scooter sharing, and similar concepts have been in for a few years. They are based on the idea that several customers share a product. Digital solutions are used for the processes and handling. The end customer usually needs a smartphone with a particular app, for example, to activate a vehicle and pay for its use.
Digital Business Models: Further Examples
The boundaries between the different concepts can be very fluid. There are open-source software projects whose products (e.g., browsers) are free. But the operator still earns money by accepting donations or integrating affiliate models into the software. The car subscription is a hybrid of leasing and car-sharing. And with the ecosystem or platform model, the operator earns through so-called upselling. In this case, an attractive product is offered free of charge to provide other products to users.