Introduction to digitally-enhanced business models
When it comes to digitally enhanced business models, those are the starting point of the so-called “digital transformation journey.” Beyond buzzwords or complex terms, what it really means is a company starts to use digital channels to amplify its products and services.
Think of the case of a company that starts to understand the logic of search engines, social media, and in general what it means to communicate online. In this first level of digitalization, the nature of the product or service is not changed, only the perception and how the product is communicated changes. In this phase, the company starts to realize the potential of the web.
And it starts to gain its first customers through digital marketing and digital channels. However, it treats the web only as a distribution channel, rather than the primary value enhancement platform to change the way the product and service is designed, developed, built and delivered.
Thus, this really represents that first step toward digitalization. The value proposition itself isn’t changed, but the perception around it can be enhanced. While this is a great first step, and for many small businesses it does work in the long term. It works to a certain extent.
A digital channel is a marketing channel, part of a distributionstrategy, helping an organization to reach its potential customers via electronic means. There are several digital marketing channels, usually divided into organic and paid channels. Some organic channels are SEO, SMO, email marketing. And some paid channels comprise SEM, SMM, and display advertising.
At this stage, the company starts to understand the realm of possibilities that the web offers. It starts to explore the various digital marketing channels. And while doing so it experiments with many of them, while tuning in those that might fit well with the core product and service.
Over time, the company might specialize in a core channel, while still leveraging on a multi-channel strategy. Thus, here, the company starts to realize that in order to take full advantage of digitalization it needs to integrate those channels as part of the product and service development.
Therefore, the digital channel isn’t just used to amplify the product or service. It starts to pervade various stages of the business. From product discovery (by leveraging on data offered by the various channels to identify demand) to product development (by gathering customers’ feedback early on) to quick iteration and experimentation (by testing what works and what doesn’t) and by realizing that the next step of this process is breaking down the walls between product and distribution.
Key Highlights
Digital Transformation Journey: Digitally-enhanced business models mark the starting point of the digital transformation journey for organizations. It involves using digital channels to amplify products and services without fundamentally altering them.
Perception and Communication: In this phase, the focus is on changing the perception of products and services and how they are communicated to the target audience. The digital channels, such as search engines and social media, are used for marketing and distribution purposes.
Digital Marketing Channels: Companies explore and experiment with various digital marketing channels, including organic channels like SEO and email marketing, and paid channels like SEM and SMM. They identify the ones that work best for their core product and service.
Data-Driven Decision Making: Businesses leverage data from digital channels to gain insights into customer demand and preferences. They use this data for product discovery and to gather early feedback from customers.
Quick Iteration and Experimentation: The digital environment allows for quick iteration and experimentation, enabling businesses to test what works and what doesn’t. This iterative approach helps in refining products and services based on customer feedback.
Breaking Down Barriers: As companies progress in their digital transformation, they realize the need to integrate digital channels across the entire business development process. This involves breaking down barriers between product development and distribution, allowing the digital channels to be part of the core product strategy.
Multi-Channel Strategy: While some companies specialize in a core digital marketing channel, they still adopt a multi-channel strategy to reach a broader audience and diversify their marketing efforts.
Value Enhancement Platform: In the later stages of digitalization, the web becomes a value enhancement platform that influences product design, development, and delivery. Companies fully embrace digitalization by leveraging digital channels for innovation and customer-centric strategies.
Digital Disruption and Competitive Advantage: Digitally-enhanced business models lay the foundation for potential digital disruption and competitive advantage. Companies that effectively integrate digital channels into their business development process are better positioned to adapt to changing market dynamics and customer needs.
An effective business model has to focus on two dimensions: the people dimension and the financial dimension. The people dimension will allow you to build a product or service that is 10X better than existing ones and a solid brand. The financial dimension will help you develop proper distribution channels by identifying the people that are willing to pay for your product or service and make it financially sustainable in the long run.
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
Digital and tech business models can be classified according to four levels of transformation into digitally-enabled, digitally-enhanced, tech or platform business models, and business platforms/ecosystems.
A digital business model might be defined as a model that leverages digital technologies to improve several aspects of an organization. From how the company acquires customers, to what product/service it provides. A digital business model is such when digital technology helps enhance its value proposition.
A tech business model is made of four main components: value model (value propositions, mission, vision), technological model (R&D management), distribution model (sales and marketing organizational structure), and financial model (revenue modeling, cost structure, profitability and cash generation/management). Those elements coming together can serve as the basis to build a solid tech business model.
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.
A Blockchain Business Model is made of four main components: Value Model (Core Philosophy, Core Value and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.
Cloud business models are all built on top of cloud computing, a concept that took over around 2006 when former Google’s CEO Eric Schmit mentioned it. Most cloud-based business models can be classified as IaaS (Infrastructure as a Service), PaaS (Platform as a Service), or SaaS (Software as a Service). While those models are primarily monetized via subscriptions, they are monetized via pay-as-you-go revenue models and hybrid models (subscriptions + pay-as-you-go).
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.
B2B, which stands for business-to-business, is a process for selling products or services to other businesses. On the other hand, a B2C sells directly to its consumers.
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.
Direct-to-consumer (D2C) is a business model where companies sell their products directly to the consumer without the assistance of a third-party wholesaler or retailer. In this way, the company can cut through intermediaries and increase its margins. However, to be successful the direct-to-consumers company needs to build its own distribution, which in the short term can be more expensive. Yet in the long-term creates a competitive advantage.
The C2C business model describes a market environment where one customer purchases from another on a third-party platform that may also handle the transaction. Under the C2C model, both the seller and the buyer are considered consumers. Customer to customer (C2C) is, therefore, a business model where consumers buy and sell directly between themselves. Consumer-to-consumer has become a prevalent business model especially as the web helped disintermediate various industries.
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.
Businesses employing the brokerage business model make money via brokerage services. This means they are involved with the facilitation, negotiation, or arbitration of a transaction between a buyer and a seller. The brokerage business model involves a business connecting buyers with sellers to collect a commission on the resultant transaction. Therefore, acting as a middleman within a transaction.
Dropshipping is a retail business model where the dropshipper externalizes the manufacturing and logistics and focuses only on distribution and customer acquisition. Therefore, the dropshipper collects final customers’ sales orders, sending them over to third-party suppliers, who ship directly to those customers. In this way, through dropshipping, it is possible to run a business without operational costs and logistics management.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
