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.
Toward digital transformation
There are numerous ways to classify tech business models, for the sake of the analysis done on FourWeekMBA, we’ll classify them according to the level to which tech effectively changes/enhances the value proposition for users/customers. Indeed, we initially defined a tech business model, as a business where technology plays a key role, not for its own sake, but for the sake of enhancing the value proposition for the individual user/customer and enabling that value proposition to scale. Therefore, individual enhanced value propositions (the single user/customer is better off) and enhanced collective value propositions (the more users join in the more the service/product becomes valuable – aka Network Effects) become commandments of a viable tech business model.
For the sake of it, let’s see four key types of models:
Level one: tech and digitally-enabled
Digital embracing primarily how the product is framed and communicated to the customer/user.
In this specific case, technology plays a key role in communicating/distributing the product, but little in shaping it. Thus, take the example of a company that has simply built a website and communicates its product via that (communication level).
Or a company that has learned how to integrate digital marketing within its own corporate strategy. In that case, this is the most basic way to apply technology to a business model. There is no change in how the value proposition is shaped but rather to how it is communicated or distributed.
Here technology is used to better communicate the product/service.
Level two: tech-enhanced
In that case, technology does impact the way the product is built and delivered. Take the case of a company that built its e-commerce and distributed its products via that, while at the same time it has learned how to integrate customers’ feedback quickly from the online platform to the way the product is designed.
In that case, technology is helping shape the product/service, thus making it more valuable to potential customers.
Level three: platforms and interactions
From transactions to interactions, ecosystems, and flywheels
In this specific case, a company has moved to a different level. Rather than just selling its own products/services it has moved to build the platform (both tech and business) that drives the interaction between two (two-sided platform/marketplace/peer-to-peer) or more parties (multi-sided platform/marketplace).
Level four: business ecosystem
Technology is at the center of the value enhancement model. Yet in order for it to succeed a community of developers, entrepreneurs, and doers need to adopt the business platform.
This level combined technology and distribution. Where a company has moved to a point where it focuses on governance design, and the underlying tech platform is built and shaped according to that. A classic example is the App Store, and how this has become a business ecosystem, with multiple stakeholders where governance design has become a key component.
In this case, technology becomes an enhancer of governance design, policies, and stakeholder value.
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