UNIT 2

Digital Business Model

Introduction to digital business model innovation
Epicenters of Business Model
Innovation
• Resource-driven
• Offer-driven
• Customer driven
• Finance-driven
Resource-driven business model innovation focuses on leveraging a company's existing resources, capabilities, and assets to create new value or improve existing offerings.

• It starts with what the company already possesses, rather than beginning
with customer needs or market opportunities.
• This approach emphasizes utilizing internal strengths to develop
innovative business models.
Key Aspects
Starting Point:
• Instead of starting with customer needs or market gaps, the focus is on what the
company can do well with what it already has.
Internal Focus:
• This approach emphasizes internal capabilities and resources as the primary
driver of innovation.
Value Creation:
• The goal is to create new value propositions or improve existing ones by
creatively utilizing existing resources.
Examples:
A company with strong R&D capabilities might focus on developing new products
or services based on its research findings. A company with a robust distribution
network might explore new channels for its existing products.
 Offer-driven approach focuses
on creating new or improved value
propositions to drive changes in
other business model elements
The Core Idea:
• Instead of starting with existing resources or customer needs, an offer-
driven approach begins by identifying a new or improved offering that
could be valuable to customers.
Driving Change:
• This new or improved offering then becomes the catalyst for changes
in other parts of the business model. For example, a new product
might require different key resources, new processes, or a different
revenue model.
Example:
• A company might introduce a subscription service for its existing
product, which would require changes to its customer relationship
management and potentially its pricing structure.
Customer-driven
involves fundamentally rethinking how a company creates, delivers, and captures
value, with a strong emphasis on understanding and responding to customer needs
and desires.
Key aspects:
• Customer-Driven Focus
• Rethinking the Business Model
• Interlocking Elements
• Competitive Advantage

Examples:
• Companies like Netflix, which shifted from DVDs to streaming, and Adobe, which
moved from packaged software to subscription-based cloud services,
demonstrate successful customer-driven business model innovation.
Finance-driven business model innovation focuses on leveraging
financial aspects to create new value or improve existing business
models .

How it works
• Rethinking Revenue Models
• Optimizing Cost Structures
• Financial Innovation
• Pricing Strategies
• Funding Models
Examples
• Subscription-based services.

• Franchise models:
Businesses can expand by franchising, leveraging existing business
models and revenue streams while franchisees finance and manage
new locations.
 key drivers of digital
business model reinvention
1. Changing Customer Expectations and Experiences
• Customer experience transformation is a major driver (e.g., Burberry
example).
• Companies are responding to increasing demand for seamless, digital-first,
and personalized interactions.
2. Operational Efficiency through Digital Transformation
• Firms like Codelco have shown how digitizing operations can lead to
significant efficiencies.
• Technology enables automation, optimization, and data-driven decision-
making.
3. Emergence of New Technologies
• New technologies—individually or in combination—open up new
possibilities.
• These technologies disrupt traditional operations and offer new ways to
create value.
4. Globalization and Market Expansion
•Digital transformation supports the shift from multinational to truly
global operations.
•Digital platforms make it easier to enter new or adjacent markets
with fewer barriers.
5. Changing Economic and Revenue Models
• Digital reinvention often involves changing how companies make money.
• Examples: Moving from product sales to value-added services, or to
digital subscriptions.
6. Lower Barriers to Entry & Increased Competition
• The democratization of technology means start-ups and small entrants can
challenge incumbents.
• Industries face non-traditional competitors that can reshape entire markets (e.g.,
Hailo disrupting taxis).
7. Need for Strategic Agility and Innovation
•Rapid cycles of digital change demand agility and openness to reinventing
the business model.
•Traditional competitive advantages are less durable, making continuous
reinvention a necessity.

8. New Value Creation through Digital Capabilities

•Firms are combining data, digital tools, and customer insights to create new
value propositions.
•Opportunities exist to reconfigure the value chain and better meet unmet or
emerging needs.
9. Influence of Digital Startups and Adjacent Industry Innovations
•Startups often inspire or pressure large firms to rethink their models.
•Firms must monitor innovations across industries to stay relevant.
10. Business Model Archetypes Emerging from Digital Disruption
• The passage outlines five archetypes of digital business model reinvention:
• Reinventing Industries – e.g., Hailo reshaping the taxi market.
• Substituting Products/Services – replacing core offerings with digital
equivalents.
• Creating New Digital Businesses – developing entirely new offerings or
revenue streams.
• Reconfiguring Value Delivery Models – changing how value is delivered via
data and services.
• Rethinking Value Propositions – targeting unmet or new customer needs
with digital tools.
Types of digital business model

• Digital business encompasses various industries and sectors, from e-

commerce and retail to healthcare, finance, and entertainment. With
the increasing ubiquity of digital technology, digital business has
become essential to modern business strategy.
Importance of Effective Business Models in the Digital Age

• Effective business models are the cornerstone of success in the digital

age. Build on a well-laid strategy, these models solve complex
modern-day problems by using advanced technologies and growing
customer needs.
• An effective business model is one which not only has a strong
foundation but also the ability to re-strategize in the age of digital
disruption leading to consistent revenue streams, innovation to stay
competitive, and delivering exceptional value.
Types of Digital Business Models
& Examples
1. E-commerce:
• E-commerce involves selling goods and services online, typically
through a website or mobile app. This model can range from a simple
online store to a complex marketplace that connects buyers and
sellers.
1.1 Direct-to-Consumer (DTC) Model
• Selling products directly to consumers is referred to as Direct-to-
consumer model
Example: Mamaearth is a DTC model selling products through its online
platform directly to its customers
• 1.2 Subscription Model
A model in which a business asks customer to pay a recurring fee
(monthly, annually) to access its products and services. Subscription
model builds customer loyalty, predictability.
Example: Netflix uses a monthly subscription model that enable users
to access its streaming services.
• 1.3 Marketplace Model
Marketplace models are online e-commerce platforms where multiple
sellers and buyers come together under one roof. These models offer a
diverse range of products and services to be exchanged and offer
unparalleled variety and competition.
Example: Amazon and Flipkart use this model.
2. Data-driven Models

• In digital business, data-driven models involve leveraging data and

analytics to make informed decisions and optimize various aspects of
operations.
• This data leads to strategic choices, such as personalized marketing
campaigns, product suggestions, and process enrichments.
• Data-driven models helps businesses tweak their products to specific
audiences, improving customer satisfaction and engagement.
2.1 Advertising Model
• Advertising-based models involve generating revenue by displaying
ads to website or app users. This model can be used for free social
media or online news services.
Example: Google

2.2 Data Monetization Model

The exchange of data-driven insights is what is called as a Data
Monetization Model. By collecting, analysing, and anonymizing
customer data, organizations can offer valuable insights to third parties,
such as advertisers, marketers, or researchers making sure they
prioritize transparency and user consent.
Example: Facebook
3. Subscription & Membership
Model:
• Subscription-based services involve providing access to content,
software, or services for a recurring fee. This model can offer
recurring revenue and build long-term customer relationships.

3.1 SaaS (Software as a Service) Model

SaaS involves providing software applications over the Internet for a
monthly or annual fee. This model can provide a predictable revenue
stream and reduce the need for on-premises software and hardware.
Example: Salesforce is a software platform that offers its services to
business and customers for a paid subscription.
• 3.2 Premium Content Model
Being a part of subscription-based models, a Premium content model
serves users with exclusive high-value in-depth content, such as
articles, videos, courses, or tools, to attract users in exchange for a
subscription fee or one-time payment.
Example: The New York Times & LinkedIn uses this model by offering
premium in-depth content, insights, and expert-driven resources.
4. Sharing Economy Models
• As the name suggests, sharing economy models are shared and
accessed on digital platforms. These platforms connect consumers
seeking goods and one who can provide them.
4.1 Peer-to-Peer (P2P) Model
Peer-to-Peer (P2P) model is one where there is no-third party
involvement and where customers can directly engage with one
another to share resources, services, and information through online
platforms making it readily available to users.
Example: Etsy, an online platform that enables direct selling and
purchasing of goods from individuals.
• 4.2 On-Demand Model
On-demand model means getting goods and services available to users
on-demand. The model concentrates on convenience, instant
gratification, and user-centric experiences.
Example: Doordash allows users to order food on-demand within a few
clicks.
5. Platform Models

 A platform model can be called as a matchmaker as it brings together

supply and demand in a seamless online environment.
 It is a digital ecosystem that enables interactions between different
sides, connecting producers and consumers, service providers and
users, or even peers within a marketplace.
 Revenue for these type of models works in such a way that models
capitalize on network effects, where the value of the platform
increases as more participants join, creating a clean cycle of growth.
5.1 Freemium Model
A freemium model is one which combines both the free offerings and
paid subscriptions.
Example: Spotify – has a free and premium plan model.

5.2 Two-Sided Marketplace Model

A 2-sided marketplace is a platform which connects two groups and
enables transaction between them. The best example of a two-side
marketplace model is Uber which connects drivers to riders.
Example: Airbnb – As a platform, Airbnb connects guest and hosts
during property renting, exchanging.
5.3 App Store Model
• Synonym to its name, an App Store model provides developers with a
platform where they can showcase their applications to users.

Example: Apple App Store & Google Play Store are the two most
popular app store platform of our generation.
6. Hybrid Models

• Hybrid models are a combination of traditional models infused with

digital elements.
• They bridge the gap between different business approaches, enabling
companies to offer unique value propositions that cater to a wider
range of customer needs.
• These models combine different revenue streams, capitalize on
emerging technologies, and respond to shifting market trends.
6.1 Direct-to-Consumer + Subscription
• A direct-to-consumer sale is a perfect example of hybrid model. This model
combines e-commerce with subscription services or integrate a brick-and-
mortar presence with an online marketplace.
Example:- Licious is a fresh meat and seafood delivery service that sells
directly to consumers through its website and app, and also offers
subscription options for regular customers.

6.2 Marketplace + Subscription

A hybrid approach where a business leverages e-commerce power and
combines it with recurring subscription service.

Example: Amazon – Being an extensive marketplace has expanded its

offering with subscription-based models like Free delivery with Amazon
Prime subscription
How to Start a Digital Business?

Identify the market demand

Choose a business model
Create a website or app
Marketing and promoting the business
case study on anyone reinvented
business organization
Netflix: From DVD Rentals to Streaming Giant - A Case Study

Netflix, a global entertainment behemoth with a current value

exceeding $210 billion, began its journey in 1998 as a DVD rental and
sales company. Its subsequent evolution into a dominant force in the
streaming landscape provides a compelling case study in business
model innovation, strategic adaptability, and the power of data-driven
decision-making
Early Years & DVD-by-Mail Disruption (1998-2007)
• Netflix initially disrupted the traditional video rental market by
offering a convenient DVD-by-mail service with no late fees. This
innovative subscription model, allowing unlimited rentals for a fixed
monthly fee, quickly gained popularity and challenged established
players like Blockbuster.
The Strategic Shift to Streaming (2007-Present)
• Recognizing the burgeoning potential of internet-based content
delivery, Netflix made a pivotal strategic shift in 2007 by launching its
streaming service. This forward-thinking move, despite initially
offering a limited streaming library, positioned Netflix to capitalize on
the growing adoption of broadband internet.
Data-Driven Content Acquisition and Original Programming
• Netflix's success is also rooted in its data-driven approach to content
acquisition and creation. By analyzing viewer behavior, the company
identifies popular genres, viewing habits, and emerging trends to
inform its content strategy. This insight led to Netflix's groundbreaking
foray into original programming with series like "House of Cards,"
marking a significant turning point in its trajectory.
Global Expansion and Binge-Watching Culture
• Netflix's global expansion into numerous international markets
cemented its position as a truly global entertainment provider.
Notably, its pioneering of the binge-watching culture, with full-season
releases of original series, further solidified its brand and reshaped
viewing habits worldwide.
Challenges and Adaptability
• Despite its successes, Netflix faces ongoing challenges including increasing
competition, content licensing costs, and password sharing. However, the company
has demonstrated remarkable adaptability, exemplified by its willingness to explore
new revenue streams like ad-supported plans and cracking down on password
sharing.
Lessons Learned from Netflix's Journey
• Netflix's story offers valuable insights for businesses across various sectors:
• Embrace Technological Disruption: Recognize and adapt to evolving technologies to
maintain a competitive edge.
• Customer-Centric Innovation: Focus on understanding customer needs and
preferences to deliver exceptional value.
• Data-Driven Decision-Making: Leverage data analytics to inform strategic choices
and optimize performance.
• Strategic Flexibility: Be prepared to adapt and evolve your business model to
navigate a dynamic market.
 Uber hails a new era for advertising:
Since its founding, Uber has revolutionized industries by making
experiences simple, intuitive, and personalized and by removing
friction from the customer journey.
In keeping with their customer-centric focus, Uber set out to deliver
even more personalized experiences by revolutionizing another
industry: advertising.
Imagine this:-you’re arriving at work on an Uber trip when an ad
gives you a discount for your go-to coffee shop next door. Or on your
Uber ride home, an ad reminds you that your favorite TV show has a
new season coming out next week. (Better buy some popcorn.) That’s
the innovation Uber is bringing to advertisers.
Activity
• Case study on-Digital business systems like ERP and MES
(Manufacturing Execution System).