Business Models for Digital Entrepreurship
Objectives and goalsClick to read
At the end of this module you will be able to:
•Understand concept of business models and their relevance and usage
•Understand the most frequently used tools for defining a business model
•Use these tools in practice for your own businesses or projects
•Understand the specifics of digital entrepreneurship business models
•Work with digital business models classification
•Understand and use business models designing
Introduction to Business ModelsClick to read
When creating your new business, you might sometimes focus too much on your product, while forgetting about the wider context
However, it is not only product itself that makes the business successful
It is about the entire logic how a business creates, delivers and captures value – i.e. it is about its business model
A well-crafted business model can be the key to your start-up’s success.
A business model describes the rationale how an organization creates, delivers and captures value (Osterwalder & Pigneur, 2010). In simple words: How will by business work?
When defining your new business, you have lots of questions – about your product, customers, competitors, market, communication, suppliers, employees and … about making money
The logic of business models guides you through this process and helps you to cover all important aspects of your future business
Business model ≠ Business plan
Business Model CanvasClick to read
Is a visual representation of a business model in a one-page format
It is a “common language” of everyone talking about business models, i.e. a broadly used common and mainstream tool to develop a new business model, map or innovate an existing one
Helps you to shortly describe and sketch key elements of your business
Simple (but not oversimplified), relevant, intuitive, very fast.
9 basic building blocks
Cover the main areas of a business: customers, offer, infrastructure, financial viability – thus shifting the focus from products and services to overall operations and environment.
Yet, it is easy to understand but difficult to master.
•Groups of people or organizations you aim to reach and serve
•You have to design the entire business model around a strong understanding of specific customer needs
•The value you create (e.g. by solving a problem or satisfying a need) for your customer segments thanks to your set of products/services
•Stay focus on the elements of value, not on functionality or technical details
•How will your business communicate with and how will you reach your customer segments to deliver your value propositions?
•What types of relationships will you establish with your specific customer segments?
•What are the most important assets that are needed to make your business model work? (i.e. to create and offer your value proposition, reach your markets, maintain customer relationships, earn revenues)
•What are the most important things you must do?
•Who are the suppliers and partners you need to make your business model work?
•The most important costs needed to operate your business model
•You can calculate them after you know your key activities, key resources and key partnerships
•How will you generate cash from your customer segments?
•They should correspond with the value your customers are truly willing to pay for
Lean CanvasClick to read
A tool developed as an adaptation of the Business Model Canvas in order to better fit the start-up businesses
Inspired by the Lean start-up approach and developed by Ash Maurya
Built around the Problem – Solution fit, higher focus on customers
4 original building blocks were replaced to better reflect the needs of new businesses and the Lean start-up approach (IN: Problem, Solution, Key metrics & Unfair advantage / OUT: Key partners, Key activities, Key resources, Customer relationships.
•What is the specific problem of your potential customers that your product attempts to solve?
•Most start-ups fail because they focus on a wrong problem
•“A problem well stated is problem half solved”
•Based on your customers’ problem, what solution do you propose?
•Do not focus on features or technical parameters, stay focused on how do you solve problems/needs of your customers and what benefits do they get
Business Models for Digital Entrepreneurship
IntroductionClick to read
Digital entrepreneurship must be seen as a holistic approach to thinking that encompasses all processes of an organisation.
The studies have shown that SMEs grow 2-3 times faster if they implement new digital technologies.
Digital entrepreneurship encompasses all ventures. Particularly popular is the use of social media, big data analytics, mobile and cloud solutions that help to improve operation, business intelligence, engagement with customers, and other stakeholders.
Digital entrepreneurship creates the need to adapt the business models of new and existing companies.
Concept and Characteristics of Digital Business ModelsClick to read
Digital business model can be defined as a model that leverages digital technologies to improve several aspects of an organization and helps enhance its value proposition.
Building a digital business model requires new ways of thinking revolving around:
•Customers/users that you provide a clear advantage to
•Product/service that transforms something scarce to something potentially unlimited
•Distribution through various channels existing on the internet
•Value proposition delivered with clear advantage
Digital Business Model ClassificationClick to read
Digital business models can be divided into two types from the perspective of the usage of digital technologies:
•Pure digital business models - create and capture the value and built their business model on digital means without the use of physical assets in their value creation activities (Google, Airbnb, ...)
•Digital-enabled business models - require physical assets and digital means for the creation of value (Amazon, Etsy, ...)
Digital business models can be also divided into the following segments:
Business model segment
Business model types
wsj.com, handelsblatt.com, Wikipedia
partypoker.com, Spotify, WoW
udacity, udemy, coursera
Paypal, Klarna, Bitcoin
Google, Yahoo, Bing
Facebook, Snapchat, Skype,
earthlink.net, att.com, t-mobile.com
Digital Business Model Classification Click to read
Content business models - focused on the collection, selection, systematization, compilation, and delivery of content on internet platforms. Its main feature is that it makes content accessible to users. Examples of such business models are Spotify, Wikipedia, Coursera, etc.
Commerce business models consist of the initiation, negotiation, and settlement of transactions over the internet. In this particular case, eBay, PayPal, and Amazon gained the most attention.
Context business models - focused on classifying and systematizing information on the internet. They can be focused on providing their own content or navigation and improvement of market transparency through the obtained search results. Perhaps the most known is Google but also Yahoo or Bing.
Connection business models - establish different options for information exchange and interaction in digital networks such as Facebook or Gmail.
Nowadays we can see the movement towards hybrid digital business models. For example, Google used to be only a web directory (context segment) but in the last years, it also offers different products that can be linked to other business model segments.
Advantages of hybrid business models:
•digitalized services are characterized by high fixed costs and low variable costs therefore the benefits from economies of scale are higher
•A single point of access to various information and services is convenient for users
•New profit opportunities from a bundle of services or revenue streams
Digital Business Model TypesClick to read
The most common digital business model types are: Open-source, Free, Subscription, On-demand, E-commerce
Open source model - makes software free to access and modify to the community of supporters. This model can be leveraged by charging premium subscriptions or for services related to it.
•Great distribution through free licencing and rapid spread
•Quick and effective development
•Paid subscriptions for premium or enterprise customers
This business model type is implemented by Red Hat, Mozilla, etc.
Free model - based on the idea that a product is released for free and once enough people get engaged a monetization model would be found.
This business model works well for products that scale up quickly and companies like Google or Facebook have started like that.
Different ways how to monetize the provided services:
•A paid version of an advanced product (Freemium)
•On multisided platforms, one side gets it for free while the other side finances it (asymmetric model)
•Providing training materials or other products related to the core product (educational model)
Subscription model - widely used nowadays by Netflix, Spotify, Amazon Prime, etc. Customers are regularly paying for an access to services.
Advantages of this model:
•A loyal customer base
•Predictable and continuous revenues
•Clearer and more easily approachable customer segments
Producing original content is the key to retain existing customers or subscribers that have to be stimulated into renewing their plan. Usually, significant investments are necessary to maintain the infrastructure and to offer customers what they want in an easy way.
On-demand model - allows people to have access to the required content at different time intervals. For example, companies like Uber or Lyft allow people to interact at will and make transactions for services while they collect a fee from both sides of the transaction.
E-commerce model – is based on an online store that can be conducted over computers, tablets, or smartphones and includes books, music, tickets, or financial services. The e-commerce business model helps establish a wide market presence with cheaper and more efficient distribution channels. Examples are Amazon, eBay, or Etsy.
Designing Business Models for Digital EntrepreneurshipClick to read
Finding the right digital business model is a complex process. The objective of every company is to create an attractive, repeatable, and scalable business model which requires a search process that aligns the business with the environment.
The venture pyramid is a concept to structure the search process to identify the business model fit. It structures critical business assumptions while those that are the most critical reside at the bottom of the pyramid.
Venture pyramid (Göcke, 2017)
The first part of the pyramid residing at the bottom is market attractiveness which focuses on potential customers, especially seize or growth of a customer group.
Customer-problem fit which represents a pressing problem of potential customers.
Problem-solution fit is where we try to find out whether customers not only favour our solution but if they are willing to pay for it.
At product-market fit, we hand the product to the customers and see whether it gets traction through continuous revenue, retention of customers, and recommendations.
Business model fit validates the operations of a business model and identifies incremental profits for new users.
The scale level adapts the business model to local contexts and find out what elements can be standardized.
In many cases, innovation happens by combining aspects from existing business models to create a unique formula.
For example, Google was in its beginning just closing advertising deals on its search pages using their salespeople just like a traditional company. It´s growth picked up when Google finally introduced its two primary ads platforms (AdWords and AdSense).
Also, Netflix before becoming a streaming platform was a DVD-rental company but when streaming became viable, its business model evolved.
Now you should have a good overview of business models, tools used to describe your business model, as well as what are digital business models, their classification, and different types.
Do not forget that for digital entrepreneurship you will need to find your own unique business model formula that will allow your business to scale and prosper.