Digital Business Lecture 4

Digital Business
Lecture 4: Business Models for Digital Business

Session 1
Outline
• What is a business model?
• Components of a business model
• Critical aspects of e-business models
• Revenue models
• Customer models
• Business model innovation
What are business models?
• Business models describe the rationale of how an organisation
creates, delivers, and captures value (economic, social, cultural, or
other forms of value)
• The process of business model construction is part of
business strategy
Business Model components
• Customers
• Products and services
• Business process
• Resources required
• Supply chain
• Revenue models and financial viability (costs)
Business Model Canvas (Osterwalder et al.)
Business model canvas
(Osterwalder and Pigneur, 2010)
7
Example: Nespresso
8
Examples of Business Model Canvas
• Apple iPod/iTunes
• Amazon
• Google
• Skype
9
Business Model Framework (360
degrees)
(Rayna and Striukova)
Stakeholders vs. Value
Canvas 360 degrees
Concept brainstorming
• Compare both models, the Business Model Canvas and the 360
degrees framework. Which one do you prefer?
• 15-minute activity
Session 2
Revenue models
Revenue Model
• Describes how the firm will earn revenue, generate profits, and
produce a return on invested capital
Types of revenue model
• Sales revenue model
• Advertising revenue model
• Subscription revenue model
• Transaction fee revenue model
• Affiliate revenue model
• Complement revenue model
Sales revenue model
• Company obtains revenues by selling goods, information, or services
to customers (B2B, B2C)
• Relates to both physical and digital products
• Products are sold individually or in bundles
Subscription Model
• Content (or goods) is provided in exchange for the
payment of a (monthly) subscription
• Generally relates to digital content
• Examples: newspaper, streaming services, etc.
• Often mixed with advertisement revenue model
• e.g. Spotify, newspapers, etc.
Advertising Revenue Model
• Content is provided for free (at least partially)
• Free content attracts large number of customers
• Banners (posts, tweets) are mixed with content
• Customers (“users”) click on advertisement and the content provider
is paid by the advertising company
Transaction fee revenue model
• Company (generally an intermediary) which receives a fee for
enabling and processing a transaction
• Examples: PayPal, eBay, E-Trade.com, Square
Affiliate revenue model
• Sites that steer business to an “affiliate” receive a
referral fee or percentage of the revenue from any
resulting sales
• Example: price comparison engines, Tripadvisor
(partially), MyPoints.com
Complement revenue model
• Content or digital service offered free of charge
• Only works (or work better) with a particular complement (generally
hardware)
• Revenues derive from sales of the complement
Session 3
Customer Models
Typology of e-Business Customer
Models
• Traditionally, focus on the relationship between three
kinds of stakeholders exchanging:
• Consumers
• Businesses
• Government
• Relates to exchanges of goods, content and services
E-business types
• Consumer-to-consumer
• Business-to-consumer
• Government-to-consumer
• Consumer-to-business
• Business-to-business
• Government-to-business
• Consumer-to-government
• Business-to-government
• Government-to-government
Main Customer Models
Main Customer models 2
• E-tailer/Storefront model
• Portal model
• Content Provider
• Broker
• Marketplace
• Service Provider
What is the e-tailer/Storefront
Model?
• Online version of traditional retailer
• Includes:
• virtual merchants
• clicks and mortar e-tailers
• catalogue merchants
• manufacturers selling directly over the Web
How does the storefront e-tailer
model works?
• online catalogue of products
• orders through web site
• shopping cart technology
• accept payments in a secure environment
• send merchandise to customers
• revenue through product sales
Portal Model
• A site which provides access to a variety of information in one place
• Can be:
• horizontal: broad range of topic
• vertical: specialised information in one area (heath, gardening)
• Information may be provided by users (community)
• Revenue Model: usually advertising

Content provider model
• Distribute digital content (news, music, video,
artwork)
• can be content producer (BBC) or reseller (iTunes,
Spotify)
• can be B2C and B2B (Reuters, AP)
• Revenue: sales, subscription, advertising
Broker model
• Commissioned by one party to look for a suitable trade
• Handles search, packaging, negotiation, contracting
• Typically: financial services, travel agents, headhunting
• Value proposition: saves time, money and risk
• Revenue: transaction fee (fixed, proportional)

Marketplace Model
• A “virtual” market place that brings buyers and sellers
together
• Online mall (Sears, BestBuy)
• C2C Auction site (eBay)
• B2B marketplace (tradeindeed.com, indiamart.com,
ecplaza.net)
• B2C marketplace (Amazon marketplace)
Marketplace Model 2
• Value: listing, variety, large number of buyers/sellers,
trust
• Revenue:
• generally transaction fee
• additional “placement” fee
Service provider
• Generally, online equivalent to offline services
• Consulting, dating, booking (no brokering), etc.
• Value proposition: valuable, convenient, timesaving,
low-cost alternatives to traditional service providers
• Revenue model: subscription fee, one-time payment,
advertising
Session 4
Value Models: 4C
4C of E-Business
• Content
• Commerce
• Context
• Connection
Content
• Firms collecting, selecting, compiling, distributing, and/or presenting
online content
• Value proposition:
• Providing convenient and user-friendly access to various types of

content
• Revenues:
• Mostly online advertising (but increasingly by subscription and pay-

per-use)
Commerce
• Firm initiating, negotiating, and/or fulfilling online transactions
• Value proposition: Providing a cost-efficient exchange place for buyers
and sellers of goods and services
• Revenues: Sales revenues, commissions
Context
• Firms sorting and/or aggregating available online information
• Value proposition: Providing structure and navigation for Internet
users to reduce intransparency and complexity
• Revenues: Mostly online advertising
Connection
• Firms providing physical and/or virtual network infrastructure
• Value proposition: Providing the prerequisites for exchange of
information over the Internet
• Revenues: Online advertising, subscription, time-based billing,
volume-based billing
Brainstorming
• To which of the “C” does Facebook belong?
• What about Google?
• What about Amazon?
Session 5
Assessing business
models
Assessing business models 2
Critical questions
• What do you offer that others do not?
• Why do they not?
• Do not or cannot?
• Will they not?
• If you succeed what prevents others from imitating you?
• Key knowledge? Key assets? IPRs?

Business model innovation
Business model innovation 2
• One of the most effective and sustainable form of
innovation
• But difficult to carry out:
• Hard to predict the outcome
• Requires to forgo what has made the company
successful
• “A leap of faith”
What is Business Model Innovation?
• Two perspectives in the literature:
• The extent of the changes in the business models
themselves (‘inside’ view)
• The extent of the changes resulting from changes in
business models (‘outside view’)
‘Inside view’ of business model
innovation
• The greater the number of component changed (simultaneously), the
more radical business model innovation is
• But degree of change also has to be considered: the greater the
extent of changes, the more radical business model innovation is
• That’s all good but…
Inside view
Outside view of business model
innovation
• Changes existing markets:
• Koen et al. (2011): Incremental BMI = same
customer base, radical BMI = capture competitors’
clients
• Most radical BMI enable to attract non-
customers, hereby creating new markets.
• Giesen et al. (2007): Redefines the firm’s industry +
horizontal move to new industries
Outside view of business model
innovation 2
• Creates new markets:
• Johnson et al. (2008): Business models new to the company, but

also “game-changing for the industry or market”.
• Zott and Amit (2002): radical business model innovation is a novel

business model that leads to the creation of new market (e.g. eBay).
• Radical BMI does not necessarily ‘automatically’ create new

markets, but, new markets may be needed because innovation are
sometimes too radical for their own market (Treacy, 2004).
Integrated framework
• Difference between radical innovation and disruptive change:
• incremental innovation can lead to radical change and radical

innovation can be non-disruptive (Rayna and Striukova, 2009)
• Same with BMI:
• when moving horizontally to existing markets, a firm may become

highly disruptive for the other firms on that market, although the core
of its business model will not really change.
• Radical BMI may only affect the very same consumer base as before.
Dimensions of changes
Comparing companies
Starbucks Coffee Spotify Netflix

A 3-D model
Strategic brainstorming
• Think about a digital business company. Using the 360-degree
framework, discuss the dimensions of business model innovation
adopted by the company. Which values has the company changed in
relation to other companies?
• 15-minute activity.
Discussion
• Using the 360-degree framework, discuss how Artificial Intelligence
may change the business model of Google.
degrees)
Thanks
Sync class
Concept brainstorming
• Compare both models, the Business Model Canvas and the 360
degrees framework. Which one do you prefer?
Strategic brainstorming
• Think about a digital business company. Using the 360-degree
framework, discuss the dimensions of business model innovation
adopted by the company. Which values has the company changed in
relation to other companies?
• 20-minute activity.
Discussion
• Using the 360-degree framework, discuss how Artificial Intelligence
may change the business model of Google.
degrees)
Thanks

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Digital Business

Lecture 4: Business Models for Digital Business

• horizontal: broad range of topic

• vertical: specialised information in one area (heath, gardening)

• Information may be provided by users (community)

• Revenue Model: usually advertising

• Handles search, packaging, negotiation, contracting

• Typically: financial services, travel agents, headhunting

• Value proposition: saves time, money and risk

• Revenue: transaction fee (fixed, proportional)

• Providing convenient and user-friendly access to various types of

• Mostly online advertising (but increasingly by subscription and pay-

• Why do they not?

• Will they not?

• If you succeed what prevents others from imitating you?

• Key knowledge? Key assets? IPRs?

• Johnson et al. (2008): Business models new to the company, but

• Zott and Amit (2002): radical business model innovation is a novel

• Radical BMI does not necessarily ‘automatically’ create new

• incremental innovation can lead to radical change and radical

• Same with BMI:

• when moving horizontally to existing markets, a firm may become

Starbucks Coffee Spotify Netflix

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