Winning Business Models for a Digital Economy

Feb 3

posted by Dr. Art Weinstein in Business Models | 25 Comments

A business model describes how an organization designs and delivers value by providing stakeholders with a shared understanding of how the business operates. A strong business model offers a competitive advantage by demonstrating that the firm does something different, more innovative, and better than its rivals. The digital era has driven many recent business model transformations.

Apple’s iTunes is a great example of the changing music industry. In the past, record companies, distributors, and retailers controlled channels and profits, now the artist and platform (iTunes) has the market power.  Newspapers have struggled to become information providers as their readers aged and defected to other media. Google, Facebook, Apple, and Salesforce.com are examples of shapers since they open up platforms for third-parties and create new market space. Participants embrace and enhance shapers’ platforms and may include applications (apps) developers, service firms, or online e-tailers. For example, millions of Farmville gamers manage virtual plots of land, grow crops, raise animals, and use online tools such as tractors. It has been estimated that there are more than 20 times more people playing this Zynga app than there are actual farms in the U.S. Consider these ten business models as you develop your business strategy.

Digital Business Models

Bricks and clicks: Retail, e-tail (Examples: Best Buy, Target).

Internet pure-play: Online presence (Examples: Blue Nile, Overstock.com).

Software as a service (SaaS): Delivering applications over the Internet (Examples: Salesforce.com, ADP).

Community of users: Users generate knowledge, solve problems (Examples: eBay, Wikipedia)

Shaper: Open up new market space (Apple, Facebook).

Platform participant: Enhance platforms by creating user applications (Examples: Foursquare, Zynga).

Multi-sided markets: Serve multiple segments – e.g., readers and advertisers (Examples: USA Today, Visa).

Long tail: Millions of products offered, most sell very few (Examples: Amazon, Netflix)

Free as a business model: Products provided to users at no cost, revenues generated elsewhere (YouTube, Hulu).

Open business model: Companies share products for low cost [way below branded options] (Linux (Red Hat), Qualcomm).

Think about these seven questions as your management team assesses your business model and market performance.

1. Can you clearly explain your business model?
2. What is unique about your strategy?
3. How does it compare with your direct and indirect competitors?
4. Have you broken any industry rules lately?
5. Can you develop a more innovative and interesting business model?
6. Will your business model win in the market?
7. Does your organization truly deliver superior value for customers?

Art Weinstein, Ph.D., is Chair and Professor of Marketing at Nova Southeastern University and author of Superior Customer Value – Strategies for Winning and Retaining Customers. He may be reached at art@nova.edu or 954-262-5097; visit his website www.artweinstein.com     

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• #1 by Raphael Zibi on 2/5/14 - 7:06 PM

  

  The competitive bar has raised with the use of technology. I believe that business plans nowadays are everlasting as changes should constantly be made. If sticking to an original idea, competitors will eat you as they can improve their service by just adding an experience that will improve the customer experience and their quality of service. Let's take iTunes as an example. It became the number one music market place in the world by selling music online. At first they provided us with the opportunity to buy a single song in an album and avoiding us to purchase the whole album. From that derived the internet radio with Pandora or Spotify. iTunes had to change its business plan as well by adding the iTunes Radio allowing people to listen to music for free and compete with its competition.

• #2 by Guadalupe Almanza-Ojeda on 2/6/14 - 10:59 AM

  

  As the blog comments, the digital era is the main force of a large percentage of business alterations. Business transformations cause organizations to transform how they capture, create and deliver customer value in order to distinguish themselves from their rivals. Therefore, business models, along with value propositions must be created with creativity, carefulness, and thoughtfulness in order to offer something exclusive to the market.

• #3 by German Martinez on 2/6/14 - 11:23 AM

  

  I would like to focus on question number 4. Have you broken any industry rules lately. I think this might be one of the key questions or what many people reach as their end goal. It seems that the "bad boys" have been the ones to taste most of the success. Perfect example is Apple and Amazon as it seems that they have rewritten the way their industries are performing and evolving. In this highly competitive world the mentality of the maverick is the mentality that is going to get a company to go from good to great. It is exciting also as consumers to see where it drives competition not only for the new array of profucts and services that it will create but also for the (at least in my mind) reduction of prices that we might see.

• #4 by Simone Knight on 2/6/14 - 1:14 PM

  

  So many entrepreneurs in traditional professional services like IT, accounting, or project management, cannot clearly explain how they will deliver SUPERIOR customer value or how their business model can be more innovative. Long existing companies like, H&R Block, have done a great job in innovating and then adapting their traditional professional services business model to embrace technology. For example, H&R Block has evolved from Bricks and Mortar to Bricks and Clicks and now, they've developed their own accounting software in a move towards SaaS. Their ability to adapt and innovate has allowed them to create new revenue streams by offering several service options that increase customer value. In fact, according to their 2013 annual report, online and software sales now contrite to approximately 25% of annual revenues.

• #5 by Rachelle Cela on 2/6/14 - 7:46 PM

  

  As the economy continues to flourish within the digital arena, companies are going to have to better align themselves through their business models in order to deliver superior customer value. Technology is a force to be reckon with and appears not to be letting up anytime soon. Companies are going to have to become more market driving-- not only anticipating customer needs but answering these needs before they actually surface. Addressing the seven questions when creating a business model can better assess where companies stand and where they need to be.

• #6 by jmaal on 2/7/14 - 1:31 AM

  

  I agreed with you Prof!. One need to prioritise their business first, then second is to bring the precise technology or tool(s) such as analytics to map their game plan. Lots of CMOs are missing the point in the digital age. If you need people to like and purchase your products or services, you need to first understand the thoughts and needs of your customer and their existing problem and bring your solution in alignment to solve their business problem.
  
  You need to know and try to understand your customer behavioral pattern thoroughly and this is where your business development wit kicks in. Meaning you need to conduct market research but the misconception with lots of sellers is that its too costly to go extra mile to do that. Just because you are able to produce a product that does not necessarily mean you do not have to satisfy the market needs. You will need to harvest customer intelligence with the simplest available research tool such as sketches, drawing making plans determine what actually you are trying to accomplish. Meaning your need to map out your requirements.

• #7 by Art Weinstein on 2/7/14 - 4:19 PM

  

  Thanks for your great comments added to my post about an often overlooked, but essential, strategic component - building the right business model. While we would all love to create the next Amazon, Apple, or Google - focus on what you and your company can do now to win in the market place/space. Here's a 10 point plan to get you started: know your customer's needs better than they do, out-compete your rivals, wow your customers with amazing products, provide incredible service, rewrite industry rules, truly innovate, differentiate your offerings and image, drive new markets, master process management, and create value continuously. That's not too hard to do, is it? And one more tip - have fun, too! As Tom Peters, the management guru, says "it ain't that hard to be different." Be different and be better and use your winning business model as a roapmap to success!

• #8 by Peta on 2/7/14 - 4:24 PM

  

  The digital economy is entering a new age that presents extraordinary challenges for all business. Digital tools are invading the business environment, provoking significant changes in the way we work, communicate, and sell. This has given rise to new opportunities and challenges, and has triggered the Digital transformation of enterprises. iTunes changed the way we look at the digital market today, it started out as purchasing single, cd’s and now radio it has caused music stores to go under.

• #9 by Karine Smith on 2/7/14 - 11:13 PM

  

  I would like to focus on question 7. Does your organization truly deliver superior customer value? My organization is one of the leading cruise companies and in my opinion, the organization which I work for tend to forget the notion of delivering service to their clienteles and thus giving an edge to their competitors. To stay on top certain criteria of delivering customer service need to be meet or else, word of mouth is a power weapon that will bring you from the top to the bottom.

• #10 by Karine Smith on 2/7/14 - 11:20 PM

  

  My focus is on question 7. Delivering superior customer value. For an organization to be on top of their market the delivery of superior customer value need to be a part of the business. Without customers or the retention of customers the ROI of a business would be null and void.

• #11 by Lisa Pierre on 2/8/14 - 12:02 AM

  

  Business Models is an excellent way to market a companies brand. It provides exposure and a competitive advantage. Retailers have relied on the business model when strategically targeting their audience. For example, the article discusses iTunes influence in the music industry and the role they play. A few months ago an artist chose iTunes to promote her music one week prior to retailers selling the CD. This decision caused conflict among stores such as Target who made the decision not to promote her CD. In my opinion Target reacted unrationally and should have sold the artist music in their stores mainly due to the popularity of the performer sales would have still rocketed.

• #12 by Michael H. Bartlett on 2/8/14 - 9:41 AM

  

  A new digital business model that should be added to the list is the increasing number of services that traditionally have been individual transitioning to a shared model. While these are similar to platform participants and open models, this should be its own category.
  Uber and ZipCar are examples of a changing view of essentials. While mobility is essential in our society, that mobility traditionally came from the privately owned vehicle. Increasingly, mobility is regarded as a service, just like software or infrastructure as a service (SAAS-IAAS).
  And mobility is just one example. An evolving trend is the lack of interest in ownership of "things" that previously defined success. For many, if you need furniture, a plant, a tool, or even clothing why buy it? Rent it… Why own a screwdriver if you only use it once a year? Extend that concept to all that was regarded as essential for private consumption and ownership to a business model that provides these as a service and I think you have a vision of the future. Think CitiBike as another example- bicycle-as-a-service.
  It won't be long before you're standing on a corner and accessing your Uber or ZipCar (or whatever they evolve into) app and your driverless vehicle appears, yours for whatever period or use you need it for. When you're done, you step out and it goes back into the pool of available mobility-as-a-service. But just as SAAS and IAAS leverage the cloud to provide services that once were owned as part of a desktop set, services we regard as essential- transportation, tools- think any hardware from a food processor to a lawn mower to a washing machine- will be replaced.

• #13 by Geezella Orozco on 2/8/14 - 8:46 PM

  

  A business model is essential to be develop/created by businesses today. Market leaders such as Apple demonstrates how the I-tune part of its business was very successful due to the strategies developed and plan by the business. Understanding the goals and formulating a plan on how to attain those goals are a critical piece of the business plan.

• #14 by Nadine Lalanne on 2/8/14 - 11:11 PM

  

  Organizations need to understand the business model and what they need to do to keep up with the digital era. As mentioned in Lisa’s post, an artist bypassed Target who would not support her and went to iTunes and promoted herself. People are bypassing the traditional roles and taking matters into their own hands. Authors are publishing their own books through distributors like Amazon. These companies need to figure out the best way to deliver superior customer value before they lose more clients and customers.

• #15 by Art Weinstein on 2/9/14 - 11:39 AM

  

  MIchael, I really liked that new business model that you proposed - shared products/services. Zip cars and tool rentals are great examples that illustrate this emerging business practice. Innovative marketers can easily extend this idea to numerous other industry sectors. Thanks for adding to our conversation!

• #16 by natasha micucci on 2/9/14 - 10:11 PM

  

  The topic of business model is extremely important. Organizations need to find the right ways to deliver value to customers and now in days that is typically by moving at the pace of the customer's needs or beyond them. In today's society, technology is very important for the growth of an organization. It is safe to say that all driving companies are involved in some sort of technology business and are delivering the proper value.

• #17 by Maria Scudella on 2/9/14 - 11:56 PM

  

  Question number 7, which talks about delivering superior value to customers, is in my opinion the most important question. There are all different types of business models, however, without their clients the use of a business model could not be implemented. The success of many "apps" would not have been possible if they had not been "user friendly". Companies like Zynga deliver superior customer value by always developing updates for their online games and by continuously being "user friendly".

• #18 by Daniela Bozo on 2/10/14 - 12:26 AM

  

  I believe business models can benefit tremendously by the implementation of a digital model, as they offer an amount of customer information and allow for customer management that is potentially bigger than any other method of accessing customer information. As the blog reads "In the past, record companies, distributors, and retailers controlled channels and profits, now the artist and platform (iTunes) has the market power." iTunes, as market power, can provide or manage internally information on the customer as types of music the like, or frequency of online purchases. I believe that online businesses or eCommerce offer a way of customer management that will be more beneficial than not, hence why I would promote a digital business model

• #19 by Marcia Garcia on 2/17/14 - 9:23 PM

  

  An organization's value proposition, stated in the business model, should be unique, concise, clear, and consistent, so that over time the organization can build brand equity. In today's new economy, businesses need to also be flexible. They should hire the best staff, focus on innovation, and always think critically. The organization should continue to see the strong points of their model while paying close attention to any weak spots. Complacency can be a huge stumbling block - "lead, follow, or get out of the way," Scott Finfer, CEO Emerge Clinical Solutions.

• #20 by Ashley Flynn on 2/17/14 - 11:02 PM

  

  We have entered a digital era where more and more businesses are looking to create the next “digital marketing stunt.” Many businesses take advantage of online tools by creating something that will make them standout and ultimately go viral. It is about staying one step ahead by offering the latest technology and something that is going to change the industry. It really comes down to their digital business model and their ability to execute it successfully. A business must always keep changing in order to keep up with the ever changing digital market. To be successful doesn’t just mean you do it better than your competition, it means that you were able to offer what the customer wants by delivering superior customer service. By bringing your business online you are adding customer value. iTunes has really revolutionized the music industry and how customers listen and buy their music. They have created a tough barrier to entry for any competition. It is by being the first that you can truly excel in your industry’s market.

• #21 by Omar Acevedo on 2/19/14 - 9:05 PM

  

  It's amazing to know how many different types of businss models that are all flourishing in todays economy. I'm going to focus on question number seven. Does your organization truly deliver superior value for your customers? No matter what your business model may be at your organization, delivering superior customer value should be the main focus and if you are delivering superior customer value should be the main question. As long as your business is doing everything neccessary to deliver that superior customer to each customer, i do not see a way how your business will not succeed in any market. Aside from that, the business model i most enjoy especially if i were to create a business plan would be the long tail business model like Amazon and Netfli; offering millions of products even though most sell very few.

• #22 by Robert Lee II on 3/13/14 - 2:27 PM

  

  I believe that before you can develop an accurate business model, you need to do enough research to truly understand your target audience and understand their needs and wants. Once that information is in hand, developing a business model should be a clear path and take you to the success that you are looking for. I believe that the digital era has impacted many businesses and that some have fallen on hard times because their projected plans did not have enough flexibility designed into them to make appropriate changes and meet demand. So many people use digital services now that a company has to have not only basic services, but a mixture of advanced ones as well just to stay competitive in the marketplace.

• #23 by Sharad Jain on 4/15/14 - 8:35 AM

  

  great article here i read all posts are very informative which peoples are shares.

• #24 by Colm Barry on 12/14/14 - 8:17 AM

  

  "… business model offers a competitive advantage …" That is not always entirely true. If you communicate your business model to liberally, you attract unwanted attention by copy-cats. And this is exactly what can actually be seen currently. A lot of the business models described in your listings above have been "distilled" quite recently by a potential start-up competitor looking long and hard at an incumbent's model and then copying it to the extent that was necessary to add the decisive niche advantage that made for the "tipping point". In fact the record companies etc. are a case in point: every one could see plainly "how" they "were doing it" and just had to run rings around them while they, sitting on and admiring their "model" were eventually outbid and became defensive rather than, as they could, have , redesign their models and d exactly what others did though they had much less capital to spend initially.

• #25 by Axanta on 1/10/16 - 1:09 AM

  

  Nicely Explained business model.