Digital Business Models

Analog incumbents looking to become digital enterprises face two main challenges. First, the business model that
served them well for decades has been disrupted by digital innovation and no longer works as desired. Second,
attempts to create a new, viable business model for the digital age will flounder unless a company is willing to disrupt itself.

A fear of cannibalizing profits is just one obstacle standing in the way of incumbents looking to launch new business models. These companies often have a risk-averse culture that focuses on the present rather than the future. Managers often are very adept at running existing business units but do not have the creativity to identify radically different business models or the decisiveness to commit resources to experiment.

Data- and technology-enhanced business models
The innovator’s dilemma is tough to crack, but large enterprises usually have some promising options to explore. For a start, analog companies are often sitting on a vast stream of untapped wealth: data. Data monetization can be
particularly profitable for companies that have collected large amounts of business-to-business (B2B), business-toconsumer (B2C) and machine-to-machine data. Information from any number of categories – geolocation, socio-demographic, social relationships, industrial Internet, shopping basket and customer interest – can prove valuable. At the same time, advances in technology are combining to make data monetization more affordable, with the cost of
storage falling dramatically and the emergence of technologies and sensors that enable real-time data gathering,
analytics and decision making.

Nine revenue models
1. Transaction. Traditional manufactured products are packaged and resold from one to many users; ownership is
transferred from seller to buyer through distribution channels.
2. Capacity leasing. Capacity is monetized in the form of human time, machine or asset availability; companies
manage supply of capacity through demand forecasting, customer orders and sales.
3. Licensing. Technology, brand or intangible assets are licensed for periods of time to reflect the value of the
original invention but without the inventors needing to market or sell the product/service themselves.
4. Subscription. Products/services are subscribed to, usually for a period of time, which can be as short as a day
but often for longer, locking customers in with a reduced upfront cost.
5. Commission. Agents collect commissions (or a margin) for matching buyers to sellers for a given
product/service; agents can be people or, more recently, scalable digital platforms.
6. Advertising. Often used in media and entertainment as a way to distribute and share ideas, with associated
products/services marketed through the medium.
7. Trading. Buy low, sell high, if successful; traders monetize mispriced goods and services due to fluctuations in
demand and supply using market knowledge.
8. Donations. Often found to be transactional or subscription-based for individuals to participate either on a one-off or regular basis; philanthropic donations can often provide intangible benefits to the donor.
9. Subsidies. Often found in public service organizations whereby traditional revenue models only make up part of
the cost to provide the service; subsidies typically incentivize improvements in quality of service.

Source: World Economic Forum