The saying of “digital transformation” has received a high perception in the discussion about main drivers for change of a company’s recent status quo. May it be the new generation of young, digital natives or the cyclic waves in the economy, also called Kondratiev waves, behaviors like media consumption or personal availability in our post-informational era are changing. Because of this behavioral change, companies must adapt their business model to stay competitive. The goal of this article is to raise the awareness of technological influences on enabling new business models and to highlight recognizable patterns of already arising digital business models.
Digital Transformation and Business Transformation
While digital transformation roughly describes the emerging of new technologies that can be used to enable companies to do new business, business transformation is a way of strategically aligning a business for the future. The main goal of business transformation is thoroughly to better meet the needs of the targeted audience. The interdependency between digital transformation and business transformation is quite strong as the digital transformation limits the capabilities of how companies can transform their business. Take for example a highly expected feature that customers want to have added to an existing mobile app and which the company may develop but which is not profitable due to the license structure of the technology the app is based on. Hence, the limitation of the technology is not only on feasibility but also on cost efficiency and entrepreneurial decisions. To keep the thought going, the business, on the other hand, is aligning the technology. With the alignment on business perspectives companies do or do not invest in developing as well as evolving business-enabling technologies.
Digital Business Models
Business models are a handy way of representing a business idea with its most important core components and a variety of peculiarities that make the business idea unique. The business model terminology in this article follows the business model canvas (BMC), the most commonly known business model framework proposed by Osterwalder and Pigneur (Link). The BMC provides structure to visualize a business model and standardizes discussions and comparisons of different models. So far so good, but what about digital business models? Digital business models reflect models that have been affected by the characteristics of the digital transformation which society is experiencing. This affectation may be a small adjustment to a single component or a serious adaption for the core of a business model. When talking about the digital transformation the focus on the BMC is mainly on the back stage of the model which aims to provide everything that is needed to deliver products and services to the customer. In contrast, business transformation originates in the front stage concentrating on the customer segments by providing a unique value proposition. Think of it as a relationship where the business transformation is the part facing the customer and the digital transformation is the part which makes it technologically possible to deliver products and services customers are aiming for.
Technologies Enabling Digital Business Models
Information technology is facing a constant shift towards new, emerging technologies or the evolution of already existing technologies to better meet present business needs. Gartner’s hype cycle is a good tool to learn about the technological trends which are foreseeable in the market and helps to evaluate their level of maturity. One example of a currently emerging technology is adaptive machine learning in the domain of advanced analytics. Research in machine learning is mainly supported by the fact that a large community of researchers and companies is working on further development. Besides the emerging of new technologies, the main driver for enabling digital business models is the evolution of technologies regarding optimization. Cloud computing is an example that can be listed here. It may not be new technology, but it has further evolved over the last decades from expensive on-demand computing resources to provide cheap, highly available computing infrastructure. Everyone familiar with Moore’s Law may even better understand the exponential course of technological evolvement.
Digital Patterns of Business Models
Patterns group business models into categories with similar or complementary characteristics and therefore define reusable architectural components. A very traditional example of business model patterns is the multi-sided platform model which brings together consumers and providers onto an intermediary platform. Hence, digital patterns show the classifications of business models that reflect components of digital transformation. From the traditional business model patterns, the subscription and pay-per-use models form the basis for the patterns in the digital era. Amongst others the following list names a selection of patterns inspired by Gassmann et al. (Link) that can be assigned to digital business models:
- Direct Selling E-Commerce Platforms
- Open Source Data Platforms
- AI-Labeling Crowdsourcing Platforms
- Open Business Ecosystems
- Service High-Availability Models
- Hyper-Personalization and Customization Models
- Digitization Models of Assets and Currencies
- Affiliation-based Social Marketing Models
- Customer Experience Selling Models
- Freemium-based Subscription Models
Example: Shopify and the Future of B2C Retail
Throughout the last decades, B2C sales models targeted to engage with retailers to sell manufactured products or services to a great crowd of potential buyers. Thinking of online retailers, Amazon and eBay directly pop up as prominent examples. Products a company is offering via retailers are combined with products of other brands and are made available to the users of the managed online platform without differentiation. The sales model in the recent digital era is drifting apart from offering products centrally via such marketplaces as the consumers expect a closer customer relationship. While the communication to reach out to the target audience can easily be done via online marketing more and more companies are setting up their online shops to proactively address their target group. Another advantage of offering products in a direct consumer sales model is to mitigate dominant retailers which are pushing the business.
Shopify offers multi-channel e-commerce platforms and enables companies to create a direct sales model. The Canadian company bypasses barriers like infrastructure, financials, and operation by providing the creation of cloud-based, intuitive online stores. The services combine payment, customer relationship, marketing, and shipping features into a state-of-the-art e-commerce platform. What is Shopify providing that earlier retail platforms can not offer? Shopify makes the setup of an online store super-fast and offers a SaaS solution where brands do not have to consider the hosting infrastructure. Shopify is providing an app store filled with ready-to-use functionality to customize stores and create a customer shopping experience for consumers. If there is the need for 100% customization, Shopify offers to use their e-commerce backend as a headless solution allowing you to build your frontend. With various pricing bundles, Shopify gives every brand the chance to choose the best plan for the features your online store shall support. For corporations, a premium edition provides unlimited possibilities. Shopify is revolutionizing the B2C retail for companies by better meeting their target group allows more independence from managed retail platforms through a high-margin revenue stream.
Rethink the Business Strategy for the Digital Era
For businesses to succeed in a constantly changing, digital environment it requires the attitude to modernize outdated business models with new and more innovative components to stay competitive with other players on the market. While it seems to be a lot easier for smaller companies and startups, established corporations might have to consider several business models for different offerings and more complex interdependencies. Relief in such a situation is to stick to the very basics of business modeling defining one strategic business model including all different offerings in a high-level representation showing their interaction points. Breaking down the high-level business model into its different offering-oriented business models it may reveal that the initial business model only needs a slight alignment since the effect of the alignment will be multiplicated. Therefore, optimizing business models might be the key to combine the existing strength of a business with new boosting components e. g. through Shopify’s direct selling platform. Besides slight adjustments, fundamental changes in business models have already been successful in the past so they will also be viable in a digital era as there are so many new possibilities.
Conclusion and Final Thoughts
The digital transformation is a key driver for business transformation companies are facing in the front stage. A behavioral change in society and the emerging of new or evolved technologies enable us to create business models with digital aligned components. Categorizing business models into similar strategies shows that there are digital patterns that can be used as architectural components in the digital era. Shopify’s e-commerce platform exemplarily highlighted a business model adaption for the future of B2C retail. Rethinking the business strategy is based on the complexity of offerings but can be leveraged by creating an overall vision that can be broken down into single offering-based models. There is much more to deep dive into when addressing business models of the digital era — this post shall only give a broad overview.
The following readings may broaden and complement the view on some of the above-mentioned subjects.
Born Digital: How Children Grow Up in a Digital Age (Link)
Born Digital is an essential reading to understand the first generation of digital natives who are shaping our economy. With their attitude on information perception and sociological behavior they are strongly contributing to new customer needs and are thriving the digital transformation from a consumer point of view.
Digital Transformation Playbook: Rethink Your Business for the Digital Age. Columbia Business School Publishing (Link)
The Digital Transformation Playbook represents the point of view that the digital transformation is more about rethinking the strategy of a company rather than relying on new technology. Thoughts are given about how to adapt the digital transformation for legacy companies by adopting new technologies into an existing business model.