Digital business model

SDIA definition

We define a digital business model as the way in which a digital product is delivered to customers. The business models behind those products have evolved significantly from the original idea of selling licenses for software products that are delivered on compact disks.

Here are a few business models that one is likely to come across in the new digital economy:

  • Software-as-a-service (SaaS): This refers to renting access to software on a month-to-month or annual basis.
  • Advertising: The biggest Internet-based businesses are advertising-driven, such as Google and Facebook. They allow you to use their services for free, such as search, maps, social networking, etc., but in return, the user is allowing them to be observed, effectively “watched” for mining their behaviour patterns.
  • Freemium: A hybrid of advertising-based models and SaaS. Usually, a free version of the product exists, which is financed by advertising. It has a limited set of features. To unlock more features or the whole product, one has to pay a monthly subscription fee, essentially using the product as a service.
  • Subscriptions: A very popular model for content-related services, such as the well-known examples of Netflix and Spotify. The user never becomes the owner of the content, meaning that when the subscription is cancelled, the content is not accessible anymore.

Regulation, especially around data privacy (GDPR), have led to changes in the practices related to these business models, with the highest impact in advertising.

Other definitions

A digital business model leverages digital technologies to develop customer benefits and enhance its value proposition. Simpilearn defines a digital business model as having the following four characteristics:

1. The value is created using digital technologies. When a service is based on digital technologies, it’s recognized as a digital business model. Take Amazon, Google, and Facebook, for example. These giants wouldn’t exist without the internet. 2. The digital business model is new to the market. An example of this would be when you request transportation via an app (such as Uber or Lyft) that matches your request with a driver. 3. To become a customer, you need to use a digital channel. Digital business models often rely on digital channels (such as Amazon) that show advertisements when you search online. 4. The unique selling proposition (USP) is created digitally. This means that a customer is willing to pay for your products or services, and many times monetized online.

Related SDIA publications

Related non-SDIA publications

Changelog

Date
Change explanation
Change by