In very simple terms, the Business model is how you plan to make money from your business.
A refined version is how you create and deliver value to customers. Your strategy tells you where you want to go and the business model tells you how you are going to do it.
In this time of industry 4.0 with Digital Transformation, businesses are getting disrupted faster than they get established. We all know what Apple did for music, Uber did for taxis and Airbnb did for hotels.
Digital is helping them to enhance their existing products and services and helping to launch new products and services.
Companies are using various business models to be successful:
- Freemium model: Basic products/services are provided free but users are charged for advanced features. E.g. Coursera, LinkedIn, Spotify, Dropbox, Skype
- Pay as you go or Subscription Model: Pay only for services which are used. E.g. Netflix, Kindle, New York Times, Safari Books online
- Customer experience model: provide the customer experience never before e.g. Tesla, Disney Land, Apple
- On-Demand model: provide customer service on demand with speed. E.g. Uber, cloud services from Amazon, Microsoft
- Marketplace model: provide a platform for buyer and seller interact with each other directly e.g. eBay, Alibaba
- Free model: provide the typical services to users free and sell their behavior data to different businesses e.g. Google, Facebook, PatientsLikeMe
- Crowd-sourcing model: receive money for an engaging crowd for a common goal, innovation, problem-solving. E.g. Kaggle, CrowdAnalytix
- Bundling model: selling similar products or services together. E.g. Microsoft Office
- Gamification model: use of game like feature to simplify the interaction. E.g Mint.com, Khan Academy, Nike +
Some of the big companies moved on from their core business model and adapted to the change embracing digital to get closer to customers in real time and grow exponentially.
Nike had moved on from a sports apparel company to fitness driven personalized wearables like FuelBand manufacturer.
Amazon started in 1995 as an online bookstore but went on to become a leader in technologies like Cloud, Drones, web services.
Philips started as Light Bulb Company and moved on to become the leader in healthcare equipment’s touching millions of people lives.
GE has moved forward from its core industrial products – from jet engines and gas turbines to CT/PET scanners, locomotives with sensors that monitor various parts of the machinery. They developed their own Predix IoT platform with advanced analytics to provide real-time information to improve efficiency, increase productivity, and schedule more effective preventive maintenance.
Apple adopted multiple models from PC manufacturer to selling online music, to subscription model of iCloud.
Changing the business model drastically may not work. Don’t try to boil the ocean but start with how you can deliver greater value to customers through digital technology.
Success in choosing one business model over another will depend on how well companies understand their customers’ needs.