Nowadays, if something is not on the internet, it doesn’t exist. The digital age has created a demand for new business models to accommodate the new reality. Customers have quick and convenient access to any product and service online, and, to stay relevant, companies have to be able to deliver.
Regardless of whether you are an offline business pursuing digital transformation, or a strictly online operation, you need a proper digital business model that responds to your customer’s needs.
What Is a Digital Business Model?
A digital business model is, basically, how your business makes money online – or, in other words, how you use the internet to exchange your products and services for profit.
In a digital environment, business models are dependent on technological progress and innovations. To design a functioning framework, companies should consider how the internet and modern software solutions enable them to build a bridge between the customer’s needs and their products.
This transformation may be as simple as a brick-and-mortar shop opening an eCommerce store to sell their products online, or as complicated as a company developing a completely new service based on its industry knowledge and skills. For example, a hotel could start up a platform allowing guests to book pertinent third-party services in advance, such as car rentals, restaurant reservations, guided tours, etc.
However, building a digital business model is a constant work in progress. As new technologies emerge and demand grows, so should supply. Therefore, what defines a successful framework is the capability to develop, adapt, and scale.
Top 10 Digital Business Models for Online Companies
Without further ado, let’s have a look at some of the most successful digital business models to inspire your online efforts.
1. Freemium Model
Freemium is one of the most popular models for SaaS products and other subscription-based services.
How It Works: Companies create a stripped-down version of their product that they offer to their customers free of charge.
Setbacks: The greatest challenge this model presents is finding the optimal paywall position to make the business sustainable. The free version should be good enough to attract customers and show the quality of the product, and the paid one should be appealing enough to convert.
Examples: Some of the popular companies using the freemium digital business model are Slack, Asana, Dropbox, Evernote, etc.
2. Subscription Model
The subscription-based model allows companies to make their products and services more affordable to clients.
How It Works: Instead of making a substantial investment to buy the product, the customer is granted access to it for a monthly or annual fee.
Benefits: Businesses receive the payment in advance, have steady revenue, and can plan their expenses better. Furthermore, they can monitor how customers use the product and make improvements.
Setbacks: A business may suffer major losses when customers leave. However, with an efficient retention strategy in place and the help of intelligent predictive analytics tools, companies can prevent customer churn and maintain growth.
Examples: This model is best applied to SaaS products (Semrush), digital publishers (The New York Times), and streaming services (Netflix) but can be adapted to practically any service, and a variety of products.
3. Ad-Supported Model
In the ad-supported model, as the name suggests, the customer has free access to the provider’s services, but is exposed to unsolicited third-party content.
How It Works: The business gains profits from ad clicks. If the ads are relevant and well-targeted, the profits may become substantial.
Benefits: The company can provide a quality product for free and quickly build its audience.
Setbacks: People are growing more and more resistant to ads, and with the rise of ad blockers, the profitability of this model is put on the line. Businesses can avoid losing profits by offering an ad-free premium upgrade, or considering a combination with other prominent models to serve as a safety net.
Examples: Businesses using the ad-supported model are Spotify, Facebook, and Google.
4. Ecosystem Model
One of the most promising digital business models is the ecosystem.
How It Works: The company starts off with one main product and gradually launches other related products to provide an all-inclusive experience.
Benefits: The model holds practically unlimited growth potential and can make a company a household name.
Furthermore, once the initial product “hooks” its audience, it’s much easier to upsell and cross-sell add-ons and upgrades. Customers often prefer to buy the full package, instead of the hassle of relying on different providers.
Setbacks: A potential concern is that ecosystems are complex to implement and maintain. The model also requires a substantial investment, and it is, respectively, high risk.
Examples: One of the most successful ecosystem businesses is Google. The company started out as an investor-funded search engine until they launched their keyword-related ad service. Later on, they designed supporting products such as their Analytics tools, the Search Console, Google Tag, etc.
Furthermore, they’ve created a whole network of consumer products, from acquiring the video platform YouTube, and the navigation software Waze to managing their own browser, app store, document management software, and so on.
5. Hidden-Revenue Model
Hidden revenue is a type of model where companies don’t charge customers for using their products and generate revenue from third parties instead.
How It Works: Clients benefit from a free service while companies make profits from partners who pay to gain access to the provider’s customers.
Benefits: The advantage of this model, similarly to other free models, is that the business can easily grow its audience and keep them happy, all the while earning revenue.
Setbacks: Hidden revenue should be approached with caution, because it often involves managing personal data and may potentially involve privacy and ethical risks.
Examples: Google and Facebook provide free services to their customers but make a profit from advertising based on customer data.
Mozilla employs the same model, but stays on the safe side and earns its revenue from search engine partnership royalties, without exposing the user’s privacy to risk.
6. Platform Model
The platform model, also known as peer-to-peer, or two-sided marketplace, is a digital business model in which a provider creates a digital space to connect third-party buyers and sellers.
How It Works: The customers are happy because they have access to a variety of sellers, and vice versa. Meanwhile, the business that provides the platform service makes a profit from transactions, subscriptions, and advertising.
Benefits: The model offers great scalability potential. In addition, if the platform is successful it can be developed further with additional relevant services.
Furthermore, the provider doesn’t need to make a large investment because they don’t supply and/or manage any products.
Setbacks: You need to balance demand and supply to maintain a sustainable system. If you have many customers but few sellers, or vice versa, you will see people leave.
Examples: Some good examples of platform model success are Amazon, Uber, and Airbnb.
Versions: A specialized version of the platform model is the user-generated content model – customers contribute with content that is consumed by other customers.
Examples of the UGC model are YouTube, Wikipedia, TikTok, etc.
7. Sharing Model
The sharing model is also known as the access-over-ownership model.
How It Works: The model offers customers use of a product without buying it. These are usually products that people may otherwise not be able to afford or may not want to buy because they need them for a limited time only.
Benefits: If the company is the owner of the products, once they surpass the payback time of the investment, they may gain unlimited revenue. In case the provider only acts as an intermediary, they profit from charging both the customer and the seller usage fees.
Setbacks: Generally, sharing is a great model and one of the few downsides may be the initial investment for businesses that own the products.
Examples: Some of the most successful companies that use the sharing model are Airbnb, Uber, Zipcar, and Lyft.
8. On-Demand Model
The on-demand model is very popular with media and content providers and replaces the analog framework in which, to use a service, people have to comply with the source’s schedule and format.
How It Works: The business grants users unlimited access to digital services, i.e. people can consume content whenever and however they like.
Benefits: The greatest advantage of this model is that it can offer their clients the freedom of choice. Companies that manage to supply content that answers their customers’ needs can increase demand and grow their business.
Setbacks: To encourage engagement, companies need an advanced algorithm that makes accurate content suggestions, and those can be very expensive.
Examples: The most successful on-demand services that the public knows and loves are Spotify and Netflix.
9. eCommerce Model
eCommerce is one of the most popular digital business models. It’s easy to adopt both by offline companies that want to embrace a digital transformation, and by businesses that start online from scratch.
How It Works: An eCommerce model can be a simple one-brand shop or it may be combined with a platform or marketplace model to build a larger enterprise.
Benefits: Online stores enable businesses to respond to the digital needs of their customers and access new markets. With the right strategy, companies can grow their operation and increase revenue.
Setbacks: Non-tech-savvy business owners may encounter issues with managing their online shop and building a viable digital marketing strategy. This, in turn, may hurt the user experience and, potentially, hold back growth.
Examples: Amazon is the most successful eCommerce platform and the go-to place for customers around the world.
Versions: An alternative to eCommerce that sellers should consider is the social commerce model. It’s a new trend that enables customers to make in-app purchases on social media networks.
The benefit is that businesses can sell their products without the need for a stand-alone online store.
10. Custom Model
The best digital business model for any company is the custom-made one.
How It Works: To build a custom model, you should find the touch-points between the unique qualities of your product and the relevant needs of your audience.
The framework may be a combination of proven models with a twist, or a completely unique configuration that will deliver an innovative service or solution to the marketplace.
All in all, there are three ways to build a custom digital business model:
- Combine Different Models to Match Your Business Needs.
- Integrate Existing Technology In Your Business In an Innovative Way.
- Invest In the Research and Development of New Technologies.
Benefits: Companies can experiment with different models to find the one that works for them. Their business will grow, and they will be able to answer their customer’s digital needs.
Setbacks: If the team doesn’t have any digital experience, it may be difficult to identify the best solution.
Examples: Here at DevriX’s, we’ve created the WordPress Retainers Model. Depending on their needs, customers can hire us for a number of hours per month, and receive our undivided attention. Instead of a one-off website solution, they obtain continuous access to a team of professional developers, project managers, QA testers, SEO experts, AdOps, and marketers.
Our company benefits from the fact that we acquire long-term customers, and have the ability to plan out our revenue. Furthermore, we can make sure that we can provide the quality the customer needs and expects.
Nowadays, every company needs an online strategy and an efficient digital business model. Digital-native operations obey a completely new set of rules and have needs that traditional models are not capable of accommodating. Meanwhile, offline businesses that want to stay relevant invest in digital transformation, looking for ways to adapt their services to the digital environment.
By exploring the opportunities the internet presents, companies can create new ways to make their customers happy, and grow their revenue. The key to success is to build a unique digital proposition and market it like a pro.