Digital business model

Definition and delimitation

A business model describes the value creation and monetisation aspects of a company as well as its market position in a highly condensed form. ^[1,2] It also shows how a company is embedded in the value creation structure(s). Not only the company itself, but also the activities beyond the organisational boundaries, for example with consumers and central partners, are included in the consideration. The majority of business model concepts available today ^[3] consist of a strategic component (strategies, resources, networks), a customer and market component (customer segments, market positioning, revenue models) and a value creation component (production, purchasing, financing).

A business model is digital if digital technologies have a fundamental influence on the way the company does business and generates revenue. ^[2,4] However, the concrete degree of digitalisation of a company cannot be determined exactly. An approximation is provided by a consideration of two dimensions ^[5]: the degree of digitalisation of the processes and that of the products. This allows companies to be classified in a matrix – from analogue products and processes (e.g. in the business model of a cement manufacturer) to completely digital business models (e.g. the business model of a cloud provider).

In addition to products, processes and strategies, the consideration of business models is increasingly understood through the recombination and configuration of activities as a source of innovation. Thus, in addition to the use of new technologies, structural changes and strategic realignment, the analysis of the digitalisation of business models is becoming increasingly important in the context of the digital transformation of companies. ^[6]

In order to make the abstract concept of the business model tangible, there are a variety of modelling approaches as well as instruments of graphic and semantic representation. ^[1,2] For example, cross-company typologies are formed in research in order to recognise certain archetypal business models ^[7]. In the case of digital business models, this is a challenge due to the complex interconnectedness of companies with diverse actors and in practice increasingly requires the support of design programmes. ^[2] In order to check the individual value creation and revenue components of a business model as well as the linkage with strategies on the one hand and corporate processes on the other hand for their logical consistency, management analysis techniques are used at the level of the individual company. Here the Business Model Canvas ^[8] has established itself as a simplified but holistic tool.

History

The term business model was first used in 1957. However, the breakthrough of the business model concept in academic discourse and in practice only occurred during the New Economy boom around the turn of the millennium, in order to be able to explain the then novel e-business – especially the possibility of monetising internet-based offers. While the business model concept has become increasingly fragmented through its use in various research streams ^[3] it is widely applied in practice and is used almost inflationarily. In particular, the Business Model Canvas ^[8] in particular is finding its way into corporate strategy workshops and the start-up scene alike. With the omnipresence of digital technologies and their importance for entrepreneurial success, research is increasingly turning to digital business models to illuminate and map the value creation and monetisation of offerings in digital spheres ^[2,3]. In this context, the view of the company as part of a digital ecosystem is increasingly coming to the fore.

Application and examples

Digital business models permeate almost all areas of society and the economy. Here are some current examples of companies with digital business models:

• Netflix, video streaming provider
• Google/Alphabet, search engine and advertising provider
• Spotify, music streaming provider
• Airbnb, online marketplace for accommodation
• Uber, ridesharing app
• Salesforce, provider of CRM software and cloud computing solutions
• Tesla, producer of electric cars and their software solutions
• Nike, clothing manufacturer with e-commerce and digital community
• Trade Republic, online broker
• Lieferando, food delivery service
• LinkedIn, social career network
• LEGO, toy manufacturer with digital ecosystem
• HILTI, construction equipment manufacturer and service provider of smart equipment

Criticism and problems

Despite several attempts to integrate the numerous definitions of the business model concept, none has yet emerged as universally accepted in the literature. Teece ^[9] complains that there are almost as many business model definitions as there are business models. Not only the lack of a widely accepted definition of the business model and its core components have been and continue to be the subject of academic discussion, but also the differentiation from known concepts ^[3] but also the distinction from well-known concepts within management theory has been debated. The strategy researcher Porter argued as late as 2001 that the business model approach was virtually an invitation to flawed thinking and self-deception [10]. In the meantime, however, there is broad consensus that the business model, while inherently linked to a company’s strategy and business processes, is an independent construct [3]. However, the fragmentation and heterogeneity of business model research, in general, have also impacted the subfield of digital business models in particular ^[11]. Cumulative knowledge genesis is thus made more difficult.

Research

A bidt-supported project “Business models of data-driven start-ups and their positioning along the value chain” examines the business models of data-driven start-ups in order to understand at which point in the value chain of established companies disruptive start-ups start in order to either create opportunities for cooperation or to shake up the market.

With the project “Digital Transformation of Automobile Manufacturers – a Question of Identity“, the Institute is also intensively dealing with the effects of the digital transformation in the automotive industry. In this context, understanding digital business models is an important aspect of understanding the far-reaching changes in Germany’s key industry.

As part of the PhD project “Digital Start-ups and Rural Regions”, it is being investigated how the founding behaviour of start-ups with digital business models differs between urban and rural areas. The aim of the work is to show the potential of digital business models, especially for rural regions.

---