Digital Business: the 10 Most Successful Business Models

Digitization has given rise to new, disruptive business models that can garner customers and generate revenue in no time – and often all it takes is the click of a mouse. As Nokia’s country manager for Austria during the company’s demise, Martin Giesswein got an up-close look at the disastrous consequences of enterprises ignoring digital business opportunities. “For the past two decades, companies employing certain business models in the internet economy have been most profitable,” says the digitization expert, who has also published the non-fiction book “Digital Game Changer.”
 

In his “Digital Game Changer” workshop at the WU Executive Academy, Martin Giesswein shows managers of (offline) companies how things are done in today’s economy. Using his business model canvas, companies can quickly analyze which digital business models are the best fit for their fields of business.

There are 10 digital business models:
 

1. The Subscription-Based Model

This is the most frequently used model many consumers already know from their electricity and mobile phone contracts. Martin Giesswein points out its great advantages: “You have recurring customers, so you don’t need to constantly invest a lot of time in securing new business.” When he was the CEO of Immobilien.net, a major platform for advertising real estate to potential renters, buyers, and investors, he opted for this model and offered annual subscriptions to real estate agents. “That generated 80 percent of our revenues at that time,” Giesswein remembers. His advice: “Take a close look at all sales processes in your organization. Frequently, purchases are individual transactions, each requiring handling and time. In many cases, a digital subscription would be easy to implement. That’s true for the majority of companies.” From a psychological perspective, subscription prices of around 9 or 14.90 euros work particularly well. “In this price range, consumers don’t think long when the service seems attractive,” Giesswein explains. “Subscriptions retain customers, who will be happy to pay if they benefit from the service.”
 

2. The No-Fee Model

The Google search is the perfect example: this great service is free to all users. Google, in turn, uses the search queries to generate trends and display ads on the results page. This business model is best summarized in the famous bon mot: if you are not paying for the product, you are the product.

3. The Freemium Model

The freemium model is based on a no-fee model intended to lure potential customers. The term is a combination of the words “free” and “premium.” “Often, users can then purchase a premium upgrade on a subscription basis to access further services,” Giesswein explains.
 

4. The Ecosystem Model

“At Nokia, we naively sold our phones to final customers via the mobile network operators. We had no clue who the final users were. Today, companies such as Apple or Google rely on the ecosystem model. They lure customers with a broad range of services, thanks to which they end up with all customer data, offering hardware, online services, music, mail, storage space, payment and streaming services, and also podcasts. For the user, staying in an ecosystem is easier and cheaper than leaving it.” Experts predict that in the future open ecosystems offering cross-organizational solutions and innovations will be the real game-changers. The model’s advantages: “Collaboration ensures that all customer needs are covered and sustainable solutions are found for all kinds of problems. In many cases, it’s the participating companies that benefit the most: they gain access to a bigger market while simultaneously saving through sharing costs.”

5. The On-Demand Model

In this model, the product is made available to customers on demand. “This reduces stockpile costs,” Giesswein says, pointing out how also conventional TV stations are changing their business models due to the fierce competition of streaming providers. “Linear TV is increasingly replaced by apps and media libraries, where viewers can watch shows and broadcasts on demand.” The on-demand model is also a promising option for conventional industries such as insurance: “This would mean only taking out an insurance once you have had an accident, after which your subscription continues for another five years – an extremely attractive outlook for consumers.”

6. The “Rent-Instead-of-Buy” Model

This model based on the idea of sharing goods is similar to the on-demand model. “Let’s say I find myself needing a car, so I rent one from a carsharing provider and use it for an hour. This will cost me only a fragment of what owning a car would cost me,” Giesswein explains, adding that “due to their overwhelming success, both models are used more and more often.” The one-off acquisition costs of providers are eventually offset by, in comparison, high revenues throughout the period the product can be rented out.
 

7. The Platform Model

“Uber takes it even further: The company does not even buy the required hardware, namely the cars, anymore but markets drivers including their cars for a fee – on demand and just in time. On top of that, Uber gets all the data,” Martin Giesswein says. Platform models are best suited for settings in which a large number of consumers can be connected to companies.
 

8. The Hypermarket Model

Amazon started out as a platform business for books. Today it sells goods from virtually every category, from food to technology to fashion, with the aim of driving out competitors. Goods and services purchased via Amazon are also easily available on demand. “The hypermarket model can be found in both digital and analog markets,” Martin Giesswein points out. Amazon, for one, has broached the logistics sector with its own airplane fleet and port licenses.

9. The Experience Model

“This model is about selling a positive customer experience to customers,” Martin Giesswein explains. Products in this line of marketing include Teslas, iPhones, and Red Bull drinks: they are all strongly linked to certain lifestyles. The respective margins are often impressive: while iPhones make up only 20 percent of the market when it comes to their numbers, they still account for 80 percent of the industry’s profits.
 

10. The Affiliate/Pyramid/Influencer Model

Digital goods can also be marketed to final users with the help of influencers sharing affiliate links in their photos or stories or marketing partners with many followers. In the offline world, Microsoft, for instance, sells or licenses its products via thousands of certified partners. This way, Microsoft can save labor costs while still counting almost 100% of all companies in every country among their customers.
 

“The more business models a company combines, the more successful it will be,” the digitization expert concludes.
 

See this overview of our continuous education offers on the topic of digitization and technology.

Update for Leaders

Join 15,000 + professionals and get regular updates on leadership and management topics. Learn something new every time.