A Netflix subscription or renting a car online for the weekend are things that have only happened thanks to Digital Transformation . The new digital business models have opened a range of possibilities in the business sector with which they have managed to meet the demands of customers and the current market.
With technological evolution, we have been able to see changes in Digital Business and its new digital business models. Thanks to this, they have emerged in companies from various sectors such as the media, airlines, tourism or financial intermediaries. We are already facing an era in which the way a company manages its relationship with consumers will surpass the current business-to-business intermediation model.
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Do you want to know what kind of models use Spotify, Uber or Airbnb? Well, keep reading this post where we tell you what the most popular digital business models are and how they work.
Index of contents
What is a digital business model?
Digital business models are the forms of business applied in the digital world. What is a digital business? This type of online business model takes advantage of technology to improve its services both within the company, as well as with its stakeholders and clients, and to make value and monetization proposals. If all this is achieved successfully, the results will be great digital businesses that enter an innovative market in which there are more and more players.
Digital business models you should know
Many well-known companies use these business models that we tell you about in this section. Take a look at these successful business models:
Peer to peer
In the market, Peer To Peer (p2p) business models are differentiated by putting two parties in contact, who are those who participate in a transaction, whether of products or services. In this business model we have the emerging Uber, the well-known Airbnb or the social network LinkedIn. Why is it necessary for both parties to participate? Because one of those parts cannot be given without the other. That is, none of these three examples that we give you could be given if they did not have the contact of their clients. Also, the market needs both parties to interact.
In this model, businesses are very attentive to market demands. We give you the example of Airbnb. If a group of friends wants to spend the holidays near the beach cheaply or a couple wants to live for a few days in a house in the center of Paris, you can find it in the application quickly and easily and at different prices that suit What they want. This arises when emerging businesses seek to meet needs that others do not offer and at the same time, demand is created.
The open source model is characterized by using freely accessible software, which enables a community of programmers to contribute. Companies like Red Hat, for example, make money by charging premium subscriptions and services associated with their open source software.
Last year, the company generated more than $ 2.5 billion in revenue, of which more than $ 2 million came from subscriptions and about $ 345 million came from training and services. But all these amounts do not translate into direct income for the company, these business models also involve expenses, such as sales and marketing, to distribute their services.
As highlighted in its annual report, thanks to the open source business model, Red Hat has three key benefits:
- Great distribution through free licenses of its software.
- Paid subscriptions for Premium and business customers.
- They create a business model based on open source and its success depends largely on the project’s ability to engage the community of developers and contributors in working on the source code to improve it.
This term, coined by the American businessman Fred Wilson, is a combination of the words “Free” and “Premium”. The idea behind this model is to offer a product or content for free while reserving good content for payment.
The paid content for users is known as Premium . Sometimes Freemium content includes integrated advertising or marketing even though the hope of digital businesses is that the advertising revenue and revenue from premium users will be sufficient.
Nowadays, attracting advertisers to this type of initiative is very important, especially when advertising is the main source of income for a company. Various studies have shown that only 5-15% of users are willing to pay for content on these platforms.
Companies like Adobe (with its Acrobat PDF reader) or Skype are examples of this model. In Adobe’s case, users can use their free version of Acrobat to read PDF files, but if they want to modify or edit the content of these files, they must pay for the updated version.
LinkedIn, the professional network, Dropbox, the cloud hosting service, iCloud, the Apple cloud or Flickr are some of the most popular platforms that use the Freemium / Premium model.
Businesses that opt for this model should ensure they have the following:
- A solid base of enterprise customers
- An optimized conversion funnel to switch free users to paid users
- A technological infrastructure that can handle a wide free user base
We are living in a subscription economy . The most entertaining and customer-centric services we know of today, from Netflix to Spotify to Amazon Prime, follow a subscription model.
This model can be very powerful as it has some advantages:
- A fixed customer base for a period of time
- A continuous stream of predictable income as subscribers pay upfront
- In terms of business planning, this system provides a clearer vision of the needs of the company
In short, many companies are “subscribing” to this model as it enables them to create a sustainable revenue stream over time. However, it is essential to note that creating this type of model is not an easy task. In fact, companies like Netflix and Spotify spend billions of dollars to produce original content that can make subscribers want to renew their plan.
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