Digital Business Models

Digital businesses have been rising the world over. With the advent of COVID and lockdowns now all offline businesses also want to move online. The problem is that an online business is not just an offline business with a website or an app. A successful digital business demands a clear understanding of digital business models and the digital way of working.

Digital businesses can be of many types but generally the world over digital business models fall into 6 broad categories:

Ads
Subscriptions
Paid Downloads
Freemium
E-Commerce
Uber for X

Ads

Most early internet businesses were ad supported and Google’s ad solutions really helped such businesses. The reason was that initially, the internet did not have online payments at scale. Ad supported is still a big business model for media related businesses. Ad supported business is viable only when you can garner an extremely large audience for your content. Once you have a large audience for your online content you can monetise it through ads. Ads from ad networks can be shown for money or ads can be procured directly from advertisers. Generally, direct procurement is possible only for big advertisers and initially, most businesses try to source ads from ad networks. Google runs the most prominent ad network.

Subscriptions

Many online businesses are now shifting to subscription based business models. Media businesses are especially exploring subscriptions in a big way. I have been advising a big media company in India over the years for their digital business and I have seen that subscriptions are a viable way to run an online content business. Subscriptions can also be explored in areas like gaming, EdTech, FinTech etc. Amazon even allows you to subscribe for items like detergent powder!

Software as a Service (SaaS) is a big business these days. Subscriptions is one of the best business models and offer good long term revenue potential once customers start liking the product.

Paid Downloads

Paid downloads is a popular business model in mobile applications and games business. Apple App Store offers rich opportunities to monetize app downloads. Google Play is also now catching up with Apple App Store. In the initial days of internet most people did not want to pay for apps but this is now changing. People have become more habitual in paying for online apps now.

Freemium

Many customers are initially apprehensive in downloading paid apps or content. A good way to break the ice with such customers is to offer freemium content. Freemium content means that you offer a part of the product free and then the user has to pay for getting access to rest of the product. Mobile games use Freemium business model extensively. Media companies these days use freemium extensively.

E-Commerce

E-Commerce is one of the earliest digital business models. Amazon has been there practically since the start of the consumer internet. E-Commerce has become big over the years and most countries now have big entrenched E-Commerce players. A big problem in E-Commerce is logistics cost and complexity. Amazon and many other companies also offer their platforms for selling goods. This has also become a viable option for selling E-Commerce stuff in many categories.

Uber for X

Ever since Uber succeeded many online businesses have started taking inspiration from Uber in various offline business categories. Urban Company in India is one such startup that has been providing high-quality repairing and maintenance services for homes and offices. In this business model, the main activity is done offline but the app or website acts as an interface between the offline service provider and the customer. The app provider also supports offline service providers through various helpful services. The total user experience is better than pure offline vendors and thus this business model is a win-win for all concerned if executed properly.

[ads]

The choice of any of the above business models depends on your offering in the market and careful business analysis. Generally, subscription is the most profitable business model as it offers regular money. Also, you can mix and match various business models.

A good example is Zoho which offers its software products as a subscription service and also allows free usage of some products up to certain limits. Thus Zoho uses subscriptions in conjunction with the Freemium business model. Amazon allows you to subscribe to E-Commerce products. Amazon Prime is also a good example of mixed business models. Media companies these days mix ads, subscriptions and freemium business models. Some of them also combine E-Commerce in their offerings.

Thus any startup should not go by fixed notions of business models. It should try to understand the various available options suitable for its offerings and try to innovate within available choices. Google was a business that became super successful due to its highly innovative business model initially. Google was able to give customers free search engine and in parallel became the biggest ads company in the world. It was able to create such a big competitive advantage through its business model that no company has been able to challenge it in its core offering till now.

Author: Saurabh Jain (Follow him on Twitter : @skjsaurabh)

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