What is a Digital Business Model?

what is digital business model

An introduction to digital business models and three great examples of digital innovation 

Every business, regardless of size or industry, is affected by increasingly digitised consumer habits. If they’re to maintain their competitive edge in the future, they need to understand and take advantage of the opportunities afforded by digitalization.  

Digitalization is important for many reasons, but the overarching goal is to make your business more adaptable to evolving consumer habits. Digitalization is crucial for acquiring customers as well as retaining existing ones. 

Moreover, digitalization can make it easier to scale with demand without adding operational risk. For example, cloud technologies make it possible to support remote workforces and cater to customers outside your normal service area.  

Digitalization also gives you access to data-driven insights, since every customer interaction that happens in the digital space leaves an auditable trail of data you can use to continuously improve your offer and add value.  

How do digital business models work?

Digital business models all share a number of characteristics. They add value in ways which would be impossible without the use of digital technologies. For example, companies like Uber or Airbnb wouldn’t be possible without them. But doing business in the digital space doesn’t just apply to online-only companies. It also offers traditional businesses ways to expand their reach through things like online support and services. 

Popular digital business models include online marketplaces, including intermediary ones like Amazon and eBay. Another increasingly popular model is the service-based model, in which customers subscribe to use a particular product or service instead of buying it. Yet another is the freemium model, which provides a limited degree of functionality free of charge with a view to onboarding paying users with minimal effort from sales.  

Starting with a minimum viable product (MVP)

An MVP serves two main purposes – deliver a measurable degree of value to its users, and to give businesses a way to validate their ideas by learning from its customers. Rather than focussing on the release of a full-featured product, an MVP reduces risk by incrementally improving the product based on feedback from end users. Again, although the term MVP is usually associated with agile software development, it’s not only relevant to exclusively digital businesses. 

An MVP has to carry enough value to end users so that it can sell. Although launching an MVP isn’t suitable for every industry, it’s ideal in high-risk, fast-moving industries where feedback is especially important from the outset. In this respect, it helps you avoid so-called feature bloat, where products become unnecessarily complicated due to unpopular features. In this respect, an MVP is about enabling a process that end users demand, rather than being focussed on the product itself. 

What are some great examples of digital business models?

Some of the most recognisable and disruptive startups in the world started off with an MVP. One example is Dropbox, which started with nothing more than a simple explainer video that illustrated one of the world’s first major public cloud storage services. Another is Facebook, which began life as a simple online directory for Harvard University students. Many traditional businesses have also shifted towards digital models to capitalise on the service economy and scale their operations with increasing demand. 

Here are some examples of innovative digital business models from Europe:

Delivery Hero 

Berlin-based Delivery Hero formed out of a shared vision for online food ordering. At first, the company only operated locally, with all deliveries being dispatched via the company’s mobile app by people using bicycles and cars. With brands in dozens of countries, it’s now a major global player in the gig economy.  

Camunda 

Camunda is an open-source workflow platform that automates business decision-making and many other routine operations. It was built on the vision that repeatable business processes should be automated to improve efficiency and reduce human error. It’s now a leading platform helping businesses scale their digital transformation initiatives and drive innovation. 

Get Your Guide 

Founded in Switzerland, Get Your Guide is an online travel agency and marketplace that gives tour guides and venues a place to book tours and activities and buy tickets to attractions all over the world. It started off as a simple website in 2007 for connecting amateur guides with tourists. It’s since grown into a global brand that raised $484 million in funding in 2019.  

Final words

Fast-changing consumer habits, driven by ongoing disruption and uncertain economic times, is placing more pressure than ever on companies to adopt scalable digital business models. By turning an idea into a common vision, today’s businesses can develop digital products and processes that deliver true value while keeping risk to a minimum.

At Venture Leap, we help SMEs leaders with their digital transformation strategy and execution. Get in touch or book a free session below if you want to know how digital product development and digital transformation go hand in hand.

Philipp Noack –
Co-Founder Venture Leap

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