The Secrets Of Successful Digital Business Models
Innovation is about creating a solution with value for customers that is successful in the market and for the business. By understanding the real needs of the customers and moving from idea generation to developing a solid value proposition together with a winning business model, you will create successful innovations and reduce the risk.
In the 20th Century we analysed linear value chains to understand the value creation and value movements and exchanges within business ecosystems. The exchanges were simpler with mainly products or services delivered and money was flowing in the opposite direction.
In the 21st century and as the economy is becoming more connected, more global, more complex and more digitized, we are moving from value chains to Value Networks and Digital Business Models.
Value Network is about inter-organizational exchanges as an attempt to address the increasing complication of inter-firm relationships, pushed by a more and more connected economy.
A value network or ecosystem is defined as a value creating system in which all involved stakeholders (People, Companies, Institutions, Governments,…) co-produce value. The Platform technology enables this co-production.
This fact gave rise to the Platform Business Model, which is a way to create, deliver and capture the value co-produced between the stakeholders in the network.
In the 21st century, Value Network participants are co-creating value with complex network interactions including many different flows:
- Products or services
- Financial flows
- Information flows
- Intangible flows related to reputation or opinions or brand, ….
From all above flows what has changed lately with sensors and other network technologies like IoT, is the Data >> Information and finally Insights flow revolution.
Data is becoming an asset for value creation not only because of the growing amount of it that is available from many sources, but also because digital data – unlike traditional market research data – is increasingly accurate and ‘real-time’. This gives you greater speed and accuracy in understanding your target customers and adapting and controlling your business world. This data revolution accompanied from exponentially growing technologies give birth to innovative Digital Business Models.
The picture below shows the example of LinkedIn with the various Value Network participants, connections with other platforms and the various flows of services, financial flows, content/information flows and it is missing other/reputational flows.
Another example of value network is Twitter. The Twitter network has a lot of stakeholders that contribute to value production from all sorts of different angles. A good example that acquired by Twitter is Gnip (Data Analytics). Moreover, every developer who uses the Twitter APIs is a stakeholder too and co-produces value, too. In fact, a great portion of Twitter traffic is not actually produced by Twitter products, but comes from third parties out of Twitter’s value network. Twitter decided to create a virtual platform which enables third parties to leverage the assets provided by the platform (Twitter’s API and developer program). Such a platform facilitates integration and makes collaboration a lot easier.
In fact the creation of successful Value Networks/Ecosystems requires a few steps:
- Create a full picture of the participants and flows (e.g Technology provider)
- Verify the assumptions made
- Understand the type of partnerships and interactions needed for success and evaluate acquisitions or strengthening the partnerships
- Update the network with how it must be to enable a successful business model.
If you want to learn more about the sunject the Book “Innovation Design” from Elke ten Ouden is very good. www.elkedenouden.com
As the article is not about designing of digital business models (There will be soon another article) but about secrets of Digital Business models I will now switch after this introduction to the secrets that create disruptions and successful Digital Business Models:
1. Industry and Market Boundaries are fading
As many of the new exponentially growing technologies (Cloud, Machine Learning, AI, Robotics,…) go across industries it gives the opportunity for many companies to expand easily their businesses in new industries.
e.g Google started with search and the last 10 years has expanded to:
- Enterprise Software with Google apps
- Mobile with Android
- PC with Chromebooks
- TV with Youtube
- Home Automation with Nest
- Automotive with Google Autonomous Cars and Technologies
2. Digital Business Models
There is a shift from Traditional to Digital Business models enabled from Data, Exponentially Growing Technologies and Platforms:
- Value Creation: From Product/Service creation in own industry to Value Creation in a new industry
- Value Delivery: From delivering products through distributors to deliver Value with Products, Services or Data through Value Networks
- Value Capture: From selling products/services for money to Capture Value as Money
Google: Creates value with Google Play (Media), Android (Handsets) and Google Wallet (Retail) and captures value through ad sales (advertising), its core business
Amazon: Creates value with Kindle (Handset) and Amazon apps (Media) and captures value through e-commerce, its core business
3. Innovation Strategy, 3 major options:
- Acquire a company in the new space, this is increasingly used with almost weekly acquisitions of start-ups from the established companies ( Apple, Google, Microsoft, Tencent, Alibaba,.. )
- Invest to create the new business in a new market, the old way
- Use existing technologies you have to transfer value to a new industry and create back value for the core business.
1. See above Google and Amazon examples.
2. Tencent: Created e-payment (Mobile Payments) and other services that are bundled with the core e-commerce application part of wechat and deliver double value from commissions.
Conclusion: The shift from linear value chains to value networks enabled from Data, Exponentially Growing Technologies and Platforms not only causes industry boundaries to fade but support innovative companies to disrupt other industries with value creations that enable capturing of value back to the core business.
Any other thoughts?
Thank you very much
Mike Mastroyiannis is Business, Innovation, Management & Executive Coach and Consultant for among others in Team and Business Transformations as well as in Exponentially Disruptive Innovations. He has served as CEO of business units in Multinationals, founded or lead start-ups and serves in advisory boards. He can be reached through LinkedIn or email mike@TenX2.com