Digital Business Models - THM Summer Semester 2024 PDF

Digital Business Models (Module No. 1403) Summer Semester 2024 We begin our discussion by introducing the concept of the business model and some important characteristics. I.A.0. OUTLIN...

Digital Business Models (Module No. 1403) Summer Semester 2024 We begin our discussion by introducing the concept of the business model and some important characteristics. I.A.0. OUTLINE OF THIS MODULE I. Introduction to Business Models  Concept and characteristics  Value capturing & value creation models II. Digital Business Fundamentals  Key terms and characteristics  Segmentation & framework for analysis III. Basic/ Core Models  Electronic commerce models  Content(-driven) and service models IV. Platform Models  Marketplaces and crowdsourcing  Social networks and aggregator models V. Ecosystems  Consumer-/ End-user-oriented  Business-oriented/ industrial VI. Back-End/ Enabling Models  Cloud computing/ XaaS  Asset managers Source: own work Nils Madeja Page 11  Digital Business Models (Module No. 1403) Summer Semester 2024 Simply stated, a business model describes how a certain type of enterprise creates and delivers value…and thereby earns money. I.A.1.1. DEFINITION OF A BUSINESS MODEL What is a business model? What is not a business model?  Abstract, simplified representation  A real phenomenon in itself  A business model describes how a  A business benefit or value alone type of organization or enterprise:  An isolated pricing plan or model − Creates value with its activities,  A mere financial model, e. g.: − Delivers or transfers value to its − Payback/ ROI analysis, customers, and − Business case, or − Monetizes that value in order to − (Integrated) financial plan retain/ appropriate some of it  A competitive approach, e. g.:  A biz model comprises the relevant: − Strategy, − Parties or entities and − Tactical move, or − Relationships, esp. flows of − Positioning (of a brand) goods, money, and information  A business plan A business model is generic and should be distinguished from a specific business. Source: own work based on references [0.3], [0.5], [1.1]-[1.4] Nils Madeja Page 12  Digital Business Models (Module No. 1403) Summer Semester 2024 A business model describes how, on the outside, a business generates and delivers value to customers…and monetizes it. I.A.1.2. OVERVIEW AND EXTERNAL COMPONENTS OF A BUSINESS MODEL Flow of goods or services Flow of money Sales Sourcing Value capturing model Value creation model (Comprises flow of information) Partners Partners Internal components Custo- mers' Custo- Business Suppliers Custo- mers mers It consists of each one part (submodel) for creating and for capturing value. Source: own work Nils Madeja Page 13  Digital Business Models (Module No. 1403) Summer Semester 2024 A business model also describes the components for creating and capturing value that are located inside a business… I.A.1.3. INTERNAL COMPONENTS OF A BUSINESS MODEL Sales Leadership Procurement Partner mgt. Org. & Proc. Partner mgt. Products Capabilities Products Services Resources Services …as well as at the interfaces to its customers, partners, and suppliers. Source: own work Nils Madeja Page 14  Digital Business Models (Module No. 1403) Summer Semester 2024 In a more detailed view a business model can be segmented into further submodels and components. I.A.1.4. BUSINESS MODEL, SUBMODELS, AND COMPONENTS Source: adopted from reference [0.5] Nils Madeja Page 15  Digital Business Models (Module No. 1403) Summer Semester 2024 Business strategy gives guidance and direction, thereby determining the choice of the business model… I.A.1.5. SCOPE OF THE BUSINESS MODEL …whose mechanics, in turn, are detailed by the business process model. Source: adopted from reference [1.1] Nils Madeja Page 16  Digital Business Models (Module No. 1403) Summer Semester 2024 The Business Model Canvas is a widely employed (or standard) framework for developing business models… I.A.1.6. THE BUSINESS MODEL CANVAS …which can help to design (or formulate) submodels and components. Source: adopted from reference [0.3] Nils Madeja Page 17  Digital Business Models (Module No. 1403) Summer Semester 2024 The business model concept was developed around the turn of the millennium and has been evolving since then. I.A.1.7. EVOLUTION OF THE BUSINESS MODEL CONCEPT: DEFINITIONS Researchers have assumed different perspectives on the subject. Source: adopted from reference [1.5] Nils Madeja Page 18  Digital Business Models (Module No. 1403) Summer Semester 2024 Researchers have proposed various definitions for the business model concept, which vary in complexity. I.A.1.8. SELECTED DEFINITIONS OF THE BUSINESS MODEL CONCEPT Source: adopted from reference [1.1] Nils Madeja Page 19  Digital Business Models (Module No. 1403) Summer Semester 2024 Researchers employ or address a common set of components in their business model definitions – yet with varying intensity. I.A.1.9. COMPONENTS EMPLOYED IN VARIOUS DEFINITIONS OF THE BM Source: adopted from lecture notes to reference [1.5] Nils Madeja Page 20  Digital Business Models (Module No. 1403) Summer Semester 2024 A key element for assessing the viability of a business model is the value-add it generates, delivers and (partially) appropriates. I.A.2.1. VALUE-ADD OF A BUSINESS MODEL: ITS JUSTIFICATION  Providing customers with bigger benefits than existing offerings, e. g.: − Additional functionality (i. e. new features) Effective- − Better performance (e. g. more power or speed) ness − More favorable terms of use (e. g. accessibility or flexibility)  Or providing customers with new benefits from an entirely new offering  Enabling business customers to increase their revenues and profits  Providing customers with an existing offering at lower cost, e. g. by: − Employing new technology/ a new technical approach − Substituting/ bypassing players or stages in the value chain Efficiency (disintermediation) – especially sales channels  Thereby possibly enabling certain customers to use an offering at all  Enabling business customers to increase their profits due to lower costs The value-add can be segmented into effectiveness and efficiency aspects. Source: own work Nils Madeja Page 4  Digital Business Models (Module No. 1403) Summer Semester 2024 While some business models can be attributed to one of the two dimensions quite clearly… I.A.2.2. VALUE-ADD OF A BUSINESS MODEL: EXAMPLES  Fulfillment of basic human needs, e.g.: − Production of foodstuffs (agriculture) and consumer goods; related trade Effective- − Utilities (energy, water) ness  Provider of vehicles or transport services  Supplier of working machines or machine-driven tools  Leasing company (e. g. for vehicles)  Low-cost service providers (e. g. "no frills" airline, discount retailer)  Direct sales (often distance selling)  Supplier/ operator of digital communication networks Efficiency  Provider of automation technology/ solutions (e. g. industry, office)  Business process outsourcing (BPO, e. g. IT operations, service center)  Contracting (e.g. air conditioning of buildings) …other business models – particularly in the IT/ digital space – may affect both of them. Source: own work Nils Madeja Page 5  Digital Business Models (Module No. 1403) Summer Semester 2024 The case of a department store group shows that the (perceived) value-add of a business model can be lost. I.A.2.3.1. A BUSINESS MODEL THAT MAY HAVE LOST ITS VALUE-ADD: OCT. 2022 Düsseldorf, Berlin Angesichts der hohen Verluste des Warenhauskonzerns Galeria Karstadt Kaufhof werden Stimmen in Politik und Wirtschaft lauter, die vor einem weiteren staatlichen Kredit warnen. „Es kann nicht sein, dass der Staat mit Steuergeldern das Geschäftsmodell eines kriselnden Kaufhausriesen unterstützt“, sagte Wolfgang Steiger, Generalsekretär des Wirtschaftsrats der CDU, dem Handelsblatt. Und Patrick Zahn, Vorstandschef des Textildiscounters Kik warnt: „Hier wird gutes Geld schlechtem nachgeworfen.“ Galeria hat jetzt in einer Veröffentlichung im „Bundesanzeiger“ eingeräumt, dass das Unternehmen auch im Ende September abgeschlossenen Geschäftsjahr 2021/22 „mit einem Jahresfehlbetrag im unteren bis mittleren dreistelligen Millionenbereich“ rechnet. Für das Geschäftsjahr 2020/21 hatte das Unternehmen sogar einen Fehlbetrag von 623 Millionen Euro ausgewiesen. Auch in der Bundesregierung werden die Zweifel immer größer ob das Geschäftsmodell von Galeria eine Zukunftsperspektive bietet. Man sei sehr skeptisch, ob es noch einen weiteren staatlichen Kredit geben könne, heißt es in Regierungskreisen. It seems to be context-dependent (e. g. on demand, competition, technology development). Source: Handelsblatt (online edition) article, October 19, 2022; own work Nils Madeja Page 6  Digital Business Models (Module No. 1403) Summer Semester 2024 As the group went through bankruptcy proceedings three times in roughly 4 years… I.A.2.3.2. A BUSINESS MODEL THAT MAY HAVE LOST ITS VALUE-ADD: JAN. 2024 Die erneute Insolvenzanmeldung von Galeria Karstadt Kaufhof (GKK) sorgt bei Handelsexperten für pessimistische Prognosen. Johannes Berentzen von der Handelsberatung BBE äußert sich deutlich: "Mit der dritten Insolvenz wird ein Stück deutscher Handelsgeschichte zu Ende gehen, sie wird sehr wahrscheinlich zum Ende von Galeria Karstadt Kaufhof führen." Er bezweifelt, dass ein Investor den gesamten Galeria-Konzern übernehmen wird. Die skeptische Haltung der Experten basiert auf der Einschätzung, dass das derzeitige Geschäftsmodell von GKK nicht mehr zeitgemäß ist. Berentzen betont: "Das Prinzip, möglichst viel Auswahl zu guten Preisen ohne erkennbare Zielgruppe anzubieten, bieten Online-Marktplätze wie Amazon deutlich günstiger und für die Kunden einfacher an." Er zweifelt an der Umsetzbarkeit von Veränderungen, insbesondere wenn es an finanziellen Mitteln mangelt. …industry advisors increasingly questioned the viability of the business model. Source: Chip (online edition) article, January 10, 2024; own work Nils Madeja Page 7  Digital Business Models (Module No. 1403) Summer Semester 2024 In order to understand the mechanics of a business model it is necessary to understand the underlying drivers. I.A.2.4. DRIVERS (DETERMINING FACTORS) OF A BUSINESS MODEL Revenue Cost  Usage or Purchases  Fixed cost − (Repeat) customers − (Physical) assets − Users or purchases per cust. − Employees/ workforce − Individual usage/ purch. pattern − Intellectual property (IP)  Pricing model − Marketing (e. g. brand building) − Number of components  Variable cost − One-time vs. recurring payments − Customer acquisition − Usage dependent vs. flat-fee − (Re-)activating customers  Network effects (externalities) − Production or purchasing − Critical mass − Delivery and service (fulfilment) − Openness − Working capital The respective quantity structures should be studied using KPIs. Source: own work Nils Madeja Page 8  Digital Business Models (Module No. 1403) Summer Semester 2024 Scalability describes the ability of a business model to grow, considered in relation to the necessary amount of financing. I.A.2.5.1. SCALABILITY – THE CAPITAL INTENSITY OF GROWTH Growth dynamics Capital requirements revenues 1. Capital required for a business model to become self- sustaining (0. e. to get to cash break-even) 2. Capital required for lifting up a business model from one growth trajectory to a steeper one time Important: A business model does not need to be scalable in order to be viable! Source: own work Nils Madeja Page 9  Digital Business Models (Module No. 1403) Summer Semester 2024 The scalability of a business model is determined by the environ- ment in which it is implemented as well as its operational setup. I.A.2.5.2. SCALABILITY AND ITS DETERMINANTS Flexibility/ Environment Scalability Adjustability  Sufficient market  Internal factors –  Level of marginal potential/ size operations cost → Opportunities for − Organization  Development of growth (people) marginal cost, e. g.:  Low fragmentation/ − Production − Increasing barriers assets − Constant → Accessibility  External factors: − Decreasing − Supplies/ raw  Growth through materials network effects?  Continuous or stepwise? Remember that scaling may need to work both ways: up and down. Source: own work Nils Madeja Page 10  Digital Business Models (Module No. 1403) Summer Semester 2024 Certain risk factors determine the downside of a business model in general; in addition, there are business-specific risks. I.A.2.6. RISK FACTORS AND BUSINESS-SPECIFIC RISKS  Offering difficult to change  In addition there Rigidity are business-spe-  Own size/ scale hard to adjust cific risks, e. g. with respect to:  Low depth/ few stages of value creation − Market, Slimness  Lacking appreciation from customers − Execution, − Technology, − Legal  Lacking technological/ IP base Imitability − Etc.  Market position not defensible  These may vary for different  On certain competitive environment businesses within Dependence the same model!  On favorable regulation For investment decisions the overall risk needs to be weighed against the upside. Source: own work Nils Madeja Page 11  Digital Business Models (Module No. 1403) Summer Semester 2024 Next, we turn our attention to value capturing models. I.B.0. OUTLINE OF THIS MODULE I. Introduction to Business Models  Concept and characteristics  Value capturing & value creation models II. Digital Business Fundamentals  Key terms and characteristics  Segmentation & framework for analysis III. Basic/ Core Models  Electronic commerce models  Content(-driven) and service models IV. Platform Models  Marketplaces and crowdsourcing  Social networks and aggregator models V. Ecosystems  Consumer-/ End-user-oriented  Business-oriented/ industrial VI. Back-End/ Enabling Models  Cloud computing/ XaaS  Asset managers Source: own work Nils Madeja Page 13  Digital Business Models (Module No. 1403) Summer Semester 2024 The value capturing model describes the relationships between a business and its customers … and the monetization of value. I.B.1.1. VALUE CAPTURING MODEL – THE "FRONT-END" OF A BUSINESS MODEL Flow of goods or services Flow of money Sales Sourcing Value capturing model Value creation model (Comprises flow of information) Partners Partners Custo- mers' Custo- Business Suppliers Custo- mers mers It can be designed independently from the value creation model. Source: own work Nils Madeja Page 14  Digital Business Models (Module No. 1403) Summer Semester 2024 The questions who the customer is and how the money (revenue) flows are the starting point for every business model. I.B.1.2. CUSTOMER RELATIONSHIPS AND REVENUE STREAMS Who is the customer? How does the money flow?  Who uses the product or service?  Just once (one-time payment)?  What drives their experience?  Several times (instalments)?  Who makes the purchase decision?  Or regularly (recurring payments)?  Who influences (drives or inhibits)  At which terms? the purchase decision?  Directly or via third parties?  Who makes the payments? → Implications for: → Direct relationships to customers − Volume of revenues → Indirect relationships to customers − Revenue development with multiple (third) parties involved − Customer lifetime value − Cash management This may sound trivial, but the answers are not so obvious in many cases. Source: own work Nils Madeja Page 15  Digital Business Models (Module No. 1403) Summer Semester 2024 The target customer segment is an important characteristic of a business model, influencing its dynamics and stability. I.B.1.3. TARGET CUSTOMER SEGMENTS Consumers  Many small accounts (B2C)  Short sales cycle and easy to win ( competition, loyalty)  Short term of payment Businesses  Accounts of all sizes – the larger the fewer (B2B)  Medium to long sales cycle; more difficult to win  Medium to long term of payment Administration  Usually large accounts (B2A)  Long sales cycle; difficult to win (complex RFP process)  Long term of payment Machines  Potentially huge number of small to very small accounts (B2M)  Very short sales cycle; technically demanding  Very short term of payment (if infrastructure is provided) Complex relationships to the final customer also exist (e. g. B2B2C). Source: own work Nils Madeja Page 16  Digital Business Models (Module No. 1403) Summer Semester 2024 Value capturing models can be characterized by analyzing typical customer relationships along their lifecycle. I.B.1.4. ANALYSIS OF CUSTOMER RELATIONSHIPS ALONG THE LIFECYCLE Acquisition Development Termination  Sales Channels:  Basket size: reve-  Customer loyalty: Ways to the cust. nue per transaction customers leaving  Lead generation: (up-/ cross-selling)  De-marketing: Addressing poten-  Repeat purchases: Leaving customers tial customers no. of transactions → Defection rate  Conversion: Turn-  (Re-)Activation: (churn rate) ing Leads into cust. "(Re-)Animating" → Customer lifetime customers → Sales Cycle (CL) → Customer acquisi- → Repeat purch. rate → Customer lifetime tion costs (CACS) → Costs per order value (CLV) (CPO) These characteristics can be measured using key performance indicators (KPIs). Source: own work Nils Madeja Page 17  Digital Business Models (Module No. 1403) Summer Semester 2024 Pricing models determine what the customer pays for. I.B.1.5. PRICING MODELS Usage-based  Depending on consumed volume, features, or performance vs. flat fee  Vs.: irrespective of actual usage  Part of the functionality or capability is offered for free Freemium  What goes beyond (also services) is charged for Success-  Remuneration is based on customers' performance criteria based  Entrepreneurial approach: share (risks and) profits Single vs. Mul-  Only one component (simple, easy to understand/ manage) ticomponent  Several components (more complex and difficult) A proper choice of the pricing model is key for maximizing a business' income. Source: own work Nils Madeja Page 18  Digital Business Models (Module No. 1403) Summer Semester 2024 Multicomponent pricing models enable businesses to capture value from several aspects of value delivery… I.B.1.6. EXAMPLES FOR MULTICOMPONENT PRICING MODELS  Printers (hardware platform, high value) are sold at low margin Printers &  Ink cartridges (replacement parts, low value) are sold at a high margin ink car-  Both designed as a closed system – only the OEM's cartridges will work tridges  Similar: coffee machines & capsules, cars & spare parts, razor & blades  Similar to the above, but with a service component as add-on Systems &  Service component is often offered as a multi-year contract service  Customers are given a strong incentive (forced to) buy OEM's service  Examples: cars/ industrial machines/ software & MRO services  Basic features and service volume are sold at low price/ margin (initially) Mobile  After the initial period (upon automatic renewal) the price increases comm.  Additional features (e. g. short messages, international calls), and service plans volume are sold at high margin …often exploiting low transparency, selective price sensitivity, and lock-in effects. Source: own work based on references [0.1] and [1.6] Nils Madeja Page 19  Digital Business Models (Module No. 1403) Summer Semester 2024 First, we continue our discussion of value capturing models, namely the specific aspect of pricing models. I.B.0. OUTLINE OF THIS MODULE I. Introduction to Business Models  Concept and characteristics  Value capturing & value creation models II. Digital Business Fundamentals  Key terms and characteristics  Segmentation & framework for analysis III. Basic/ Core Models  Electronic commerce models  Content(-driven) and service models IV. Platform Models  Marketplaces and crowdsourcing  Social networks and aggregator models V. Ecosystems  Consumer-/ End-user-oriented  Business-oriented/ industrial VI. Back-End/ Enabling Models  Cloud computing/ XaaS  Asset managers Source: own work Nils Madeja Page 3  Digital Business Models (Module No. 1403) Summer Semester 2024 Pricing models determine what the customer pays for. I.B.1.5. PRICING MODELS Usage-based  Depending on consumed volume, features, or performance vs. flat fee  Vs.: irrespective of actual usage  Part of the functionality or capability is offered to free Freemium  What goes beyond (also services) is charged for Success-  Remuneration is based on customers' performance criteria based  Entrepreneurial approach: share (risks and) profits Single vs. Mul-  Only one component (simple, easy to understand/ manage) ticomponent  Several components (more complex and difficult) A proper choice of the pricing model is key for maximizing a business' income. Source: own work Nils Madeja Page 4  Digital Business Models (Module No. 1403) Summer Semester 2024 Multicomponent pricing models enable businesses to capture value from several aspects of value delivery… I.B.1.6. EXAMPLES FOR MULTICOMPONENT PRICING MODELS  Printers (hardware platform, high value) are sold at low margin Printers &  Ink cartridges (replacement parts, low value) are sold at a high margin ink car-  Both designed as a closed system – only the OEM's cartridges will work tridges  Similar: coffee machines & capsules, cars & spare parts, razor & blades  Similar to the above, but with a service component as add-on Systems &  Service component is often offered as a multi-year contract service  Customers are given a strong incentive (forced to) buy OEM's service  Examples: cars/ industrial machines/ software & MRO services  Basic features and service volume are sold at low price/ margin (initially) Mobile  After the initial period (upon automatic renewal) the price increases comm.  Additional features (e. g. short messages, international calls), and service plans volume are sold at high margin …often exploiting low transparency, selective price sensitivity, and lock-in effects. Source: own work based on references [0.1] and [1.6] Nils Madeja Page 5  Digital Business Models (Module No. 1403) Summer Semester 2024 In the next step, we address value creation models, the other important segment within a business model. I.B.0. OUTLINE OF THIS MODULE I. Introduction to Business Models  Concept and characteristics  Value capturing & value creation models II. Digital Business Fundamentals  Key terms and characteristics  Segmentation & framework for analysis III. Basic/ Core Models  Electronic commerce models  Content(-driven) and service models IV. Platform Models  Marketplaces and crowdsourcing  Social networks and aggregator models V. Ecosystems  Consumer-/ End-user-oriented  Business-oriented/ industrial VI. Back-End/ Enabling Models  Cloud computing/ XaaS  Asset managers Source: own work Nils Madeja Page 6  Digital Business Models (Module No. 1403) Summer Semester 2024 Risk-return profiles of business models vary in their sharpness – or flatness – depending on the value creation model. I.B.2.8. POTENTIAL RETURNS OF VALUE CREATION MODELS VS. MARKET FIT Potential returns Value creation model employed:  Asset model  Service model  Solution model  Product model  License model Neg. Deviation "Ideal" Pos. Deviation  Platform model The higher the potential returns, the higher the market fit needs to be. Source: own work, curve shapes based on material from SlideHUNTER Nils Madeja Page 14  Digital Business Models (Module No. 1403) Summer Semester 2024 To which of the fundamental value creation models do the following business models belong? I.B.2.9. FUNDAMENTAL VALUE CREATION MODELS -- EXERCISE  Mine  Shipyard  Automobile manufacturer  Retail store  Airline  Law firm  Franchise chain  Construction company  Insurance company  University  Sports club  […]  Do you have a suggestion? There may be room for interpretation in some cases. Source: own work Nils Madeja Page 15  Digital Business Models (Module No. 1403) Summer Semester 2024 The value creation model describes how a business generates ("produces") its offering from various supplies. I.B.2.1. OVERVIEW AND COMPONENTS OF A BUSINESS MODEL Flow of goods or services Flow of money Sales Sourcing Value capturing model Value creation model (Comprises flow of information) Partners Partners Custo- mers' Custo- Business Suppliers Custo- mers mers Several typical – or fundamental – value creation models can be distinguished. Source: own work Nils Madeja Page 3  Digital Business Models (Module No. 1403) Summer Semester 2024 In the asset model the operation of production or generation equipment yields a fixed output and, usually, a fixed income. I.B.2.2. ASSET MODEL  Generation of a commodity or raw material; fulfillment of basic needs Value-add  Utilization or exploitation of a production asset (e. g. a machine or plant)  Transformation of supplies (raw materials, fuels, or natural resources)  Growth dynamics: flat output curve (capped by capacity of asset) Scalability  Capital intensity: typically very high, long depreciation periods → Not scalable  Inflexible – output type determined by asset; stable operating costs Risks  Squeezed in between supply costs and product prices  … or fixed margins – then depending on regulatory environment  Utilities (power generation, gas- or waterworks); telcos Examples  Freight transport (sea, rail, or road) – in the sense of providing capacity  Farming/ agriculture, forestry, fishing; mining It is therefore considered a quite predictable (i. e. "safe") model where it works. Source: own work Nils Madeja Page 4  Digital Business Models (Module No. 1403) Summer Semester 2024 The product model is based on the development and manufac- turing of goods; it scales well with the number of units sold. I.B.2.3. PRODUCT MODEL  Creation, (mass) production, and provision of standardized goods Value-add  Realization of certain features or functionality (at all or at lower cost)  Value of goods may be driven by customers' perception and not by cost  Growth dynamics: linear growth with number of units sold Scalability  Capital intensity: development – high; production – depends on sourcing → Very scalable – number of units can be adjusted to meet market demand  Quite inflexible – goods and their production are largely determined during Risks development phase; changes may be costly and take time  Change in demand according to product lifecycle (decrease at the end)  Consumer goods (FMCG, electronics, or luxury goods) Examples  Industrial components (nuts, bolts, standard ICs, or cables)  Information technology hardware Due to the investment necessary for development, it has a sharp risk-return profile. Source: own work Nils Madeja Page 5  Digital Business Models (Module No. 1403) Summer Semester 2024 The (human) service model relies on people working for and with individual customers to create incorporeal value. I.B.2.4. SERVICE MODEL  Generating incorporeal value or benefit for the customer Value-add  Production: people working with the customer, its assets, and context  Outcome is often intangible and customer-specific (or even unique)  Growth dynamics: limited output per service employee ("head") Scalability  Capital intensity: medium – up-front investment in heads → Slowly scalable – by recruiting and onboarding (or offboarding) heads  Low risk with respect to target customers and offering – very flexible Risks  Limited risk with respect to individual service employees  In a downturn fixed costs for the employee base may become a liability  Maintenance, repair, and overhaul (MRO) Examples  Management consulting and advisory services  Medical treatment and care It is therefore very flexible, but only slowly scalable. Source: own work Nils Madeja Page 6  Digital Business Models (Module No. 1403) Summer Semester 2024 The solution model combines elements from the product and the service models to deliver customer-specific goods. I.B.2.5. SOLUTION MODEL  Provision customer- or application-specific goods by configuring, Value-add modifying, or amending standardized goods with further components  I. e. made up of "core" product(s) and service component(s)  Growth dynamics: between service and product model Scalability  Capital intensity: higher than either (dev. plus employee investment)  Moderately scalable – service component "leveraged" by product  Some risk due to specificity of "core" product(s) – mitigated by flexibility Risks from service component(s) – and high overall investment  Usually targeting niche markets, thus linked to specific economic cycles  Special-purpose machinery and industrial plants Examples  Enterprise application systems  Application-specific integrated circuits (ASICs) or chipsets Its risk-return profile is therefore a blend of those of the two models. Source: own work Nils Madeja Page 7  Digital Business Models (Module No. 1403) Summer Semester 2024 The license model is a special form of the product model with intellectual capital (IP) at its center. I.B.2.6. LICENSE MODEL  Creation, (legal) distribution, and monetization of intellectual property Value-add  Proliferation of intellectual property across market players and industries  Allows separation of development and production of physical goods  Growth dynamics: with number of licenses sold, granted … or activated Scalability  Capital intensity: development – high; distribution – very low → Extremely scalable – new licenses can be issued quickly/ on demand  Various legal risks (e. g. patenting, licensing terms, license enforcement) Risks  IP is the only asset, very hard to substitute  Very inflexible – re-developing IP and licenses is difficult  Media (content products or brand rights) Examples  Technology (transmission or encoding standards)  Life sciences (drugs or special chemicals) As IP is the only asset, this model has a very sharp risk-return profile. Source: own work Nils Madeja Page 8  Digital Business Models (Module No. 1403) Summer Semester 2024 The platform model benefits from attracting third parties and facilitating their business with one another. I.B.2.7. PLATFORM MODEL  Establishing, providing, and managing a site for the exchange of contacts, Value-add goods, or services between third parties – monetizing transactions  Customers'/ participants' view: one site for meeting many parties or needs  Growth dynamics: low for long, then high – a typical "hockeystick" curve! Scalability  Capital intensity: high until gaining critical mass; low afterwards → Highly scalable – organic growth due to positive network externalities  Little flexibility during buildup phase – service model as a fallback Risks  Customers/ participants might try to bypass the platform  Maintaining platform hygiene may become a challenge  Commercial marketplaces (street markets or stock exchanges) Examples  Private clubs or associations  Broadcasting networks (satellite, cable TV, or terrestrial) The challenge is to attract a critical mass of participants and offerings. Source: own work Nils Madeja Page 9