What is a Digital Business Model (Part 2)?
In part 1, we gained the key insight that we should not categorise business models based on their revenue models.
Most others do just that but there’s very little transferable knowledge. Microsoft Office uses the subscription model to monetise as does Netflix. Learning about MS-Office will teach us only little about Netflix.
However, if we correctly categorise MS-Office based on value creation as a Software-as-a-Service (SaaS) company, then we can transfer what we learned to thousands of other SaaS businesses.
Categorising Digital Business Models based on Value Creation leads to 11 Verticals with thousands of fascinating companies.
This was step 1.
We distinguished between 11 Digital Technology Verticals because the companies within each of these create value in similar ways and, therefore, have similar business models.
This time we will look into one of the verticals and see how to learn about thousands of business models at once!
Example: Asset and Service Sharing Vertical
Asset and Service Sharing is an intriguing vertical that includes companies like Uber, Airbnb, Lime (eBikes), DoorDash (meal delivery), TaskRabbit (home services), Fiverr (professional services) and thousands more.
These Digital companies are creating value by providing their customers with access to a shared asset and/or service.
All of them create value through a combination of a service and an asset component. However, the contribution of these components in value creation can vary a lot.
A meaningful way of subcategorising this vertical is the main value creation driver: the asset, the service or both to a roughly equal degree.
Up the top are the businesses where the shared asset is the primary value driver. At the bottom it is the service component. In the middle section, both components are of similar importance in value creation.
Let’s start at the bottom and work our way up.
Service sharing business models
This subcategory can be called service sharing or service provision.
Without exception services are provided by so called supply side participants, often also called gig economy workers.
The digital business always runs a platform business model in which they intermediate and manage the transactions between the supply side and the demand side (=the customers).
Pure service platforms specialise in different types of services. TaskRabbit offers home services (e.g. handyman cleaning). Fiverr and Upwork enlist professional services, such as programming, video/photo editing and hundreds more via their supply side participants.
Then we have very specialised services like meal and grocery delivery.
The online services sub-category may appear to be a pure services platform. But pretty much all services use assets to some degree.
Some services, like video editing, may require more powerful computers than the ordinary person has in addition to expensive subscriptions to Adobe Creative tools. But in many cases, it is also about the skill sets. Delivery drivers have their ebikes.
However, in the case of service platforms, the end customer never comes in contact with assets involved in the value delivery.
Asset & Service sharing
This is different in Asset & Service sharing platforms.
Here the customer (=demand side) uses the asset along with a service component. UberX is a key example in which the customer is transported within the mobile asset via a service (driving) provided by the supply side participant (the driver).
The distinction of this subvertical from service businesses is useful because the high cost of the involved asset drives a different financial operating model.
Asset sharing
Thousands of companies specialise in different types of shared assets. The most prominent shared assets are vacation rentals of homes, cars and ebikes. But of course, there are many more.
The most successful approach in real estate sharing became Airbnb. Bed & breakfast businesses existed for centuries. But the characteristics of digital technology propelled this to a real alternative to hotels for millions of new customers.
Cars are expensive assets that were among the first candidates for sharing business models. Many fascinating startups tried different business model approaches.
And we have bikes, ebikes and escooters. Thousands of companies globally tried their best, yet many went out of business. However, much knowledge has been gained with the latest generation of business models aiming for better outcomes.
Value Creation within Digital Business Model Verticals
So, we have quite a variety of businesses in this vertical. And of course, there are differences among these business models.
However, they also have many business model aspects in common in particular within their value creation activities, which include:
Attract supply side participants to their business
Verify supply side participants, conduct background checks where applicable, onboard them and get them started,
Ensure a truthful description of their services and assets
Categorise services, present them appealingly, make them browsable and searchable for the demand side
Match the most-suited supply side participants with the demand side searches
Manage the transactions, including payment, timely and safe service delivery, ratings and more
These value creating activities are among the core of these firms. Yet, we can say that all companies in this vertical have them as part of the business model.
Key insight: Businesses within the same vertical create value in similar ways. Learning about a representative set of examples within a vertical, we can transfer knowledge to thousands of other companies within the same vertical (and to some extent even to other verticals).
This is STEP 2.
I hope you enjoyed it!
Check out part 3 of our Digital Business Model fundamentals series: Two Fundamental Types of Digital Business Models.