Classroom Companion: Business

 
Chapter 19 · Digital Business Models

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Definition 19.1 Business Model
A business model describes how an organization creates, delivers, captures, and 
keeps value.
In the definition of business model, the concept of value appears. Value, in this 
context, is an abstract concept comprising more than just the monetary value 
of a product. Value might, for instance, comprise new features enabled by novel 
technologies, improved performance, exclusive design, and usability of the prod-
uct. The core of a business model is the value that the organization creates. An 
organization can justify its existence by creating value, delivering value to cus-
tomers, and supporting efficient mechanisms for gaining revenue from the value 
created. In addition to this, the organization must also defend this value from 
competing organizations. This may be called the business process as defined in 
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Definition 
19.2
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Definition 19.2 Business Process
The business process consists of the following elements:
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The organization creates value by solving problems or satisfying customer needs. 
A manufacturer of mobile phones may offer a low-cost mobile phone to people 
with slender means and expensive mobile phones with exclusive design and addi-
tional features to techno-freaks. Built on the same basic technology, the manu-
facturer may then satisfy several user segments at the same time.
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The organization delivers value to the customer through either physical or digital 
channels. Value delivery in this context refers to how the organization transfers 
the value created to the customer. An example of value delivery is to ship a pur-
chased mobile phone to the customer via postal services. Another example is to 
update the phone by downloading new software.
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The organization captures value when its customers pay for the good or reward 
the organization by other means. The revenue covers costs and creates profit for 
the organization. An example of captured value is payment for the mobile phone 
and fees for using particular features such as apps.
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The organization keeps value by, for example, improving the design and func-
tionality of the product and by mechanisms protecting against competition. Pro-
tection mechanisms are lock-in of customers to products or services that are 
difficult to copy, protecting the product by copyrights and patents, or selling it 
for prices that cannot be matched by competitors.
A digital business model is a business model applied to digital goods or services. 
Digital business models are facilitated by the widespread use of the Internet, mobile 
technologies, smartphones, and fast and small computers. As digital technologies