Classroom Companion: Business

Digital Business 
Models
Contents
19.1 
 Modeling Concepts – 282
19.2 
 The Business Model
Canvas – 285
19.3 
 The Stakeholder Relationship 
Model – 288
19.4 
 Digital Business Models – 289
19.5 
 Conclusions – 301
 References – 304
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282
19
 
n Learning Objectives
After completing this chapter, you should be able to:
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Use the business model canvas to model digital businesses.
5
Use the stakeholder relationship model to model network effects in digital indus-
tries.
5
Explain the business model of some popular digital services, including World of 
Warcraft, Spotify, Facebook, Wikipedia, and Airbnb.
19.1
 Modeling Concepts
Business modeling as a tool for strategic business analysis was developed in the 
beginning of the twentieth century. One of the first business models was the 
“bait- and- hook” business model, in which a basic product is first offered for free 
or for a very low price, while necessary add-ons are sold for a high price. One 
example is the razor (bait) and blades (hook). Another example from the digital 
economy is the Adobe PDF software suite, in which the software needed to read 
PDFs is free (bait), while the software needed to generate a PDF is expensive 
(hook).
Leading developers of new business models in the twentieth century include 
companies such as Ford, Toyota, Wal-Mart, FedEx, and Dell. Dell revolutionized 
the way computers are sold to customers by bypassing retailers. Customers place 
the order directly with Dell who assembles the computer and ships it directly to the 
customer (just-in-time production). This business model was enabled and fueled 
by the mass adoption of the Internet. A common feature of these new business 
models is that they often exploited breakthroughs in novel technologies.
A business model describes how an organization (or company) creates, delivers, 
captures, and keeps value (Ovens, 
2015
). The model consists of items such as:
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How the organization earns money and controls expenditures
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Economic and organizational aspects of the organization
5
Competition and market evolution
5
Interrelationships between the organization and its customers, key partners, 
and other stakeholders
Business models are used as a strategic tool to identify key aspects of an organiza-
tion’s business operations, that is, the most important logics and operations that 
the organization relies on to earn money. The main purpose of a business model is 
to describe the current state of the organization. However, business models are also 
used as input to identify key strategic actions required for competitive evolution of 
the organization. The business model may be detailed and contain every aspect of 
the organization’s business operation. It may also be used to analyze and describe 
only parts of an organization’s business operations. Business models can be applied 
to all kinds of organizations.