I was asked the following question on business models selection on quora –
What are the advantages and disadvantages of traditional and digital business models for startups? Let me share my response here-
There are around 108 business models that any business decides to adopt. Uber, for instance, could choose from the following four:
Cross-selling
The Uber driver will sell other products/services. (e.g., selling souvenirs when giving tourists a ride).
Licensing
We are applying the technology of Uber to another service (e.g., starting UberBnB).
Bartering
Users don’t pay a certain price, but other goods or services are directly exchanged for the ride. (e.g., exchanging food or other groceries for a ride).
Auction
Rides will be sold by auction.
Let’s look at another example of a product- Microsoft Office. Microsoft used to sell Word and Excel to people like you and me. But now they offer Office365 in the cloud. You don’t buy and own the software, but you can use it whenever possible. So they changed their business model from a product – selling software – to a service – offering office in the cloud.
I am trying to illustrate with these two examples that there is no such thing as traditional or digital when it comes to business models. Business models are all about capturing value for your customers and your company. The business model selection will depend on understanding your customers. You should look at customers closely, segment them and profile them in as much detail as possible.
Think about the service or product you are taking to the market, analyzing along the way what is the best way to offer these to your customers so that they bring value to not just your company but also the customer. Of course, you will also have to look at your competitors closely, analyzing them comprehensively. Once you profile the customers, your company offerings, and your competitors, you can start thinking about choosing the business model.
Business model selection depends on the strategy of a business, the market environment, the nature of the offering, and above all, your customer. Think carefully before selecting one or more business models from the portfolio of 108 business models.
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