There are more than a dozen patterns of business models on the market, but the most important common characteristic of each of them is to generate income and build a competitive advantage, thanks to the value they offer to customers.
The selection of a pattern and construction of a business model is always done with reference to the market segment in which a company earns revenue and the models used by rivals.
A good model is always based on creating value for the company's customers that will become a competitive advantage.
What is a business model?
According to Clayton Christensen of Harvard Business School, a business model includes four elements: a value proposition for a customer, a profit formula, key resources and processes.
Some managers think that a business model is a particular pattern of an organization's operation, which you adopt and implement in a company.
The question is whether it is enough to introduce a subscription fee in exchange for providing a service to consider it a subscription model. Or is this just a form of online company offer?
A 2011 study by Ramon Casadesus-Masanell of Harvard and J.E. Ricart of IESE Business School found that an essential component of a business model must be the choices that managers make.
This means that a business model consists of employee remuneration policies, location of facilities, contracts with suppliers, as well as sales and marketing ideas. In other words, it is all about how the company operates.
Managers' choices have consequences. Pricing policy, a choice, influences sales volume, on which the scale and strength of a company's business depend.
Managers' choices stem from their values. And the consequences of these choices impact how a company creates value.
This means that business models are made up of managers' choices and their consequences.
Business model researchers have found that managers make three types of choices.
Choices regarding a course of action determine the steps taken by a company in every area of business operations.
For example, by hiring only Warsaw University of Technology graduates or locating the company's offices in smaller cities with lower resident incomes and higher unemployment rates.
Choices regarding assets refer to the material resources used by the company, for instance, server infrastructure.
Meanwhile, choices regarding supervision refer to the company's determination of decision-making powers regarding the previous two types of choices.
Should we buy servers or use AWS cloud services and pay only for the used server resources (AWS works on demand)?
The consequences of the decisions made have huge implications for customers, the cost of business operations, and the company's personnel policy.
It seems like a lot of difficult work. Right?
Business Model Canvas
Alexander Osterwalder made a real breakthrough in the popularization of business models. He has developed a Business Model Canvas, a tool that significantly simplifies the topic of a business model.
With the help of this tool, it is easier to understand the mechanism of designing a business model for any business and digital product.
The basic premise of the Business Model Canvas is to offer value to a selected group of customers for whom the provided product or service will be a solution to pain points and will create a relevant benefit.
However, the model will not work without the elements necessary to deliver value, such as channels to reach customers, customer relationships, activities and resources crucial to business success, partners, and an appropriate cost and revenue structure.
What is a Canvas?
It is a sheet of paper divided into parts necessary for the construction of the tool.
The presentation of the Business Model Canvas allows for a better understanding of the model and the information it contains.
The best business models create value spirals.
Value spiral, in other words, is a feedback compression loop that reinforces itself. It is among the most important aspects of a business model.
According to the researchers, this is the most neglected business element in recent times. The competitive advantage mainly comes from accumulated assets.
Take a look at an example.
The Polish studio Platige Image has decided to partner with CD Project on the Witcher game. It happened in 2007. If not for this decision, would, Platige Image studio has been a co-producer of The Witcher series produced by Netflix in 2019?
How did Platige Image, through its previous work, convince CD Project that it was worth engaging them for animation work on a popular game?
The consequences of choices made by Platige Image's managers created a value spiral that today provides a unique competitive advantage for the studio.
Is it possible to copy a model?
No, and there is no such tool that serves this purpose. Thanks to thinking in terms of value spirals, copying a business becomes impossible.
No company can accurately reconstruct the path of events, decisions, and choices that led a given company and its business to where it is today.
Business models in digital products
Several business model patterns are currently being used in digital products:
- subscription model,
- freemium model,
- marketplace model,
- using instead of buying model (also called 'access-over-ownership'),
- on-demand model,
- ecosystem-based model,
- free model.
The subscription-based model stands out among them.
We collect knowledge about the subscription business model in the Journal:
- Subscription model. Where conversion begins and what to watch out for
- Subscription for sanitary pads and shoes. How the subscription model is changing the market
Business Model in product design
For us, our client's business model is a crucial element of a project. We can divide the projects we carry out into two types: we create a digital product for a client (if it's a startup) or tailor a solution to fit an existing business model.
The Story has experience in implementing projects using a subscription, freemium, free, or ecosystem-based model.
If, in the latter case, we are required to understand the model in which the client operates, then in the former case, we often advise on which model to choose, and we participate in the design process.