The world as we know it today is continuously changing, and one of the fundamental drivers is digital transformation. Across industries, new digital business models have emerged—many in response to the pandemic as companies are forced to innovate their ways to meet customer demands. During the COVID-19 lockdowns, many digital-based subscription business models fared well due to their promise of convenience and strong business continuity. Organizations now more than ever feel the pressure to leverage digital investments to innovate with existing or add new monetization models.
According to Gartner’s predictions, digital business models (such as subscription-based business models) will continue to evolve for competitive advantage. Gartner also proclaims that organizations can turn continuous change into an asset if they sharpen their vision. Now, what does it mean? To put it plainly, digital business models are here to stay and have tremendous potential to grow in the years to come. These predictions bring us to our next BIG question.
How big is a digital transformation market?
A recent report from Grand View Research evaluated the global digital transformation market size at USD 608.72 billion in 2021 and is expected to expand at a compound annual growth rate (CAGR) of 23.1% from 2022 to 2030. Similar projections were made by Fortune Business Insights in their report. They predict that the global digital transformation market will grow at a compound annual growth rate (CAGR) of 22.1% from 2021 to 2028.
Looking at these figures, it is abundantly clear that digitally driven industries are growing faster than any other industry globally. Companies across industries are adopting different monetization models either to stay relevant in the market (survival) or to uncover new revenue streams (growth). One of the best examples is Kahoot!, the Norwegian educational gaming company founded in 2013 and now valued at roughly USD 2.2 billion. The company was born as a free platform for social learning, targeting particularly the education industry. It then changed its model and started to also target businesses with a commercial subscription offering that provides customers with premium features such as the number of participants.
According to IDC’s Digital Monetization Models report, 55% of organizations globally will focus on the digitalization of their products, services, and customer experiences. The key focus area for 2022 will be the revenue engine – in other words, how companies can leverage digital technologies to create new revenue streams and new monetization opportunities. This includes:
- Enhancing the customer experience by leveraging new digital interfaces
- Creating new ways to charge and monetize, such as subscription and usage-based models
Types of Digital Business Models
On a broad level, digital business models can be classified under four major heads. These are:
- Free (ad-supported) or Freemium business models are business models where users get free access to a basic version of the product for free (ad-supported). If users want to use premium features, then they can upgrade to the premium version by paying service fees. A great example would be Spotify, LinkedIn, etc.
- Subscription-based business models are business models in which a customer pays a recurring fee on a regular interval period for using products and/or services. Examples like Netflix, Office 365, Salesforce, etc. are moving from transacting with customers to building long-term relationships and recurring revenues.
- Usage-based business models are the new business models in which customers pay according to the usage of resources. In contrast to the subscription-based pricing model, the consumption-based pricing model charges customers based on the per-unit usage of the resources rather than a fixed price. Examples like AWS, Abertis, AXA, Uber, etc.
- E-Commerce or Marketplace business model is a business model where a seller and a buyer use a third-party platform to trade their goods and services. Examples include Zalando, Amazon, Facebook, etc.
These heads can be further classified into sub-heads such as On-Demand business models (examples like Uber), Access-over-ownership models (examples like Airbnb) etc., depending on the digital offerings.