Homework №3 Essay 2 Zimina Daria MDI191

2)  Explain the application of business models to examples of companies providing digital goods.

With the development of digital technologies the concept of business model also undergone changes.
According to the definition provided by the Osterwalder, Pigneur and Tucci: “A business model is a
conceptual tool that contains a set of elements and their relationships and allows expressing the business
logic of a specific firm. It is a description of the value a company offers to one or several segments of
customers and of the architecture of the firm and its network of partners for creating, marketing, and
delivering this value and relationship capital, to generate profitable and sustainable revenue streams.”
Actually, every business should be started with the business model, defining its structure, processes and
implemented infrastructures and services. So, digital infrastructures, that are complex of shared information
technology resources (software and hardware) and used by a company or a community to enable their
efficient and proper operation, are widely used with many businesses nowadays. They include
communicational, information and data exchange platforms, management systems and many other
infrastructures, that enables new business platforms to appear. For example, the appearance of the iTunes,
created by Apple, made the existence of iPods possible all along with the making lives of recording
companies easier, as they do not have to cope with intellectual property rights anymore.

Osterwalder, Pigneur and Tucci have defined nine essential blocks (components) of the business model:
value proposition – complex of company produced goods for a particular customer’s need; target customer
– typical consumer of a product, defined by the company; distribution channel – the way the company
wants to communicate with its consumers; relationship – company/customer links (face-to-face,
automated); value configuration – activities and resources that are necessary for the busines model
operation; core competency – core business activities; partner network – cooperative agreements with
other companies enabling their efficient operation; cost structure – monetary externalities of the business
model and business operation; revenue model – the way company makes money. By the considering all
these factors it is possible to understand how business operate on terms of its model.

As it was mentioned above, business model is interconnected with the digital infrastructures and
information systems, especially with its choice for particular business or a company. By analyzing the
business model through already mentioned nine factors is possible to choose the most suitable information
systems, digital infrastructures and models in order to make business more efficient, profitable and
convenient for consumers. So, such an approach will help to reduce the costs for investments and save time
for the best choice. For example, through understanding the business model of Alibaba (e-commerce), we
can explain why they are investing in electronic payment systems (Alipay): with their market share it is more
profitable to use own payments systems.

However, not only business models define digital infrastructures used, but it also works vis-a-versa: digital
infrastructures helps to innovates business model. So, there exist a 360° Business Model Innovation
proposed by the Rayna and Striukova, that is presented with five key elements: value creation – the way
how the firm creates value through external and internal resources; value propositions – the way the firm
decides what to produce and sells for the defined price; value delivery – the way how the final product is
delivered to the market; value capture – the way how the firm gets the revenue (created value); value
communication – the way how the communication of a firm with consumers and partners is done. Actually,
the business model is going through the innovation, when one or more of these elements is changed. Of
course, not all changes can be considered as an innovation, and it is necessary to analyze the qualitative
changes in product development, production, distribution, communication channels and as a consequence -
the growing number of consumers and revenue.
In order to better understand the topic of interconnectivity of business models and digital infrastructures I
want to provide an example of Airbnb and sharing economy. Actually, Airbnb is an e-commerce service, that
links people, that are ready to land their flat or house for a short period of time, with those, who are ready
to rent it. The usual rent time varies from several days to several months. Its business model is a
marketplace for rented accommodation, whose revenue is based on bearing a commission. It uses Internet,
mobile technologies (mobile applications) as a digital infrastructures for its operation. Moreover, it provides
a communication channels for landlords and tenants for sharing information about the accommodation
(especially feedbacks), what makes the service more trustworthy and reliable.

Taking all things into consideration, digital infrastructures and business models are strongly interconnected
with each other. So, the development and changes in one of them, makes the other one also to innovate
and change. It is necessary to analyze both concepts for the best choice in terms of business’s efficient and
profitable operation.