1

Week 2
Part 2 : Industry Dynamics of Innovation Through
Digital Technology

Topic 1: Business Model Innovation

Dr Qiuyan Fan
Unit Coordinator
q.fan@uws.edu.au
http://www.uws.edu.au/staff_profiles/uws_profiles/doctor_qiuyan_fan
 2

Learning Objectives
• Identify and exploit the main business models and
revenue models made available through digital
technology and disruptive innovation.
• Explain the key elements in the Business Model
Canvas and apply it to a new start-up online business
for defining a clear online business model or to an
existing business for redefining their business model.
• Understand the importance of business model
innovation through digital technology and the
connection between business model and
technological innovation.
 Business Model

Timmers (1999) defines a ‘business model’ as:

An architecture for product, service and information
flows, including a description of the various business
actors and their roles; and a description of the
potential benefits for the various business actors; and
a description of the sources of revenue.
Key Ingredients of a Business Model
• Value proposition
• Revenue model
• Market opportunity
• Competitive environment
• Value chain and marketplace positioning
• Representation in the physical and virtual world
• Organizational development
• Management Team
 PAGE 5

Digital Value Proposition

• Digital value proposition (DVP) A statement of the benefits
of digital products or services that reinforces the core
proposition and differentiates from an organisation’s non-
digital offering and those of competitors.
 Revenue Model
 Describes how the firm will earn revenue,
produce profits, and produce a superior
return on invested capital.
 Main revenue models include:
 advertising model
 subscription model
 transaction fee model
 sales model
 affiliate model
 freemium model
Revenue Model Cont’d
 Advertising revenue model
 a company provides a forum for
advertisements and receives fees from
advertisers
(Yahoo.com)
 Subscription revenue model
 a company offers it users content or
services and charges a subscription fee for
access to some or all of it offerings
(Consumerreports.org or WSJ.com(Wall
Street Journal)
 Revenue Model Cont’d
 Transaction fee revenue model
 a company receives a fee for enabling or executing
a transaction (eBay.com or E-Trade.com)
 Sales revenue model
 a company derives revenue by selling goods,
information, or services (Amazon.com or
DoubleClick.net)
 Affiliate revenue model
 a company steers business to an affiliate and
receives a referral fee or percentage of the revenue
from any resulting sales (Mypoints.com)
 Freemium revenue model
a company offers users a basic service for free but
must pay for premium or add-on service.
 9

Class Discussion
Case Study 3.1: Innovation at Google

• How has Google innovated in search and its

business model?
• Explain how Google generates revenue and
exploits innovation in digital technology to identify
future revenue growth with reference to the
disruptive technologies and innovation discussed
in Week 1.
 10

Exploring Digital Business Models

• Purpose: To explore different types of business that have
been disrupted by digital technology and evaluate some
successful digital business model

• Michael Rappa’s basic categories of business models

http://digitalenterprise.org/models/models.html
 PAGE 11

Business model innovation

• Innovative: the extent to which the business model merely

imitates existing real-world or online models.
Note that imitation is not necessarily a problem if it is
applied to a different market or audience. e.g. e-Bay vs
Uber?

• Disruptive – Is it likely to be disruptive and make a real

impact in the marketplace or establish a new niche?

• Digital disruption: The change that occurs when new

technologies and business models affect the value
proposition of existing goods and services.
 Business Models Behind Digital Disruption
• 1 The subscription model (Netflix, Dollar Shave Club, Apple Music): Disrupts through
‘lock-in’ by taking a product or service that is traditionally purchased on an ad hoc
basis, and locking-in repeat custom by charging a subscription fee for continued
access to the product/service.
• 2 The freemium model (Spotify, LinkedIn, Dropbox): Disrupts through digital
sampling – users pay for a basic service or product with their data or time usage
(rather than money), and then get charged to upgrade to the full offer. This works
where marginal cost for extra units and distribution are lower than advertising
revenue or the sale of personal data.
• 3 The free model (Google, Facebook): Disrupts with an ‘if-you’re-not-paying-for-the-
product-you-are-the-product’ model that involves selling personal data or
‘advertising eyeballs’ harvested by offering consumers a ‘free’ product or service that
captures their data/attention.
• 4 The marketplace model (eBay, iTunes, App Store, Uber, Airbnb): Disrupts with the
provision of a digital marketplace that brings together buyers and sellers directly, in
return for a transaction or placement fee or commission.
• 5 The access-over-ownership model (Zipcar, Peerbuy, Airbnb): Disrupts by providing
temporary access to goods and services traditionally only available through
purchase. Includes ‘sharing economy’ disruptors, which take a commission from
people monetising their assets (home, car, capital) by lending them to ‘borrowers’.
 PAGE 13

Business Models Behind Digital Disruption Con’td

• 6 The hypermarket model (Amazon, Apple): Disrupts by ‘brand
bombing’ using sheer market power and scale to crush competition,
often by selling below cost price.
• 7 The experience model (Tesla, Apple): Disrupts by providing a
superior experience, for which people are prepared to pay.
• 8 The pyramid model (Amazon, Microsoft, Dropbox): Disrupts by
recruiting an army of resellers and affiliates who are often paid on a
commission-only model.
• 9 The on-demand model (Uber, Operator, TaskRabbit): Disrupts by
monetising time and selling instant access at a premium. This
includes taking a commission from people who are time-poor but
have money that are happy to pay for goods/services delivered or
fulfilled by people with time but little money.
• 10 The ecosystem model (Apple, Google): Disrupts by selling an
interlocking and interdependent suite of products and services that
increase in value as more are purchased, which creates consumer
dependency.
 14

Business Model Canvas – An approach to innovating business model

 15

Class Discussion

Case Study 1.1: Uber Business Model

Innovation

• What makes Uber so disruptive?

 PAGE 16

Business models and innovation

• The role of business models in business success and
their connections with technological innovation
• How to capture value from technological innovation and
deliver value to the customer?
• Business models as innovation
 17

Class Discussion
Reading: Business Models, Business Strategy
and Innovation

• Discuss the importance of business model

innovation in a fast-changing digital environment
and the important considerations for achieving a
sustainable and innovative digital business
model, using industry examples of business
model innovation to prove your points.