This document discusses various aspects of digital business models, including: - Defining characteristics of digital businesses such as low incremental costs, network effects, and viral marketing. - Examples of free and freemium business models including search engines, social networks, and cloud services. - Revenue models for digital businesses such as advertising, commissions, subscriptions, auctions and crowdsourcing. - The importance of network effects and how different types of digital startups leverage these effects. - Emerging areas like the internet of things and how connected devices are expanding digital business opportunities.

1. Mestrado Integrado em Engenharia e Gestão Industrial
Digital Business - Unique Features and Future
Evolution
DIGITAL BUSINESS ECOSYSTEMS
2015-16
António Grilo
Aneesh Zutshi

2. DIGITAL BUSINESS
António Grilo| Digital Business Ecosystems, 2014

3. 3
Definition

4. 4
Expanding Scope of a Digital Business
•E-Commerce, Hotels, Travels
Web Sites
•Facebook, Linked-in
Social Networks
•Airbnb, Uber
Social economy
•Skype
Desktop Apps
Tablet/Mobile App
Internet of Things, Sensors, Gadgets
Robotics

5. ONLINE BUSINESS CHARACTERISTICS
1
Low incremental Usage Costs
Free
Freemium
Networked Market
Rapid Word of Mouth
Globaliza on
Network Effects
Product and Marke ng Integra on
To encourage online Word of Mouth
eg. Facebook likes.
Direct Incen ve for products with
Network Effects
Viral Marke ng
Revenue Models
Freemium - Carefully design bait and
hook
Smaller units of charge
Rebundling features
Differen al Pricing
5

6. FREE AND FREEMIUM SERVICE
6
• Targeted Ad Supported – Indirect Revenue
• Increased Adoption
• Increased Word of Mouth
• Demonstration of Basic Version
• Increases Value for paying customers for products with Network Effects

7. FREEMIUM
• A small percentage (usually less than 5%) paying
clients.
• Free clients act as marketing agents
• Critical Factor – What should be free and what
should be paid
– Too restricted free features – free users will
not find useful
– Liberal free features – Less incentives for
upgrades
7

8. EXAMPLE OF FREE SERVICE
8
• Search Engine
• Every Third Party Site
• Google Maps

9. EXAMPLES OF FREEMIUM SERVICES
9
• Gmail
• Google Drive
• Dropbox
- Charge for exceeding free space
• Spotify
– Free Ad Supported
– Monthly Fee for Unlimited Music
• Survey monkey
– Free for basic features/Paid for additional features

10. VIRAL MARKETING
• Use existing clients for spreading with their tacit approval
– Different from word of mouth
– Different from spam
• Hotmail- one of the first examples
• Plaxo – online address books
10

11. VIRAL MARKETING CHARACTERISTICS
11
• Gives away products or services;
• Provides for effortless transfer to others;
• Scales easily from small to very large;
• Exploits common motivations and behaviors;
• Utilizes existing communication networks;
• Takes advantage of others’ resources.

12. PRODUCT AND MARKETING INTEGRATION
• Marketing integrated into all aspects of product
• Incentivise users to invite friends during product usage
12

13. HARNESSING WORD OF MOUTH
• Active Social Media Presence
– Promotion of new products
– Visible Addressing of user complaints
• Participation in Forums
• Actively scan for user issues
• Promotion of user blogs praising a product
13

14. MARKET BUSINESS MODEL
• Develop a core product
• Allow third party app developers to create apps.
• Charge commission on the sale of apps or enhanced features.
14

15. NETWORK EFFECT
• Utility of a product is enhanced when there are more users
• Needs a long term strategy, difficult to enter competitive markets
• Must be used to create lock in effects
• Must have low initial entry barriers – using freemium, viral marketing
15

16. TYPES OF DIGITAL BUSINESS MODELS
BASED ON NETWORK EFFECTS
• Provisioning of Online Services
– Search, Saas, data aggregations, music, etc
– Could be viral, especially in case of freemium
• Single Sided Platforms
– With Network Effects
– e.g. Facebook, Youtube
• Double Sided Platforms
– App development platforms, e-commerce, network effects
– Eg. Amazon, ebay 16

17. DISRUPTIVE BUSINESS MODELS
• Unit Pricing to Subscription based
– Continued Revenue
– Hosted SaaS
– Myerp.com
17

18. DIGITAL BUSINESS MODELS - VOIP
Freemium Business Model
Technology
- Peer to Peer Communications
- Free Skype Calls
- Paid Skype Outs
Cheap, multiple front companies

19. COMMISSION BASED PRICING
19

20. COMMISSION BASED VS SUBSCRIPTION
20
• B2C
• Commission Based
• B2B
• Subscription Based
E-marketplaces

21. AUCTION
• Ebay.com
• Freelancer.com
• Elance.com
21

22. CROWDSOURCING
• Getting users to review Places, Hotels
• Open Innovation
• Crowdvoting
• Microwork
T Shirt Designs
Re-Captcha

23. FOURSQUARE – USING MOBILE AND GPS
António Grilo| Digital Business Ecosystems, 2014

24. EXAMPLE: IPAD IN RESTAURANTS
António Grilo| Digital Business Ecosystems, 2014

25. Linehealth
25

26. 26
TYPES OF INTERNET START UPS (Startup Genome)
Type 1 - The Automizer
Common characteristics: self-service customer acquisition, consumer focused,
product centric, fast execution, often automize a manual process.
Examples: Google, Dropbox, Eventbrite, Slideshare, Mint, Groupon, Pandora, Kickstarter,Zynga,
Playdom, Modcloth, Chegg, Powerset, Box.net, Basecamp, Hipmunk, OpenTable etc.
Type 1N - The Social Transformer
Common characteristics: self service customer acquisition, critical mass,
runaway user growth, winner take all markets, complex ux, network effects,
typically create new ways for people to interact.
Examples: Ebay, OkCupid, Skype, Airbnb, Craigslist, Etsy, IMVU, Flickr, LinkedIn, Yelp, Aardvark,
Facebook, Twitter, Foursquare, Youtube, Dailybooth, Mechanical Turk, MyYearbook, Prosper, Paypal,
Quora, Hunch, etc.

27. 27
TYPES OF INTERNET START UPS (2)
Type 2 - The Integrator
Common characteristics: lead generation with inside sales reps, high certainty,
product centric, early monetization, SME focused, smaller markets, often take
innovations from consumer Internet and rebuild it for smaller enterprises.
Examples: PBworks, Uservoice, Kissmetrics, Mixpanel, Dimdim, HubSpot, Marketo Xignite,
Zendesk, GetSatisfaction, Flowtown, etc.
Type 3 - The Challenger
Common characteristics: enterprise sales, high customer dependency, complex
& rigid markets, repeatable sales process.
Examples: Oracle, Salesforce, MySQL, Redhat, Jive, Ariba, Rapleaf, Involver,
BazaarVoice, Atlassian, BuddyMedia, Palantir, Netsuite, Passkey, WorkDay, Apptio, Zuora,
Cloudera, Splunk, SuccessFactor, Yammer, Postini, etc.

28. 28
MARKET TYPE BY OF TYPE OF INTERNET START UPS

29. 29
REVENUE STRATEGY

30. Classification according to Lean Analytics
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•Amazon, Expedia
E-commerce
•Gmail, Basecamp, Mendley
SaaS – Software as a Service
•Angry Bird, Torque
Free Mobile App
•CNN, CNET
Media Site
•Wikipedia, Facebook, Youtube
User Generated Content
•Ebay, Google play, i-Tunes
Two Sided Marketplace

31. Internet of Things and Devices
31
• Beyond mobility: The connected world—including cars, homes, and
wearables—are creating a rapidly expanding world of access to the
customer. Two out of three of IT and business executives report that
smart objects will have a high or very high impact on their organizations
by helping to advance a company’s industry position or gain competitive
advantage.
• Rising consumer demand: Two-thirds of consumers are expected to
purchase a connected home device within the next five years, and the
ownership of consumer wearables is expected to double year over year
by 2016.