Chapter 2: Digital

Business Models

Josh Matti
Learning Objectives
• Master the core principles and practical application of
business models, utilizing tools like the Business Model
Canvas for effective strategy creation and analysis
• Explore the strategic nuances of free models, specifically
Freemium and Advertising
• Gain insights into key transactional models—E-Commerce,
On-Demand, and Subscriptions
• Characterize the specific agents within collaborative
business models, focusing on Open Source and Peer-to-Peer
Outline
2.1 Fundamentals of Business Models
2.2 Free Models: Freemium and Advertising
2.3 Transactional Models: E-Commerce, On-
Demand, and Subscriptions
2.4 Collaborative: Open Source and Peer-to-
Peer
Business Model
• Comprehensive and strategic framework that outlines how
a company creates, delivers, and captures value
• Strategic Alignment
• Aligns all elements of the business plan with the overarching strategy

• Resource Optimization
• Maximizes the efficient use of financial, human, and technological
resources

• Risk Mitigation
• Identifies and addresses potential risks early, offering a proactive
approach

• Value Communication
• Easier to connect with customers and potential investors
Business Model Canvas
• The Business Model Canvas is a powerful and visual tool,
providing entrepreneurs with a comprehensive framework
for conceptualizing, developing, and refining their business
strategies
• Co-created by Alexander Osterwalder and Yves Pigneur
The Business Model Canvas
for a Pizza Restaurant
• Customer Segments: Families, students, working
professionals, and local residents
• Value Propositions: High-quality ingredients, diverse menu
options, and quick service
• Channels: In-house dining, takeout, delivery services, online
ordering platform, and potential partnerships with food
delivery apps
• Customer Relationships: Friendly service, loyalty programs,
and engagement through social media for customer
feedback
• Revenue Streams: Sales from in-house dining, takeout
orders, delivery services, catering for events, and potentially
merchandise sales
The Business Model Canvas
for a Pizza Restaurant
• Key Resources: Skilled kitchen staff, quality ingredients,
kitchen equipment, a welcoming physical space, and a user-
friendly online ordering system
• Key Activities: Menu development, food preparation,
customer service, marketing promotions, online presence
management, and maintaining an inviting environment
• Key Partnerships: Partnerships with local suppliers, alliances
with food delivery services, and potential collaborations
with nearby businesses
• Cost Structure: Ingredients, staffing, utilities, marketing and
advertising, equipment maintenance, and potential fees
associated with partnering with food delivery platforms
Outline
2.1 Fundamentals of Business Models
2.2 Free Models: Freemium and Advertising
2.3 Transactional Models: E-Commerce, On-
Demand, and Subscriptions
2.4 Collaborative: Open Source and Peer-to-
Peer
Freemium
Freemium
Freemium
Freemium
Freemium
SLA = Service
Level Agreement
Advertising-Based
Advertising-Based
Section 2.1 & 2.2 Activities
• Finding Freemium Model Companies
• Write a Business Canvas Model
• MC Questions
Freemium Model Companies
• In your group, you will have 5 minutes to research and think
of as many digital business companies using the Freemium
model
• Write down as many companies as you can think of (max 10
companies)
• After 5 minutes, each group will share their list
• If you have a company name that no other group wrote
down, your group gets a bonus point
Write a Business Model
Canvas for YouTube
• You should include all 9 parts
• Key partners
• Key activities
• Key resources
• Value proposition
• Customer relationships
• Channels
• Customer segments
• Cost structure
• Revenue streams
1. What does a clear business model help
companies optimize?
A) Time management
B) Allocation of resources
C) Customer feedback
D) Social media presence
Answer: B
2. In what aspect does the Business Model
Canvas stand out as a practical tool for
entrepreneurs?
A) Lengthy business plans
B) Traditional marketing strategies
C) Comprehensive framework on a single
page
D) Ignoring customer segments
Answer: C
3. Chris is developing a mobile app and wants to
offer basic features for free to attract a large
user base. He plans to charge users who want
access to premium features or additional
functionalities. What business model is Chris
considering for his app?
A) On-demand
B) Freemium
C) Advertising-based
D) Dropshipping
Answer: B
4. In the Freemium model, what is the incentive
for users to upgrade to the premium version?
A) More advertisements
B) Basic services for free
C) Enhanced user experience in the free version
D) Premium features or fewer advertisements
Answer: D
5. What is crucial for the success of the
advertising-based digital business model?
A) Maximizing subscription fees
B) Ignoring user experience
C) Balancing user experience and ad
display
D) Eliminating user engagement
Answer: C
Outline
2.1 Fundamentals of Business Models
2.2 Free Models: Freemium and Advertising
2.3 Transactional Models: E-Commerce, On-
Demand, and Subscriptions
2.4 Collaborative: Open Source and Peer-to-
Peer
E-Commerce
E-Commerce
Dropshipping
 White Label vs. Private Label
• White label: Reseller works with manufacturer to create a customized product that
is sold to customers under the reseller’s brand
• Private label: Products are manufactured for multiple resellers – resellers sell the
product as-is under the reseller’s brand
On-Demand
 On-Demand
• “Access is more important than ownership”
Subscription-Based
Subscription-Based
Outline
2.1 Fundamentals of Business Models
2.2 Free Models: Freemium and Advertising
2.3 Transactional Models: E-Commerce, On-
Demand, and Subscriptions
2.4 Collaborative: Open Source and Peer-to-
Peer
Open-Source
 How does Open-Source
Generate Revenue?

• Offering premium support

services, consulting, and training
for users of the open-source
software
• Providing custom development
services, tailored solutions, or
integrations for clients based on
the open-source project
Peer-to-Peer (P2P)
Peer-to-Peer (P2P)
Section 2.3 & 2.4 Activities
• Identify Digital Business Models
• MC Questions
6. In your leisure time, you write a blog about
cooking. Your blog is popular, and you make
around $1000 each year from Google AdSense.
This scenario represent which type of E-
commerce?
A) B2B
B) B2C
C) C2B
D) C2C
Answer: C
7. How do companies in the open-source model
generate revenue?
A) Selling the core software with a commercial
license
B) Providing additional services, support, or
premium versions
C) Keeping the source code closed to the public
D) Charging developers for contributing to the
code
Answer: B
8. Sophie is an entrepreneur who wants to start an
online bookstore but doesn't want the hassle of
managing a physical inventory. She is looking for a
business model where books are sourced and
shipped directly from publishers to customers.
Which strategy aligns with Sophie's business goals?
A) White Label
B) Dropshipping
C) Private Label
D) Franchising
Answer: B
9. Jessica is creating a mobile app where users
can request immediate access to transportation
services like taxis or rideshares. The app
connects users directly with available drivers for
prompt pick-ups. Which digital business model is
Jessica implementing for her app?
A) Subscription-based
B) Freemium
C) On-Demand
D) Advertising-based
Answer: C
10. Chris wants to create a platform where users
can directly share resources, such as lending tools
or offering rides, without involving traditional
intermediaries. Users connect with each other for
mutual exchanges. What digital business model
does Chris aim to implement for her platform?
A) Subscription-based
B) Freemium
C) Advertising-based
D) Peer-to-Peer
Answer: D
Chapter Summary
Chapter 2 explores the fundamental concepts of
business models, emphasizing their importance and
practical application through tools like the Business
Model Canvas. It then delves into the strategic
utilization of free models, specifically Freemium and
Advertising, highlighting the paradox of making
money by offering something for free in the digital
landscape. The chapter shifts focus to transactional
models, namely E-Commerce, On-Demand, and
Subscriptions. Lastly, it investigates collaborative
models, specifically Open Source and Peer-to-Peer,
shedding light on the transformative power of
collaboration in the ever-evolving digital
ecosystem.
Chapter 2: Digital
Business Models

Josh Matti