Now that we’ve covered what digital business models are and what their components are, we can move on to what is arguably one of the most important concepts to be introduced in business modeling: patterns. They’re one of the most popular tools in generating new, innovative and/or disruptive business models (at least on paper, as we all know execution is the key to success) without actually reinventing the wheel.
What are Digital Business Model Patterns?
The simplest way to approach patterns is to think of them as repeatable structures or building blocks you can swap in & out to experiment with your digital business model in the design phase. These patterns have been created from the similarities in the ways that businesses have successfully created, distributed and captured value. You can also look at patterns as reusable architectural components that have already been validated by other businesses, such as eCommerce, Affiliate, Advertising, Subscription, Marketplace, Digitization, Pay with Data, On Demand, XaaS (X as a service) and many, many more.
A lot of these patterns can stand on their own – such as the eCommerce pattern and the subscription pattern, but they may also be complementary – in this example forming a Subscription Service eCommerce Business Model (for example the popular subscription box services where you get curated products – be they cosmetics, media, food etc.). As we’ll discuss later, they can also run in parallel under one or more digital business models. Even with this simple example, the potential of using patterns to (try and) design innovative business models becomes clear.
BMPs also vary extremely based on their level of abstraction: on one end you have clear-cut patterns that are self-explanatory – such as the premium pattern and at the other end you have complex patterns such as the multi-sided platform pattern. Luckily, all of them are easy to understand once you break them down into a components-level view.
Now, there are lots of ways to look at digital business model patterns and the more we try to shift perspective, the more we realize how important they are when trying to design a viable digital business model. There isn’t a widely accepted way to classify and organize classic business model patterns (not to mention the addition of so many digital business model patterns), but there is something called the 5-V Framework from the European Journal of Innovation Management (Source) that attempts to organize them by:
- Value Proposition
- Value Segment
- Value Configuration
- Value Network
- Value Capture
While this is a great way to structure what is now over 100 of patterns, it can feel somewhat opaque and even intimidating if you haven’t gone through the Value Proposition Models & Design part of digital business models, but I can assure you that coupled with my alternative structure and the series of posts on value propositions (and beyond), you’ll also master the taxonomy of business model patterns. While this is not a crucial part of using patterns, having a good understanding of how they can be structured will help you identify the ways they can be combined much faster.
So, let’s be fair: at their core, business model patterns are fairly simple and any present or future business owner can experiment in the design and implementation phase with multiple patterns. The key word here is experimentation: some digital business models may look great on paper, but they might face significant challenges during implementation, be they technological, cultural (always plan for resistance to change) or resource-related. If those challenges prove to be insurmountable, you can always go back to the drawing board and look at other patterns you can leverage to achieve your end goal.
One last key point that should be noted about these patterns and digital business model design in general is that a business can operate under multiple business models, composed out of a multitude of patterns. This is called business model diversification and it can be done for multiple purposes: transitioning from outdated, classic to modern, digital business models, capturing new revenue streams, testing various models or plain old “having a backup plan”. Of course, this comes with some downsides such as the added level of complexity and management challenges, but there are ways to mitigate that even in the design phase – we will discuss compartmentalization, modular and agile designs further in this series to help you master both model transitions and digital transformation processes.
Most publishers, experts & consultants in this area are doing a disservice to those who are just starting out with business models and business model patterns in general since they present information and tools only from a single-business-model standpoint. For many companies, operating under multiple business models is a norm, not an exception. End rant.
Digital Business Model Patterns vs. Components
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Most Popular Digital Business Model Patterns?
The eCommerce, Affiliate, Advertising, Content, Marketplace, Subscription and SaaS.
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The Importance of Digital Business Model Patterns
As one of the most dynamic business concepts to be introduced in recent memory, it’s easy to simply consider limiting its importance to the rapid prototyping of various digital and non-digital business models, but its benefits are much more varied than that. While patterns are not necessarily something you would “master”, even having a complete list on hand and understanding their role can open up multiple opportunities.
1. Agile Digital Business Model Development
The agile is slowly encroaching in every aspect of modern business, especially since so much relies on digital technologies. In our scenario, we can focus on a few aspects and principles of the agile methodology: (1) iterative, incremental and evolutionary approach – perfect for business model innovation / digital transformation processes and (2) short feedback loops & adaption cycles. Basically, you have to look at designing a digital business model as a process where you involve multiple feedback loops and continuously adapt to changing requirements and new insights (especially in an implementation phase). So, where do patterns come in? Patterns speed up the whole digital business model design process and they can be swapped in and swapped out in multiple cycles if your resources and context allow you to test various assumptions and adapt based on test results.
2. Modular Digital Business Model Development
For businesses that operate in complex ecosystems or have created sprawling ecosystems around their core offerings (for example Automattic with WordPress), modularization is a solution for dealing with ever increasing complexity. The modularization concept is slightly more abstract than I would like it to be and it can be easily re-interpreted depending if you’re looking from a platform, ecosystem or from a value capture standpoint, but we’ll get into that in our Modular Digital Business Models article. For now, it’s sufficient to say that patterns can play a huge role in modularization, providing you with quick solutions to develop business modules based on your core offering.
3. Minimum Viable Digital Business Models
We’re taking a page out of Lean Startup and we’ll be translating the concept of MVP (minimum viable product) into digital business models. This is mostly a design exercise and patterns can help us move much faster towards identifying viable business models. Once you’ve identified an minimum viable DBM in your scenario, it should still be fleshed out before attempting implementation. To quote Michael Monroe Lewis, far too often business models are used as a tool to “glorify all manner of half-baked plans”.
4. Business Model Innovation Tool
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5. Competitive Advantage Enabler
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6. Digital Transformation Enabler
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The Digital Business Model Patterns Library
Now that we’ve clarified what digital business model patterns are, their importance and their applicability, it’s only natural that we jump into the library of patterns:
Once you’ve skimmed it and saved the patterns that interest you most, we can continue with the value proposition part, getting us one step closer to designing our own digital business model.