Disruptive Business Models – Providing Customer Value

To understand the workings of digital disruption, the DBT Center examined the business models of more than a hundred top digital disruptors. Whatever their differences, all of them create at least one of three essential types of value for customers: cost value, experience value, and platform value.

Digital disruptors use these customer-value focused business models to undercut the price, improve the customers’ experience, or use platforms to expand their reach exponentially. Each of these three categories of value in turn supports five predominant business models, which are detailed in the report. The emphasis is on the customer – exploring the benefits to them - rather than the gains flowing to the innovator, as this notion of new customer value creation is the unifying trait of all disruptive business models. While the report gives examples for each of the 15 business models, it is worth noting that almost none of the disruptors mentioned employ just one of the business models presented; most are proficient at combinatorial disruption that undercuts incumbents in multiple ways.

Cost Value

This is perhaps the area of value creation where the competitive effects of digital disruption are most acutely felt. Disruptors employ a multiplicity of strategies to lower the cost of a product or service for the end customer.

  1. Free Lunch provides products or services to customers at very low or zero cost. These are products and services for which customers have traditionally had to pay.

  2. Share the Wealth spreads costs over people or time, or creates economies from “group buying” or volume discounts.

  3. Hard Bargain – typically cost comparison sites – resulted in many of the disruptive business models associated with the first wave of e-commerce.

  4. Turn the Tables hinges on reverse auctions, where sellers must bid for buyers’ business.

  5. Pay as You Go transforms utilization for customers and the items for which they ultimately pay.

Experience Value

Experience value—offering customers more convenience, context, and control—has been central to the rapid ascent of many of today’s most disruptive companies.

  1. Power to the People removes middlemen who do not add value (or enough value) yet still collect economic “rents” by acting as intermediaries in transactions.

  2. Just 4 You delivers value via personalization. Value can come from either customization or from contextualization.

  3. Right Here, Right Now transforms the fulfilment of products and services, essentially removing or hugely reducing time as a dimension in the buying cycle.

  4. Nonfriction is all about making things easy for customers by digitizing physical business processes, and using technology to help them hurdle obstacles to making purchases.

  5. Robo-Tasking provides experience value by using technology to arrange the completion of activities by others, or by automating them fully.

Platform Value

While competing on the basis of cost or quality of experience is not especially novel, platform value is the interesting competitive twist unique to digital disruption. Platform value is disruptive to competitive dynamics because it introduces an element of exponentiality. Platforms create network effects—situations where the number or type of users impacts the value derived by users.

  1. Digital Karma does not directly create economic value, but can lead to its creation by virtue of intangible value, frequently through online status or kudos.

  2. Crowded House exploits diversity of contribution as a competitive tool. Crowdsourcing of contributions benefits platform users in multiple ways.

  3. Chain Gang is the classical instantiation of platform-oriented business models exploiting the power of network effects.

  4. Connect the Dots, which has emerged as a ubiquitous feature of many digital disruptors’ strategies, is premised on creating connections among individuals and groups for their mutual benefit.

  5. Data Orchestrator leverages the disruptive power of the Internet of Things (IoT) and Big Data analytics to create new opportunities for innovation and value creation.