By Lanre Messan
There are myriads of strategies that work within the digital ecosystem because of its constantly evolving nature. However, we cannot rule out the fundamentals of understanding set up and structure when it comes to keeping the entire value stack alive.
In this article, I touched on the three elements that a CEO should keep tab on as well as the nine revenue models you need to understand to birth your own digital enterprise. Quite a good read for enthusiasts and executives of the digital transformation of today and the future.
A true digital enterprise stands for more than just using new technologies for the sake of it. Rather, what truly distinguishes and gives a digital enterprise its competitive advantage is its culture, strategy and way of operating. Digital enterprises strive continuously to enable new and leaner operating models underpinned by agile business processes, connected platforms, analytics and collaboration capabilities that enhance the productivity of the firm. A digital enterprise relentlessly searches out, identifies and develops new digital business models, always ensuring that customers and employees are at the center of whatever it does. There are a number of areas that many companies will need to reassess and reform if they are to become digital enterprises. Three key areas have been identified digital business models (what companies need to do); digital operating models (how they can do it); and digital talent and skills (who they need to work with to succeed).
In the scheme of digital transformation or enterprise digitization, many businesses are moving beyond viewing technology merely as a cost and seeing it as an important enabler of revenue generation. A recent survey found that 45% of IT executives see growing revenue through improving digital capabilities as a top priority but then in Africa, the rate at which IT executives integrate technology business process is low and this is largely due to the fact that the CEOs are yet to exist within that frame of mind. Most CEOs believe that their companies can implement a successful digital transformation simply by launching a digital business unit and hiring a Chief Digital Officer. The reality is successful digital transformation demands a culture sponsored by the leadership that promotes innovation, encourages risk taking and empowers employees at all levels of the economy.
Becoming a digital enterprise requires at first level that you decipher the problem gap , otherwise known as the job-to-be-done according to my favorite Harvard Business School Professor, Clay Christensen, vis-a-vis the customer segment you want to focus on as that will pave way for designing the framework of operations. The truth is digital technologies have enabled the emergence of the following business models: peer-to-peer networks, freemiums, delivering outcomes (mainly driven by internet of Things), and crowd-funding/crowdsourcing as a service, ecommerce/marketplace and personalization, among others.
There are quite a number of Nigerian startups that ultimately run completely on digitization to generating their revenues, an examples is PayLater, a financial technology platform that started off by borrowing customer money without collateral within seconds literally are now creating more services within the value stack. PayLater runs on a revenue model where commissions are made in form of interest on loans received from the platform.
Since my focus for this article is on revenue models for running a successful digital enterprise, I will share the nine models and a bit of explanations for each. A careful study of each model will open up the possibility of what will work for your digital enterprise ideas and could guide your eventual strategy development as a startup.
Based on this I will share sneak-peek explanations on the nine revenue models:
- Transaction: Traditional manufactured products are packaged and resold from one to many users; ownership is transferred from seller to buyer through distribution channels.
- Capacity Leasing: Capacity is monetized in the form of human time, machine or asset availability; companies manage supply of capacity through demand forecasting, customer orders and sales.
- Licensing: Technology, brand or intangible assets are licensed for periods of time to reflect the value of the original invention but without the inventors needing to market or sell the product/service themselves.
- Subscription: Products/services are subscribed to, usually for a period of time, which can be as short as a day but often for longer, locking customers in with a reduced upfront cost.
- Commission: Agents collect commissions (or a margin) for matching buyers to sellers for a given product/service; agents can be people or, more recently, scalable digital platforms.
- Advertising: Often used in media and entertainment as a way to distribute and share ideas, with associated products/services marketed through the medium.
- Trading: Buy low, sell high, if successful; traders monetize mispriced goods and services due to fluctuations in demand and supply using market knowledge.
- Donations: Often found to be transactional or subscription-based for individuals to participate either on a one-off or regular basis; philanthropic donations can often provide intangible benefits to the donor.
- Subsidies: Often found in public service organizations whereby traditional revenue models only make up part of the cost to provide the service; subsidies typically incentivize improvements in quality of service.
My advice to anyone looking towards starting or transitioning into a digital enterprise must understand that, the consideration is not of later but now because by the time it is obvious, it is too late. What that means is, now is the time to act.
Dr Lanre Messan is an award-winning idea strategist and creative social entrepreneur with key interests in retail and technology, highly skilled in idea development and disruptive strategy, business process design, branding and marketing. He has developed over 250 thriving business ideas for clients in Nigeria and other countries of the world. His works have been recognized by the World Economic Forum, World Bank, African Business Leadership Forum, Taking IT Global, LEAP Africa and the European Research Council. He is an alumnus of Harvard Business School, JCI University and Pan Atlantic University where he studied Disruptive Strategy, Business Presentation and Digital Marketing respectively. He is currently enrolled for Strategic Leadership at the Warwick University, London. DLM currently serves as a global advisory board member (West Africa) for Innovate Africa – a diaspora based body of African investors.