The aim to keep pace with current market trends and the desire to act as an innovative player on the market drives business transformation nowadays. Many companies invest in new business models and start to add additional services around pure physical products. The traditional product portfolio is enriched with new digital products, services or bundled solutions. Subscription-based business models are on the rise. Enterprises are moving from offline to online business and from B2B to B2C concepts. The Covid-19 crisis boosted this transition. Existing revenue streams had been affected by disruption due to global shut down measures and the consumer mindset changed and improved digital adoption.
In this situation, many new business models across different industries have been established on the market. Every business is becoming a connected business.
Let’s look at some examples:
| Business | Business Model |
|---|---|
| Media & Entertainment | Online streaming for music or films is heavily used; companies such as Disney+ and Netflix book increasing revenues based on subscription based services. |
| Consumer products | Smart devices are gathering data based on Internet of Things (IoT) leads to high data volumes based on individual usage to be processed and monetized. |
| Transportation | It is focusing less and less on the vehicles themselves, but the services that they can deliver. Additional insurances, roadside assistance or maintenance fees are sold together with a vehicle. In addition, subscription based models or car sharing are used more and more. |
| Software | It is provided based on a cloud architecture with a subscription based contract, including additional services such as automatic upgrades instead of selling the software itself. |
| Retail sector | New business models have been established to provide consumers with auto-replenishment for certain goods before they even realize that they are out. |
The opportunity of this new digital economy also brings with it some new challenges that companies have to manage.
- Traditional pricing and monetization models, for example, can be too rigid. Traditionally, pricing has been performed on a per-unit basis, with surcharges and discounts, and perhaps some volume discounting. In the digital economy, monetization might be set up in a way that a customer gets some usage quantity included in a recurring monthly fee, with tiered pricing. Sometimes up to a maximum amount, with additional discounts applied on the basis of the usage of another related product or service. This makes pricing much more complex.
- Another challenge emerges in the management of operational customer contracts. Subscription, usage, and consumption business models are executed based on a contract that specifies what services the customer is subscribed to and includes other key information such as included amounts and additional fees. These contracts are very likely to change over their lifetime, with add-ons, removals, service location changes, and so on. Being able to manage these changes and track the different versions of a contract across the past, present, and future can be very challenging, costly, and error prone.
- Usage and consumption-based business models often lead to managing, pricing, and metering large amounts of transactional detail. This can lead to technical challenges to manage the data and transaction volumes, as well as business challenges such as revenue reporting, auditing, and accruals.
- Existing Accounts Receivable (AR) and Accounts Payable (AP) processes can also be challenged in the transition to digital business models. Businesses that have traditionally gone to market through third-party providers, distributors, and partners may find themselves transitioning to direct-to-customer models, which can result in much higher customer billing and AR relationships that existing AR systems and processes simply weren’t designed to handle. Furthermore, in a digital world, the business-to-partner-to-customer relationships also become far more sophisticated.
- One of the most notable evolutions of the digital economy is the platform business. Platforms have manifested in various forms – for example, as a value-add to tangible goods, as marketplaces, and as content-sharing sites – but they all have multi-party relationships in common. Any given transaction can result in receivables from one or more parties, and payables to one or more parties, all based on a single transaction. Being able to manage the contractual relationships between these parties, split these transactions appropriately, and manage the related AR and AP at volume is often simply not possible with traditional systems.