The 10 Business Models of Digital Disruption (and how to respond to them)

Disrupt or be disrupted. That’s today’s digital mantra.

But how do you disrupt?

Or how do you respond if you are being disrupted?

Here are 10 business models behind digital disruption, as covered by Jo Caudron and Dado Van Peteghem in their book Digital Transformation, and 7 strategies to respond to disruptors if you are getting disrupted, as enumerated by IMD’s Professor Michael Wade, co-director of the IMD Leading Digital Business Transformation course.

10 Hyper-Disruptive Business Models

1. The Subscription Model (Netflix, Dollar Shave Club, Apple Music) Disrupts through “lock-in” by taking a product or service that is traditionally purchased on an ad hoc basis,  and locking-in repeat custom by charging a subscription fee for continued access to the product/service
2. The Freemium Model (Spotify, LinkedIn, Dropbox) Disrupts through digital sampling, where users pay for a basic service or product with their data or ‘eyeballs’, rather than money, and then charging to upgrade to the full offer.  Works where marginal cost for extra units and distribution are lower than advertising revenue or the sale of personal data
3. The Free Model (Google, Facebook) Disrupts with an ‘if-you’re-not-paying-for-the-product-you-are-the-product’ model that involves selling personal data or ‘advertising eyeballs’ harvested by offering consumers a ‘free’ product or service that captures their data/attention
4. The Marketplace Model (eBay, iTunes, App Store, Uber, AirBnB) Disrupts with the provision of a digital marketplace that brings together buyers and sellers directly, in return for a transaction or placement fee or commission
5. The Access-over-Ownership Model (Zipcar, Peerbuy, AirBnB) Disrupts by providing temporary access to goods and services traditionally only available through purchase. Includes ‘Sharing Economy’ disruptors, which takes a commission from people monetising their assets (home, car, capital) by lending them to ‘borrowers’
6. The Hypermarket Model (Amazon, Apple) Disrupts by ‘brand bombing’ using sheer market power and scale to crush competition, often by selling below cost price
7. The Experience Model (Tesla, Apple) Disrupts by providing a superior experience, for which people are prepared to pay
8. The Pyramid Model (Amazon, Microsoft, Dropbox) Disrupts by recruiting an army of resellers and affiliates who are often paid on a commission-only model
9. The On-Demand Model (Uber, Operator, Taskrabbit) Disrupts by monetising time and selling instant-access at a premium.  Includes taking a commission from people with money but no time who pay for goods and services delivered or fulfilled by people with time but no money
10. The Ecosystem Model (Apple, Google) Disrupts by selling an interlocking and interdependent suite of products and services that increase in value as more are purchased. Creates consumer dependency.

7 Strategies to Respond to Digital Disruption

1. The Block Strategy.  Using all means available to inhibit the disruptor. These means can include claiming patent or copyright infringement, erecting regulatory hurdles, and using other legal barriers.
2. The Milk Strategy. Extracting the most value possible from vulnerable businesses while preparing for the inevitable disruption
3. The Invest in Disruption Model. Actively investing in the disruptive threat, including disruptive technologies, human capabilities, digitized processes, or perhaps acquiring companies with these attributes
4. The Disrupt the Current Business Strategy. Launching a new product or service that competes directly with the disruptor, and leveraging inherent strengths such as size, market knowledge, brand, access to capital, and relationships to build the new business
5. The Retreat into a Strategic Niche Strategy. Focusing on a profitable niche segment of the core market where disruption is less likely to occur (e.g. travel agents focusing on corporate travel, and complex itineraries, book sellers and publishers focusing on academia niche)
6. The Redefine the Core Strategy. Building an entirely new business model, often in an adjacent industry where it is possible to leverage existing knowledge and capabilities (e.g. IBM to consulting, Fujifilm to cosmetics)
7. The Exit Strategy. Exiting the business entirely and returning capital to investors, ideally through a sale of the business while value still exists (e.g. MySpace selling itself to Newscorp)