9 disruptive business models explained – new opportunities for companies

Consider changing the business model with changing economies around you

Companies are often faced with the question of whether their current business model is still appropriate. We show the currently most successful and also most distributive business models and how they earn money. We also give examples of companies already working with these business models.

In the news, on social media or in regular discussions in the pub. Many people are currently discussing “disruptive business” models, and some are even fed up with the disruptive world. But why is this topic so important for everyone and what do we need to know about it? This article aims to help you understand why these new disruptive business models are so important and why everyone should have at least a basic understanding of the most successful business models.

Especially in difficult times, it is necessary to have an understanding of where the business could go. Looking at business models is crucial to understanding how to reposition your business and generate additional revenue. New business models can also help companies become more resilient to market dynamics and diversify their portfolio.

Additional read: 11 digital business models you should know incl. examples

Disrupt or be disrupted

Disrupt or be disrupted” is a phrase often heard in Silicon Valley. Everyone there is constantly looking for an opportunity or niche to disrupt industries with new innovative business models. So it’s no surprise that there’s a lot of talk about it. But let me say one thing first: It is usually not about completely new business models. Existing business models are usually simply applied to a new industry, a new product or a new service.

For example, you can see here how certain industries have already had to deal with a disruptive business model. For example, the traditional taxi service was put under a lot of pressure by Uber, which had a platform and connected drivers and customers via the internet instead of dialing a new number in each city or looking for taxis.

Successful disruptive business models often put the customer back at the centre. New technologies have changed customer behaviour, and this change enables models that meet these needs. Subscription models, platforms, digital ecosystems and many more are worth mentioning.

Another principle is also important. Many successful companies also combine these business models and use different models for different parts of their business. The right combination of innovative products and innovative business models can play an important role in success. – But what is a truly disruptive business model?

What is a disruptive business model?

Disruptive business models are a type of disruptive innovation that brings a new idea or technology to an existing market. Disruptive entrants typically capture unmet demand in the existing market. This can be either at the low end or at the high end, addressing either the more price-sensitive customers or the more premium customers.

The following chart shows 9 key business models that can be disruptive to industries and that everyone should at least be familiar with. Either focus on low-end disruption (e.g. freemium) or high-end disruption (e.g. user experience premium).

9 Disruptive Business Models explaind - short graphic
9 Disruptive Business Models explained – Source: Benjamin Talin

9 disruptive business models for enterprises

This list of disruptive business models is neither exhaustive nor complete. We will focus on just 9 of the most important business models that have been responsible for the most significant innovations in many markets and briefly explain why they work, what the reasons are and which companies are examples of this business model. The aim is for everyone to be able to understand the most important business models and to see the basic principles.

1. Freemium model

One of the most common business models. The consumer receives a product or service for free. Either only basic features are offered and the customer has to pay for premium features, no branding or extension of services. This allows you to quickly reach a broad customer base, expand your business into new markets and generate revenue by converting customers into paying customers.

This model is particularly suitable for products or services that have low marginal costs (additional cost per additional customer), or where the value of marketing and customer information is higher than the operating costs. Again, the key to these models is conversion. You need to find a free solution that is attractive to the customer, but not perfectly satisfactory, so that they are willing to pay the premium.

Typical examples: Spotify, Linkedin, Xing, Canva.com, MailChimp

2. Subscription model

Products and services can usually be offered as subscriptions. An amount that would normally be paid once is split or a new service is created that is billed periodically. The aim is to create a long-term relationship with the customer. In contrast to a one-off purchase, the customer benefits from improvements and extensions to the service.

Non-scalable products can also be turned into subscriptions. Amazon has already provided an example of how products such as detergents, cosmetics, etc. can be delivered automatically on a regular basis. can also be delivered automatically on a regular basis. Subscription is very powerful as it allows you to generate income over time and grow your business without too many ‘ups and downs’.

Typical examples: Amazon, Netflix, Internet providers

3. Free offers

A model that has become increasingly popular, especially with Google. For many entrepreneurs, this is the most incomprehensible business model, but it has great potential for some services. Since such business models usually use customer data for advertising or personalised offers, it is interesting to use a lot of information about customers.

If you are only considering a free service, you also need to plan for a long ramp-up period. This means investing for a long period of time before you reach the critical mass of users to have a profitable business.

Typical examples: Google, Facebook

4. Marketplace model

In some industries, marketplaces have had or have the potential to be very disruptive. The business model is usually a digital marketplace that connects sellers and buyers on a common platform. Money is usually generated through brokerage fees, commissions or fixed transaction costs. However, it is also possible to use membership fees on the platform or to generate money through advertising/premium positioning services.

Typical examples: Amazon, Alibaba, Uber, eBay

5. Sharing Economy – Access-over-Ownership Model – Renting & Leasing

In the classic sense, the sharing economy is called renting. Goods or services that can usually only be purchased or made available to another person for a limited period of time. There is the example of car sharing. The car is made available to another person for a certain period of time and a certain number of kilometres in return for payment. In general, this can be applied to all products, whether they are from individuals or companies, real estate or intangible assets.

Typical examples: Airbnb, Sharoo, Mobility, Lyft

6. User experience premium

This is a premium model that is easy to observe with Apple. A good customer experience adds value to an interchangeable product. The service, the brand and most importantly the customer experience are enhanced and premium prices are charged.

Typical examples: Tesla, Apple and premium brands

7. Pyramid model

This is a typical sales model that has been around for years. Pyramid models can be set up quickly and are easy to manage, especially because of the ease of invoicing using technical aids. It is particularly interesting for high-margin products that are easy to explain.

Typical examples: Amazon Affiliate, Microsoft, Dropbox

8. Ecosystem – Create your own ecosystem

Locking-in customers to a service for the long term is every entrepreneur’s dream. For example, if you have an Apple or Android mobile phone, you are probably locked into that ecosystem. You buy the hardware and use software that may only be compatible with the same system. This makes it difficult to switch and also prevents new competition from entering the market.

Recommended reading: What is a digital Ecosystem?

Typical examples: Apple, Google

9. On-demand Model

Time is money, that is the structure of this business model. Immediate access or premium access to “time” is sold. The delivery, the product or the service can be accessed at a certain time. Video on demand, taxi on demand and many other systems are good examples. Companies or people with goods or time make their services available to people without goods or time, but with money.

Typical examples: Amazon Prime, Uber, Upwork, Cloud Services

Top-down vs. bottom-up disruption explained

Disruption of markets and industries can take place either from the top down or from the bottom up. Both approaches have their own characteristics, audiences and strategic implications. The ‘top’ reflects the high-price segment and the ‘bottom’ the broad low-price segment.

Top-down disruption

In this form of disruption, companies enter the market with high-quality, often expensive products or services aimed at a more affluent clientele. The aim is to occupy a niche in the premium segment and expand the market from there. A classic example is Apple, which started with high-priced computers and later reached out to a wider audience with products such as the iPod and iPhone.

Cutting-edge technology or premium services are particularly suited to this type of disruption. It is important to understand that lead costs may be higher, lead times may be longer, and existing distribution channels or partners may no longer be suitable.

Advantages: Higher margins and brand equity; target audience with higher spending power.
Challenges: Need to develop a compelling product that persuades customers to switch; high development or marketing costs.

Bottom-up disruption

Introducing products or services that are cheaper and more accessible than existing offerings. Companies using this strategy try to capture a larger share of the market by offering lower prices. An example of bottom-up disruption is Walmart, which has become the world’s largest retailer by offering low prices.

Bottom-up disruption must also take into account that customer acquisition costs (CAC) must be competitive. For this reason, bottom-up disruption is usually accompanied by innovative marketing or business development strategies, otherwise customer acquisition can become more expensive than the product. This is why many start-ups that attempt bottom-up disruption fail.

Advantages: Accessibility to a broader customer base; faster market entry due to lower prices.
Challenges: (potentially) lower margins; challenge of ensuring high quality at low cost.

Strategic considerations

  • Market entry strategy: Companies need to carefully plan their market entry strategy based on their target audience, resources and long-term goals. Top-down disruption can be more challenging as it often requires persuasion to entice customers away from established products. Bottom-up disruption, on the other hand, can lead to faster market share, but requires an efficient cost structure.
  • Sustainability and scaling: Long-term success in any disruption model requires sustainability and the ability to scale. Top-down models must continuously invest in innovation and brand value, while bottom-up models must prioritize process efficiency and volume growth.
  • Impact on the industry: Both types of disruption can have a significant impact on existing industry structures. Top-down disruption can lead to a re-evaluation of quality and performance standards, while bottom-up disruption can challenge established pricing structures.

Which approach is better?

The decision between top-down and bottom-up disruption depends on several factors:

  • Company goals: Is the company aiming for high profit margins or broad market influence?
  • Market conditions: What needs and gaps exist in the market? How do existing players react to new competitors?
  • Resources and capabilities: Does the company have the resources to develop premium products or is it better placed to offer lower cost alternatives?

Impact on traditional industries

The emergence and application of disruptive business models always has a significant impact on traditional industries, changing not only market dynamics but also the way companies operate and create value. Increasingly, we are seeing traditional industries having to adapt quickly, leading to both social and economic realignments.

Market dynamics

Traditional companies are competing with agile, innovative start-ups that are unencumbered by outdated systems or business models. Like Uber shaking up the taxi industry or Airbnb impacting the hospitality industry, these new entrants can quickly gain market share, forcing incumbents to rethink their strategies and adapt to the new norm. An example of this is the industry in Germany, which for a very long time was designed to build complex internal combustion engines and cars, which is now being challenged by agile companies because electric cars are less complex, need fewer suppliers and, as BYD shows, can also manage the entire supply chain themselves. What made the industry strong then is now a legacy – an innovator’s dilemma.

Customer expectations

Disruptive business models driven by technology often bring greater convenience, efficiency and affordability, changing customer expectations. Today’s consumers demand seamless, instant and personalised experiences as standard, as set by companies such as Amazon and Netflix. Traditional industries are challenged to meet these heightened expectations or risk losing customers to more innovative competitors. This simplification is typically difficult to achieve and results in existing models becoming inapplicable.

Speed

Today’s IT-driven innovations in particular have become faster. Just 50 years ago, it was not possible to enter a market quickly and efficiently. But with global connectivity, the Internet, digital ecosystems and platforms, companies like Shein can disrupt an entire market in a matter of months.

Operational efficiency

Traditional industries often operate with established, proven processes that may not be as efficient or cost-effective as newer, improved (technology-driven) methods. Disruptive business models, such as on-demand or sharing economy models, use technology to optimise resource utilisation and reduce operating costs. This is forcing traditional companies to change the skills and processes they have built up over the years, thereby eroding their competitive advantage.

Regulatory environment

In some cases, disruptive business models operate in regulatory grey areas, which can provide a competitive advantage. Ride-sharing apps or cryptocurrency exchanges, for example, initially operated with minimal regulatory oversight, allowing them greater flexibility and speed. Traditional industries often struggle with extensive regulation, which can put them at a disadvantage. However, as regulators keep pace with technological developments, new entrants and disruptive models are increasingly controlled and regulated, but the time difference, along with the other factors mentioned above, can lead to new market leaders emerging in these grey areas.

Workforce and skills requirements

Disruptive business models often require different skills than traditional businesses. For example, digital platforms and data-driven business models require expertise in data science, machine learning and other emerging technologies. Traditional industries are therefore forced to invest in reskilling their workforce or recruiting new talent to meet the needs of the evolving marketplace, losing the competitive advantage they had previously built.

Verdict

Technologies have changed our world and will continue to do so. We need to recognise that traditional business models such as buying and selling at a premium will no longer work on their own. It is therefore worth taking a critical look at the 9 major trends in business models (see also: 11 Digital Business Models) and examining them for your own use. You may be able to build new businesses or even use your own knowledge to get involved in other industries.

Again, it is important to emphasise that these are examples. A successful business model can consist of different elements and combine different income streams.

Benjamin Talin, a serial entrepreneur since the age of 13, is the founder and CEO of MoreThanDigital, a global initiative providing access to topics of the future. As an influential keynote speaker, he shares insights on innovation, leadership, and entrepreneurship, and has advised governments, EU commissions, and ministries on education, innovation, economic development, and digitalization. With over 400 publications, 200 international keynotes, and numerous awards, Benjamin is dedicated to changing the status quo through technology and innovation. #bethechange Stay tuned for MoreThanDigital Insights - Coming soon!

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