1.0 Introduction
Since the rise of digital technology, literature has tried to grasp just how technology will innovate business models and their applications. The purpose of this report is to outline, define, and critique the literature surrounding business models and business model innovation. Drawing on contemporary examples, this report will compare definitions with current day practices in order to provide a constructive and real-world context to the theories provided. Specifically, we will look at two contemporary trends in business model literature; being the rise of the 'freemium' business model, and the reconceptualization of digital business strategies within overall business models. This report will then provide recommendations for Beta_Digital's business model in the future, based on an analysis of their business model. This is done with the hope that Beta_Digital can utilise our report to innovate and adapt their current business model, to be a leader within their target market.
1.1. Definition: Business Model
"A business model is a conceptual tool containing a set of objects, concepts and their relationships to express the business logic of a specific firm." (Pateli and Giaglis 2003, p5) This quote, originating from Pateli and Giaglis in 2003, and highlighted by Osterwalder, is a thorough conception of what a business model's goals should be. It can also be used as a jumping-off point for exploring academic work surrounding the concept of the business model. This definition raises that a model should focus on the value that the end-user receives, and the financial cost of providing this value; which presents the business model as a balancing act between value and cost, something that we can see in other academics definitions of the business model as well. An example of this would be in work completed by Petrovic, Kittl, and Teksten in 2001, where they state that "a business model is not a description of a complex social system itself with all its actors, relations and processes. Instead, it describes the logic of a 'business system for creating value, that lies behind the actual processes. Therefore we understand a business model as the conceptual and architectural implementation of a business strategy and as the foundation for the implementation of business processes." (Petrovic et al., 2001).
In viewing these two reasonably different views on a business model, one focusing on value financially and to the end-user, the other focusing on the logic standing behind the system that creates the value, one can see how diverging opinions on the valuation of success can birth different viewpoints towards what is vital to a business model. This divergence brings up an important point, in that context is vitally important to how business models are interpreted and evaluated. Furthermore, with a rapidly changing technology landscape, an investigation into what innovations these changes bring about can be beneficial.
1.2. Innovations: Business Models
Over the last few decades, literature surrounding innovations to business models have significantly developed. One of the more recent voices of this industry describes it as "a framework or recipe for making money—for creating and capturing value. Innovation is about doing things differently from the norm. Therefore, a business model innovation is a framework or recipe for creating and capturing value by doing things differently." (Afauf 2014, pg 4) Yves Pigneur and Alex Osterwalder were asked, after producing a book together, to write an open letter to CEOs who were having to deal with new and transformative growth inside their organizations; in which they identified that business models that once thrived are now trailing behind companies with adaptable business models. They use the metaphor of focusing too much on the present being like taking oxygen away from inventing the future (Osterwalder and Pigneur 2017). This is an apt metaphor that eschews short term solutions for digital foresight. This thought process is further expanded by Lindgardt et al. (2009, pg. 2-7), who discuss how because of the ever-growing frequency of disruption in many industries, business model life cycles are getting shorter and shorter. They talk of how business model innovators outperform traditional players over time. This is in agreement with Pigneur and Osterwalder on the importance of innovation and foresight. However, it diverges more towards integration with the company due to the benefits of joint assets, customers and capabilities. They utilise an example of Apple, who continuously update and adapt their business model. As Lindgardt et al. note, Apple has not had a negative quarter of the year to year growth since March 2003. This stayed true up to 2013 when their estimated earnings per stock fell from $12.30 in Q2 2012 to $10.18 in Q1 2013, Brownlee, J. (2013). However, as is noted, this is mostly down to the fact that "Apple is innovating so quickly and releasing such advanced products across the board at such an aggressive rate that it is maximizing profit on them less quickly than a year ago."
While the value of an adaptable and agile business model is seen, the issue of identifying the correct way to implement changes is challenging. For this, we can look at a study by Gordijn et al. (2005), who find that in order to get an accurate idea of the value of the correct business model to employ, it is always a good idea to contrast and compare different viewpoints. Gordijn et al. compared two ontologies - the Business Model Ontology (BMO) (Osterwalder 2004) and the e3 value ontology (Akkermans, Baida, et al. 2004). By comparing the two, Gordijn et al. hope to achieve a more comprehensive ontology for the design and analysis of business models for networked value constellations. They found that even though the two models contain different points in the design of their business models (the firm centered of BMO vs the value constellation centered of e3 value ontology) their different strengths open up interesting opportunities for integration (Gordijn et al. 2005, pg. 17). One can then conclude that through utilizing context and existing frameworks, one can synthesize a personalised and relevant model for a specific business.
2. 'Freemium' as a New Growth Strategy
The first theme that will be discussed is the development of a 'freemium' business model. Freemium, which is a combination of free and premium, is defined as "a term increasingly used in commerce to designate a business model using two products or services, or a combination of products and services. In such combination, one item is provided at no charge while a complimentary item is sold at a positive price." (Pujol, 2016, pg. 1) (Bekkelund, 2011, pg.2). To trace to origin of this idea, one can look to an article by the venture capitalist Fred Wilson (2006 , pg.2), who defined 'freemium' as "giving your service away for free, with the possibility of using ad support, to acquire a lot of customers very efficiently through word of mouth, referral networks, and organic search marketing, then offer premium priced value-added services or an enhanced version of your service to your customer base." (Schreiner, M. and Hess, T., 2013, pg.3). Moreover, while the Freemium model has become more frequent in today's app market, becoming increasingly adopted by developers, it remains essential to analyse the effects that it has had on innovating the space of business models as a whole.
The primary goal of a freemium model is to convert free users to premium users (Anderson, 2009). These digital business models are highly relevant to IS and BISE researchers as they differ fundamentally from conventional ones, and are particularly challenging concerning business operations and revenue generation (Amit and Zott 2001; Teece 2010, Veit et al. 2014, pg. 109). Here Amit and Zott highlight the risk in relying on the conversion of free users on the free service to convert to their premium or profit-making service. This emphasis on the conversion is highlighted by (Anderson, 2009 & Bekkelund, 2011, pg.2), where they see the freemium model in three essential stages. The first is the introduction which provides digitised services on the internet with costs close to zero. Next, offer the service for free, which establishes a broader user community, not least because of viral marketing effects. Then finally, some of the free users become willing to pay for value-added services. In a way, the free version of the service is an advertisement for the premium version. Similar to trial packages, the user can test the product, which means they can test all the service's essential functions and evaluate whether they want to gain access to premium features (Anderson, C, 2009, pg. 3). One recent example of a freemium model is Spotify, where "Premium offering removes the commercials, gives access to more music, and allows for use on mobile phones and other devices." (Erlende Reim, 2011, pg. 4) As well, "Spotify recently announced that they had reached one million premium users, but it is still not clear if they are making a profit." (Reim 2011, pg. 4) Again, it is apparent that flipping 'free' users to pay, usually via a subscription model, is the crux of a freemium business plan. However, a competing idea to the need to convert free users to paid users comes from a 2010 paper by Nicolas Pujol, where he sees that those analysing the freemium model must treat free users and paying users as separate entities. As Pujols sees, "the two sides of freemium show interdependence: risk-averse customers value the fact that early adopters have battle-tested the software while providing the vendor positive brand equity that will help it sustain its business over time. Conversely, free users benefit from the presence of commercial customers in the ecosystem: the latter provide vendors with the financial resources to produce more free software and share more code." (Pujols 2010, pg. 4).
Here, Pujols identifies that free users to have value, in that they can "deliver value to the provider by testing the product, creating a brand, and sometimes contribute code or bug reports," an understanding is often seen in the open-source software development ideology (Pujols 2010, pg. 4). However, it is clear that Pujols still sees the paying customer as vital, when he states that paying users "provide vendors with the financial resources to produce more free software and share more code. This interdependence mirrors the indirect network effects seen on platforms." (Pujols 2010, pg. 4) Pujol's work shows that both free users and paid users provide a unique value to the 'vendor', or business in question. So, while investors and financiers may rush companies to convert free users to paid, it could also be argued, in a rather well-articulated way, that the existence of free users provides value in their own right. Then, it is possible to conclude that the freemium model may have unearthed a balanced approach to the development and sustainability of companies and products in an environment that is in a constant state of change and adaptation.
3. Digital Strategies Role into The Broader Business Strategy
The final theme that will be discussed is the role of digital strategy within the broader space of business strategy. This academic space is particularly relevant as it was Toney Maloney who stated in his lecture that "you do not need a digital strategy, you need to have a business strategy that has a digital perspective." What Toney touched on with this statement is that there is a fundamental difference between a holistic business strategy oriented towards the digital reality of today, and that of short term 'band-aid' solutions to catch-up digitally. When companies trend towards short term fixes, solutions run the risk of not being adopted as they may not fit into the wider internal business context. And while Tony's quote during his in class-presentation was very intriguing, a further investigation into the literature that supports, or engages with, this idea is valuable.
The value of having a digitally inclined business model, rather than a stand-alone digital strategy, can be seen echoed in Jeffrey Rayport and John Sviokla's paper titled 'Exploiting the Virtual Value Chain', where they see a distinction between what they define as a marketplace and market space. The difference between these two concepts lies in the realms that they operate, where market place is traditional value chains, the market space is where digital value is created; this is exemplified by an example, where they show that "when consumers use answering machines to store their phone messages, they are using objects made and sold in the physical world, but when they purchase electronic answering services … they are utilizing the market space." (Rayport and Sviolka 2000, pg. 75). Rayport and Sviolka go on to state that the market space is distinct from the marketplace as it is "a virtual realm where products and services exist as digital information and can be delivered through information-based channels." (Rayport and Sviolka 2000, pg. 75) Moreover, while this provides value in that it identifies that special care should be made to digital value creation, it does not provide a manual into how one could integrate digital value creation into an existing business model.
For this, we look to Mark Huberty where he sees that "from a value creation perspective, Google, Yahoo, and other ad-driven big data businesses are nothing more than newspapers at scale." (Huberty 2015, pg. 42). Here it is argued that companies such as Google are successful not because of a successful digital business strategy, but because they have integrated digital value creation into more traditional business models. In Huberty's assertion, one can see the logical progression from the definition of the marketspace value in Rayport and Sviolka's work, wherein the marketspace is integrated successfully into an organization's business strategy as a whole; and in some cases, such as with Google, becomes that main economic driver of the organisation as a whole. This sort of integration is further crystalized as Hubery sees the "value model does not emerge, fully-formed, from the data itself. The data alone are no more valuable than the unrefined iron ore or crude oil of past industrial revolutions. Rather, the data were mere inputs to a production process that depended on human insight— that what people looked for on the internet might be a good proxy for their consumer interests." (Huberty 2015, pg. 43) So, while the creation and identification of a digital strategy are essential, it becomes its integration into a broader business strategy that leads to value creation within a contemporary context.
4. Analysis of Business Model Canvas of Beta_Digital
In 2008, Alexander Osterwalder, in his book titled "Business Model Generation" (pg 16-44), discussed an incredibly useful 'business model canvas' that can be used to assess a business's strategy. We are referencing that business model to discuss the business model of Beta_Digital. As per the canvas, these are the 9 blocks that can be analysed in the figure below. 
5. Risk Analysis & Possible Solution Recommendation for Beta_Digital
Like any other business, one of the biggest challenges to Beta_Digital is finding its place in an increasingly competitive environment. Many of the world’s biggest consultancy firms such as Accenture, EY and Deloitte work in the UK and Irish market. It is in theory easier for a company that is used to targeting more, larger firms, to move into the Beta_Digital market than it is for Beta_Digital to try and compete with more prominent firms. This research group felt that Tony was overconfident in his conviction that companies like Accenture, EY and Deloitte would not try and target his customers. For example, Amazon is willing to make a loss on the selling of a Kindle device; the risk of predatory pricing is present. (Clay 2012) This is done to gain market share and drive out competition, the more prominent companies can make losses for longer.
There are also a lot of other smaller consultancy firms in both regions that may target the SMEs that Beta_Digital hopes to do business with. Tony identified Beta_Digital's unique selling point is their in-depth knowledge of different industries. Beta_Digital are masters of their respective industries and not a jack of all trades. They need to produce a robust and consistent marketing campaign to distinguish themselves from the competition and find their place in the market. Otherwise, they risk blending in with their competitors. Until Beta_Digital builds up a trustworthy brand becomes evident and commonplace, the founding members' reputation will be critical to the value proposition of the firm.
The second big challenge facing Beta_Digital is its supply chain. Their rooted relationship with DigJourney is understandable but is very dangerous. Beta_Digital is reliant on the methodology of its Swedish counterpart to get them in the door of companies. Beta_Digital could become a victim of their success. Should their consultancy see great success due to the starting point, the framework DigJourney has provided other companies may try to strike deals with DigJourney. While Beta will still have their knowledge, the loss of their 1-1 business relationship could put them at risk. While they hold this advantage, Beta_Digital should look into creating their framework or using different frameworks depending on the clients’ needs to reduce this risk.
The next risk facing Beta_Digital is the loss of key members of staff and with that a loss of knowledge. For example, according to the Beta Digital "Our Team" page, David Courtney is the only expert on the subject of retail banking. If Beta_Digital was to gain many customers in this sector and then lose David, they may not be able to offer the same expertise in a sector and therefore lose their unique selling point. This would be considered part of the value proposition expressed in the book Business Generation Model. (Osterwalder 2010, Pg. 22-25). It also means they would not be able to offer the same level of insight as before and could lose clients over this issue. There is also the risk that if a member leaves that they could take all of their knowledge of Beta_Ditigal's unique selling point and incorporate it into the strategy of a competitor.
The first strategy to protect Beta_Digital from the loss of critical members would be a contractual agreement that founding members cannot leave the organization unless they provide a set amount of notice and do not leave until a replacement is found up to a limit of three to six months. A leaving member should be involved in the hiring of a replacement with similar expertise. This idea protects the firm from having gaps in their knowledge and not been able to obtain or keep clients in a specific industry. Secondly, Beta_Digital should also include non-disclosure agreements in all of their contracts to make sure that members who leave the firm cannot disclose information that may cause Beta_Digital to lose its competitive advantage. This idea protects the knowledge that they receive from DigJourney and also techniques and private information that the firm's consultants have access too. This knowledge can be seen as a critical resource within the Osterwalder "Business Model Canvas".
The Business Model Generation handbook also talks about "Costs Structures" which are "all costs incurred to operate a business model. One potential unwanted cost structure identified by the consultancy group was that of legal costs. This consulting group points out that some of the methods like questions on a questionnaire would not be very difficult for a competitor to steal. This consulting group is not privy to the in-depth legal requirements and agreements that it has with its customers and partners, but it is recommended that Beta_Digital is vigilant in the protection of its methods and intellectual property.
Conclusion
This consulting group investigated a wide range of literature on the topic of business models. There are many contrasting views, but there are themes that stand out. Consistently across the literature, the importance of traits such as adaptability depending on the situation. To progress, companies need to continue to innovate their business models in a vastly digitalizing world. There is no one business model for companies to follow. It depends on the company's situation in terms of resources, industry and the problem they look to solve. Companies do not need a digital model per se to flourish, instead of an innovative, adaptable business model that has a digital aspect at its roots. These lessons are something Beta_Digital and other companies alike should keep in mind.
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