New Economic Models in the Digital Economy

Business Model

Sometimes people confuse business models with economic models.

Teece and Baden-Fuller define a business model  as how organisations create and capture value. We know a considerable amount about creating value (though organisational design research) but much less about how we capture value (value that includes social and cultural capital as well as economic).

Economic model

Economic models are at a higher level than that of a single business. Traditionally, we have spoken of sectors. Take for example the banking and finance sector. If we consider all agents in the banking eco-system this might include software developers, consultants, specialist operations units (eg credit cards) channels, marketeers etc  as well as the retail and commercial banks. Good questions to ask at this level are who does what and who gets what? (Jacobides), NEMODE also has an interest in how value is distributed.

New Economic Model

New economic models are a reflection that the traditional sectoral view (some describe this as the vertical space, in that constellations of companies are in a vertical from creation to distribution) no longer holds. Consider for example the iPhone and later smart phones, this has affected the market for cameras, torches, games, alarm clocks, transformed the way we access media, eroded incumbents’s dominance etc. Therefore, it has expanded from its original position into other markets and sectors ACROSS a horizontal. For an excellent discussion see Yoo (2012).

This ability to combine previously separate user experiences (technology affordance Majchrzak and Markus) is being made even more interesting by the development of sensor technology and big data. The question becomes what is the boundary around the data? Current research is looking at data at the level of the individual, groups of individuals in families, groups of friends, communities even towns and cities. These boundaries enable eco-systems to come together to provide all the services the user(s) require. Data is made available and shared within all these units of activity and there are opportunities for both incumbent players and for the emergence of new organisations and ecosystems.

Digital Economy

This horizontal movement has been accentuated by the digital economy. As Normann predicted in 2000, the digital economy is liberating us from the constraints of

• time, when things can be done
• place, where things can be done
• actor, who can do what
• constellation, with whom it can be done

Technology enables organisations to  bundle existing activities and assets and link them in new combinations with other organisations’ technology and assets free from the constraints of time place etc.

New Economic Models of the Digital Economy

So digitisation is changing the way businesses compete – Ng argues that this is the coming together of social media, devices [1], connectivity and the widget in the ‘new oil’ and that all of this happens in a context that provides the potential for New Economic Model in the Digital Economy. For an excellent, if rather academic treatment of these issues a good starting point is Yoo (2012).

Please feel free to contact us if you would like to contribute to the discussion with your comments, experience or research outputs.