Digital transformation: What the $#%&@! is a business model and why you should care

Companies like Uber and Airbnb are transforming industries with business model innovation. Here's what you need to know.
Written by Michael Krigsman, Contributor

Serious discussions of digital transformation invariably turn to business models and the changing relationship between a company and its customers.

Business models play an essential role in defining the value that any organization delivers to its customers. When an industry or group fundamentally changes how it provides value, business model innovation is often involved.
Alex Osterwalder
Alex Osterwalder, image courtesy CXOTalk

For example, companies like Uber and Airbnb redefined property ownership as the foundation for delivering customer value. Historically, taxi companies and hotels "rented" their property to consumers who paid either by the mile or the time in which they occupied the owner's premises.

Without owning property, these companies serve as middlemen, enabling buyers and sellers to come together efficiently using a mobile app and / or a website. Instead of hailing an Uber on the street, as you would a taxi, a mobile app is the required method of contact.

The business model innovations associated with companies like Uber and Airbnb are sufficiently profound to have significant ripple effects on the social fabric of countries around the world. Consider recent Uber riots in France and Airbnb's frequent skirmishes with lawmakers as prime examples.

Given the importance of business models, I was fortunate to speak with Alex Osterwalder, CEO of Strategyzer, and likely business model king of the world. In fact, I referred to him precisely in that way during an appearance on a special Lightening Edition of CXOTalk.

Alex's first book is called Business Model Generation and is a visual manifesto of business planning. Business Model Generation sold a million copies in 30 languages and is a standard text on this topic. His second book, Value Proposition Design , discusses product-market fit.

Here is Alex Osterwalder talking business models on CXOTalk:

Here is a transcript of our conversation, edited for length and clarity:

It's the blueprint of your strategy. Your strategy tells you where you want to go and the business model tells you how you are going to do it. It's a description, and we like to make it a visual description, of how you create, deliver, and capture value.

Any organization that creates structure -- creates value -- and delivers that value has a business model.

Business models expire much faster today [than in the past]. Twenty years ago, you could say "I'm in this industry - I'm in the airline industry," and everybody would know what you do. Today, you tell somebody what industry you're in, they won't know what your business looks like or how it works.

Let's take the music industry. Apple was one company disrupting that; then came Spotify, and you had the record majors that are trying to figure out how to do things. Business models today expire much faster than ever before and in any particular industry you'll find multiple different business models.

Understanding, the right business model for my industry, for my area, is increasingly important.

If you ask, "What business is Apple in?", you can't name an industry. They're in software, they're in hardware, they are in content. It's the business model that matters, not the industry anymore. It's "What's the blueprint of your strategy?"

Business models matter because there are many more choices than before.

CXOTalk brings together the world's top executives, authors, and analysts to discuss leadership, technology, and innovation. Join me and Vala Afshar for new episodes of CXOTalk every week.

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