12 Pros and Cons of Digital Business Models

Digital business models are taking the business world by storm.

It’s not just tech giants and trendy startups getting in on the action anymore — companies of all sizes are entering the digital arena. But what does this shift mean for the way we do business? 

“From the way products are sold to how services are delivered, everything is evolving,” Shaunak Amin, CEO and Co-Founder of SwagMagic, a company that specializes in custom employee appreciation gifts explained. “Understanding the ins and outs of these models is key to navigating the new business landscape.”

Read on to discover what digital business models are all about and why they’re making such a splash in today’s marketplace.

What Are Digital Business Models?

Digital business models use technology to sell goods and services. This isn’t just about having a website or an online shop. It’s a strategy that uses digital tools and platforms to run a business. From how products are displayed online to the way customers interact with a brand, digital business models encompass a whole new way of conducting business operations.

“Think about companies that you interact with online. These businesses have embraced technologies like e-commerce platforms, social media, and digital marketing to not just reach customers but to create an entire business ecosystem,” expanded Jonathan Zacharias, Founder of GR0.” 

Digital business models are about leveraging these technologies to streamline processes, engage with customers in new ways, and open up new revenue streams.

What Are the Benefits of Digital Business Models?

Now that we’ve defined what digital business models are, let’s look at why businesses have embraced them. These models have opened up new frontiers for businesses, bringing a host of benefits that were pretty difficult to imagine in the pre-digital era.

#1 – Wider Reach and Accessibility

One of the biggest advantages of digital business models is their ability to break geographical barriers. With the internet as a platform, businesses can reach customers across the globe. It’s not just about being online — it’s about making your products or services available to a wider audience than was ever possible before.

“Digital platforms have democratized a business’s reach,” said Scott Chaverri, CEO of Mito Red Light, a company that specializes in red light therapy at home. “Now, a small startup can have the same global reach as a multinational corporation.” 

These business models are about how effectively you use the digital space to connect with customers worldwide. If you’re able to understand and harness their power, it could do wonders for your bottom line.

#2 – Cost-Effective Operations

Switching to a digital model often cuts down on big costs. You’re not paying for a physical store or a big office, and sometimes, you can even get by with fewer staff. When you digitize your business practices mindfully, you can run your company more efficiently, which can lead to higher cost savings.

“Shifting online has a real impact on a business’s bottom line,” pointed out Lindsay Swaik, VP of Digital at 2XU, a company known for its line of mens compression pants. “You’re saving on everything from rent to utilities, which can free up budget for other areas like marketing or product development.”

An unexpected benefit of the tragic COVID-19 pandemic was a rise in remote work, normalizing teams or even entire organizations working from home. This aspect of the digitization of business — and the digital revolution at large — has opened the door to myriad cost savings, whether you go all-in or only transition a few aspects of your business.

#3 – Data-Driven Decision Making

Another big win with digital business models is how they let you use data to make better decisions. Every online interaction gives you info (think: what people like, when they shop, what they don’t buy). This helps businesses get a clear picture of what their customers want.

“Data is a goldmine for businesses,” said Erin Banta, Co-Founder and CEO of Pepper Home. “It guides decisions about what to sell, when to sell it, and who to sell it to.”

The key is not just collecting data but understanding it to make smart choices. As you prioritize data collection, make sure you have a team dedicated to analyzing that information and finding patterns that can propel your business forward.

#4 – Enhanced Customer Experiences

One of the best aspects of going digital is how you can dial in on what your customers want. Online, you can personalize the shopping experience, tailor your marketing, and even engage with customers in a way that feels more personal. 

“Digital tools let you create experiences that resonate with customers,” shared George Fraguio, Vice President of Bridge Lending at Vaster. “Whether it’s personalized recommendations or engaging directly on social media, digital strategies can skyrocket customer satisfaction levels.”

Plus, certain aspects of this CX-centric approach are also known strategies to boost sales, like showing them products they may be interested in or sending them marketing emails you know they’ll be interested in. It’s a win-win for you and your shoppers.

#5 – Flexibility and Scalability

Digital models let businesses scale up or down without a huge hassle. Whether you’re expanding your product line or tapping into new markets, doing it digitally makes it more manageable.

“Digital businesses can adapt and grow with a flexibility that’s hard to match in the physical world,” noted Andrew Chen, Chief Product Officer of CommentSold, a company known for their Shopify live selling services. “The ability to scale operations without significant investment or risk is a game-changer, especially for growing businesses.”

Circling back to cost savings, being able to open up worldwide sales without investing in brick-and-mortar storefronts or offices for overseas teams makes embracing globalization accessible to companies of all sizes — evening the playing field.

#6 – Enhanced Security

The final pro of digital business models is the improvement in security measures. 

As Igors Astapciks, the Co-Founder of FortySeven Software Professionals, points out, “Digital transformation enables businesses to adopt advanced security measures like multifactor authentication and encryption.”

This move towards sophisticated security protocols helps businesses protect against cyberattacks and reduce the risk of data breaches. By leveraging these digital advancements, companies can create a safer online environment for their operations and customer data.

What Are the Downsides of Digital Business Models?

While digital business models have their upsides, they come with challenges, too. Here’s a look at some of the drawbacks:

#1 – Cybersecurity Risks

cybersecurity concept Global network security technology, business people protect personal information. Encryption with a padlock icon on the virtual interface.

One of the biggest concerns with running your business online is cybersecurity. The more you rely on digital operations, the more you’re exposed to risks like data breaches or cyber-attacks. This is something businesses can’t afford to overlook.

“Cybersecurity is critical in the digital world,” said Marcus Hutsen, Business Development Manager of Patriot Coolers. “With online operations, you’re open to risks like hacking and data theft. Businesses need strong security measures to protect both themselves and their customers.”

The unexpected benefit to this drawback is that all businesses should consider an increased emphasis on cybersecurity in the online age, digital model or not. You store employee and customer data online, and that’s a hefty responsibility. If the switch to a cyber model encourages you to increase your existing security, you’ll likely be better off for it across the board.

#2 – Increased Competition

Going digital might be easier than setting up a physical store, but it also means you’re up against more competition. Anyone can start an online business, so the digital marketplace can get crowded — in other words, standing out and grabbing customers’ attention gets tougher.

“With digital businesses popping up left and right, the competition is fierce,” pointed out Amanda Howland, Co-Founder of ElleVet Sciences. “Staying ahead means not just being online, but being innovative and unique in a market that’s crowded with options.”

On the other hand, those options will exist regardless of whether you join the digital fray. People may opt for an online competitor who can give them what they need without needing to leave the house, putting them at even more of a disadvantage.  

#3 – Dependency on Technology

Another hitch with digital business models is how much they rely on technology. Sure, tech is great when it works, but what about when it doesn’t? Downtime, technology glitches, or even a slow internet connection can take their toll. It’s a risk that comes with the territory.

“Relying on technology is a double-edged sword,” said Sara Alshamsi, Founder and CEO of Big Heart Toys. “On one hand, it enables your business. On the other, you’re at the mercy of tech issues. It’s all about having good backups and a solid plan for when things go sideways.”

If you’re going to move towards a digital business model, invest in reliable technology infrastructure and have a robust contingency plan in place. Additionally, regular maintenance, updates, and staff training on technology usage can preempt potential issues, ensuring your business can effectively navigate the digital landscape with minimal disruptions.

#4 – Skill Gap and Training Needs

One thing about digital business models is they need a certain level of tech-savvy. As technology evolves, there’s a constant need for upskilling. For some businesses — especially smaller ones — keeping up with this can be a real challenge.

Staying relevant in a digital business environment means continuous learning and training. Businesses need to invest in upskilling their team to keep pace with technological advancements, which can be a significant undertaking.

#5 – Lack of Personal Interaction

Another downside of digital models is the potential loss of that human touch. While online transactions are convenient, they can lack the personal connection you get in face-to-face interactions. Finding ways to make digital interactions feel more personal is a big challenge.

In digital business, maintaining a personal connection with customers can be tough. Businesses need to get creative to bridge that gap, ensuring their digital presence doesn’t lose the human element that customers value.

#6 – The Ongoing Challenge of Digital Transformation

Embracing digital business models isn’t a simple task.

Thomas H. Davenport, a leading expert, explains, “Digital transformation is an ongoing process of changing the way you do business. It requires foundational investments in skills, infrastructure, and, often, in cleaning up IT systems. This is not just about technology but involves a complex blend of people, machines, and business processes.”

This insight underlines that going digital is much more than a technological upgrade — it’s a continuous, multifaceted journey that demands substantial and sustained effort across an organization.

An Online Revolution

Digital business models offer tremendous opportunities like reaching a global audience, cutting operational costs, and making data-driven decisions. Of course, it’s not all smooth sailing. They also bring challenges like increased online risks, intense competition, and a significant reliance on ever-changing technology. 

In essence, the success of these models hinges on how well a business can navigate and balance these pros and cons in the digital landscape — but if you can do it well, it could change the can.

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