Discovering digital business models in

traditional industries
Gerrit Remane, Andre Hanelt, Robert C. Nickerson and Lutz M. Kolbe

Introduction Gerrit Remane is Strategy

Consultant at Roland
Recent advances in digital technologies, comprising information, computing, communication Berger, Hamburg,
and connectivity, have led to new opportunities for business model innovation (Bharadwaj et al., Germany and PhD
2013). While managers from IT companies, such as Facebook, Google and Apple, successfully Researcher at University
utilize these technologies to form new global ecosystems, managers from traditional sectors of Goettingen,
often struggle to understand innovation logic that may deviate fundamentally from their Goettingen, Germany.
previous knowledge. Hence, new digital business models have already changed the balance Andre Hanelt is Assistant
of power for sectors such as media and retail (Veit et al., 2014). Professor and Head at
Digital Transformation
A recent study by Roland Berger (2015) finds that industrial-age industries such as Research Center, Chair
automotive, logistics, health, electronics, machinery and energy are next to follow the path of Information
to digital transformation. Their transformation is driven by new opportunities for data Management, University
collection and exploitation; the ubiquitous connectivity of products, infrastructure, of Goettingen,
companies and customers; and the ever-expanding capability of components, products Goettingen, Germany.
and systems to make decisions autonomously. Robert C. Nickerson is
Professor of Information
The same study also reveals that, on average, less than one-third of managers from these Systems at San Francisco
sectors believe their companies are well-prepared for the digital transformation. This finding State University, San
is unsurprising, as business executives in these organizations must reconstruct their mindsets Francisco, California,
from regarding IT as a subordinate support function, to understanding digital technologies as USA. Lutz M. Kolbe is
an integral part of business innovation (Yoo et al., 2010). At the same time, their IT executives Professor of Information
must learn to create and monetize value for customers (Bharadwaj et al., 2013). Systems at the University
of Goettingen,
To assist managers who work in more traditional industries, we adopted important conceptual Goettingen, Germany.
developments on digital business model innovation from theory to concrete guidance for
practice. Our method illustrates how managers can systematically analyze and discover digital
business models for their companies. This approach requires three steps:

1. identifying existing products and services;

2. deconstructing business models; and
3. discovering new configurations.
The central outcome is a framework that decomposes the ingredients of digital business
models and allows for recombining them.

What is a digital business model?

The business model concept is a useful lens for better understanding the business logic of
a company by describing how value is created, delivered and captured (Osterwalder and
Pigneur, 2010). A business model can be categorized as digital if digital technologies
trigger fundamental changes in these value dimensions (Veit et al., 2014).

DOI 10.1108/JBS-10-2016-0127 VOL. 38 NO. 2 2017, pp. 41-51, © Emerald Publishing Limited, ISSN 0275-6668 JOURNAL OF BUSINESS STRATEGY PAGE 41
 ‘‘Business executives in these organizations must reconstruct
their mindsets from regarding IT as a subordinate support
function, to understanding digital technologies as an
integral part of business innovation.’’

The characteristics of digital business models are different from traditional ones, and this
becomes apparent when looking at the example of the smartphone ecosystem. First, digital
products and services can be reproduced for practically zero marginal cost (e.g.
smartphone apps), and become exponentially more valuable as more users join (e.g.
Facebook) (Shapiro and Varian, 1999). Second, while value is traditionally created within a
firm and then sold to clients, in digital business models value is determined in use (Vargo
and Lusch, 2008). For instance, smartphones per se are of little value until they are used as
an interface to access services (e.g. telephony, navigation, mobile payment). Third, digital
business models rely on digital platforms to balance benefits among an ecosystem with
multiple organizations and individuals involved (Iansiti and Levien, 2004). For instance, the
Google Play Store must provide sufficient incentives for both app developers and users.
Because existing business model concepts did not sufficiently account for these new
logics, El Sawy and Pereira (2013) integrated them into their VISOR framework for digital
business models. The framework emphasizes the importance of customer contact points
(i.e. interface), the central role of digital platforms (i.e. service platforms) and the need to
orchestrate a complex ecosystem of multiple actors (i.e. organizing model). It assembles
digital business models into five components:

1. Value proposition: Reason why a particular customer is willing to pay for a product or
service.
2. Interface: Interaction between the customer and the service platform.
3. Service platforms: Engines to enable delivery of products or services.
4. Organizing model: Structure and processes of the ecosystem to create the products
and services.
5. Revenue model: Distribution of revenues and cost among the ecosystem participants.

How to discover digital business models?

There are four iterative phases for innovating new digital business models: discovery,
development, diffusion and evaluation of impact (Fichman et al., 2014). The main
contribution of this paper is relevant to the discovery phase, i.e. the creation of new ideas
or the adaptation of existing external ideas. The successive phases might be supported
better by other tools and methods (e.g. business model roadmapping by de Reuver et al.
(2013)).
Our systematic approach requires three steps:
1. identifying existing products and services;
2. deconstructing business models; and
3. discovering new configurations (Figure 1).
In the following section, we explain the three steps in detail and supplement them with
information from a simplified, anonymized case study. The case company, Passenger

PAGE 42 JOURNAL OF BUSINESS STRATEGY VOL. 38 NO. 2 2017

 Figure 1 Three steps for discovering digital business models

• Which target market

segments should be
addressed?
• Which existing products
and services are
addressing these
segments?

• How can existing • How do the products and

business models be services differ along their
modified? digital business model
• Which completely new components?
digital business models • Which additional busi-
can be constructed? ness model dimensions
and characteristics are
possible?

Transport Inc., had initiated an innovation project to identify new digital business models for
personal mobility.

Identify existing products and services

First, products and services from within the target market must be identified. To reflect the
customer-centricity of digital business models (Vargo and Lusch, 2008), the target market
should be defined from a customer’s perspective. Hence, all offerings addressing a similar
customer need – independent of their business models – must be considered as
competing in the target market. It is sufficient to record products and services with very
similar business models once; it is more important to capture the variety of options for
designing business models than to achieve an exhaustive market overview. As digital
innovations are often enhancements of non-digital products and services (Fichman et al.,
2014), these non-digital counterparts must also be included.
For Passenger Transport Inc., the target market was defined as personal mobility, which
includes all companies supporting customers in getting from one physical location to
another. By a series of more than 20 expert interviews combined with structured desk
research, 63 different business models were identified (Appendix 1). These range from
traditional offerings, such as selling cars (e.g. GM), lending cars (e.g. Enterprise), and
offering flights (e.g. American Airlines), to more innovative ones, such as carsharing (e.g.
car2go), ridesharing (e.g. Uber); and Internet portals for price comparison (e.g. Kayak).
The managers from Passenger Transport Inc. found these results to be very useful, as they
provided a more comprehensive perspective on the target market than these managers
were aware of.

Deconstruct the business models

Second, the business model components of the products and services identified must be
decomposed by applying the taxonomy-building methodology from Nickerson et al. (2013).
For each component of the VISOR framework, the methodology delivers one or several
dimensions, each with different characteristics. The methodology runs through several
iterations, which can be either empirical-to-conceptual, in which case common
characteristics for selected products and services are identified and grouped into
dimensions, or conceptual-to-empirical, which means that dimensions and characteristics
are derived from theory. Finally, the resulting taxonomy must be visualized as a

VOL. 38 NO. 2 2017 JOURNAL OF BUSINESS STRATEGY PAGE 43

 morphological box, which is a multidimensional matrix listing several dimensions of a
problem and the variety of possible values for solution.
The decomposition of the 63 different business models in Passenger Transport Inc.’s target
market – the personal mobility sector – took five iterations and is summarized in
Appendix 2. The columns in this table show the 14 dimensions (D1-D14) of the final
taxonomy with the characteristics of each dimension. The rows show how the 63 business
models are classified in the taxonomy. The columns and rows were successively expanded
during the five iterations, as documented in the first column, which shows at which iteration
each business model was classified, and the last row, which lists the iteration at which each
dimension was identified. For illustration purposes, the first two iterations are described in
greater detail below.
The first iteration was conceptual-to-empirical. For each element of the VISOR concept,
at least one dimension was developed. For instance, for the value proposition – the first
element of VISOR – a new dimension functional benefit (D2) was defined. This
dimension was specified as the outcome of using a product or service in the mobility
sector: a customer might receive ownership of a vehicle (e.g. purchase a car, as in
GM’s classic business model), access to a vehicle (e.g. private carsharing, such as
Turo), a standardized transportation service (e.g. public transport, such as LA Metro),
an individual transportation service (e.g. book a taxi via myTaxi app) or
product-oriented services (e.g. pay-as-you-drive insurance, such as Progressive). In
the same way, the dimensions sales channel (D4), digital platform (D7), production of
benefit (D10), transport mode (D11) and payment by user (D12) were defined along
with their corresponding characteristics.
In the second iteration, empirical-to-conceptual, the remaining examples of traditional
business models from the mobility sector (see Appendix 1) were included. To adequately
classify these, four new dimensions were added: travel distance (D1), sales model (D5),
physical infrastructure (D9) and subsidies (D14). For instance, travel distance (D1) was
added because the value propositions of public transport and airlines had thus far been
classified as identical (D2: Functional benefit ⫽ standard transportation service). As they
clearly address different use cases, the new dimension was necessary to classify whether
products or services can be used to travel within a city, between cities or long haul.
In the third, fourth and fifth iterations – also empirical-to-conceptual – the remaining
business models were gradually included. In the third iteration, instances from the clusters
carsharing, bikesharing, ridesharing and taxi services led to three more dimensions (D3,
D6, D8). In the fourth iteration, instances from the clusters smart parking, e-mobility,
connected cars, micro vehicles and car-comparison portals were included, resulting in the
addition of one more dimension (D13). The fifth iteration added the remaining instances
from the list. With this iteration, all instances were classified and no new dimensions had to
be added. Therefore, this was the final iteration.
Figure 2 visualizes the resulting 14 taxonomy dimensions and their characteristics as a
morphological box.

‘‘All offerings addressing a similar customer need –

independent of their business models – must be considered
as competing in the target market.’’

PAGE 44 JOURNAL OF BUSINESS STRATEGY VOL. 38 NO. 2 2017

Figure 2 Taxonomy of business models in the mobility sector

Dimension (D) Characteristics

D1: Travel Assisting product
Within city Between cities Long haul
proposition

distance or service
Value

D2: Functional Vehicle Vehicle Standard Individual Multiple Prod.-oriented

benefit ownership access transp. service transp. service benefits service
D3: Supported Booking and
Planning Booking Traveling Non-trip related
activities traveling
D4: Sales channel
Stationary In vehicle Online Telephone
Interface

D5: Sales model

Direct Indirect
D6: Registration
No registration required Upfront registration required
Own proprietary Own open Partnered
D7: Digital platform Third party platform
platform platform platform
platforms
Service

D8: Fleet
Own vehicle fleet required No own fleet required
D9: Physical No major
Production plant Transport infrastructure Stations
infrastructure infrastructure
D10: Production
In-house Third party Other customers (P2P) Multiple producers
model

of benefit
Org.

D11: Transport Micro- Motor- Multiple

Bike Car Bus Train Ship Aircraft
mode vehicle bike modes
D12: Payment
Buy Lease/subscribe Pay per use Free
by user
Revenue
model

D13: Revenue
Listing fee Commission Advertising None
from third party
D14: Subsidies
Subsidized Non-subsidized

Mixed car Mobility

sharing portal

How to read the figure: The first column describes the generic elements of digital business
models. The second column relates these generic elements to the most important dimensions for
a specific target market (in this case the personal mobility sector). The characteristics then
provide options for the configuration of each dimension. They are mutually exclusive and
collectively exhaustive, which means that each business model from the target market can be
assigned to exactly one characteristic for each dimension.

How to use the figure for analysis of existing business models: The figure makes the
underlying logic of existing business models explicit. For instance, it immediately reveals if an
organization is creating value in house or using partners for this task (D10). It also reveals if a
company is capturing value in the form of direct user payments (D12) or in form of third party
fees such as commissions (D13). Furthermore, the figure can be used to outline transitional
effects between established and more innovative business models.

How to use the figure for discovery of new business models: New business model
configurations can be systematically discovered when using the figureby recombining existing
business models or by specifying completely new business models. Mixed carsharing (green line)
is an example for the first option, as it reflects a modification of stationary carsharing (not shown
here). Mobility portal (red line) is an example for the second option, as it has been specified from
scratch.

Discover new configurations

The taxonomy (Figure 2) aids in better understanding commonalities and differences
between business models. The most important commonality relates to the value
proposition, as it reveals which offerings compete for the same customers. The
managers of Passenger Transport Inc. were initially surprised by this new form of
defining market segments, but soon realized that this perspective is more appropriate
than traditional approaches. For instance, the taxonomy reveals that free-floating
carsharing, immediate ridesharing, public transport, taxis and many other offerings can
be used to travel within a city (D1) and, thus, may substitute for each other, even though
their underlying business models differ significantly along the other dimensions. With

VOL. 38 NO. 2 2017 JOURNAL OF BUSINESS STRATEGY PAGE 45

 ‘‘The managers involved stated that it helped to dramatically
expand their view on options for digital business model
innovation.’’

regards to differences between business models, the managers found the taxonomy
particularly useful for visualizing transformational aspects from physical to digital
business models. For instance, in addition to its traditional business model of selling
cars, the car manufacturer Daimler is also investing in the taxi app myTaxi, the
integrated mobility portal Moovel and the parking platform GottaPark. The business
models of these services are fundamentally different from using production plants to
manufacture cars (D9), and generating revenues from selling them (D12). In contrast,
myTaxi, Moovel and GottaPark are open digital platforms (D7), intermediating
third-party services (D10) in return for a commission (D13).
Equipped with a better understanding of traditional and more innovative business models
in the target market, the identification of new digital business models can begin. The
methodology thereby serves as a heuristic to discover new opportunities. However, it
should not be misunderstood as an algorithm delivering perfect configurations. After
having discovered new digital business model options, a deeper assessment of the
respective ideas on key indicators such as their financial viability must follow, which might
be better supported by other tools and methods (e.g. business cases).
One can distinguish two options for discovering new digital business models:
recombination or invention (Fichman et al., 2014). Recombination means that an
existing business model is modified by adopting solutions from other business models
for one or several dimensions. Invention refers to building completely new business
models by successively specifying each business model dimension (from our
experience it has proven most effective to start by defining the value proposition and
then specifying the revenue model before determining the other dimensions).
For each option, we provide one example from Passenger Transport Inc.’s innovation
project. One idea for recombination was a mixed carsharing business model, incorporating
the strengths of stationary and private carsharing. The mixed carsharing operator offers a
base number of company-owned vehicles in each city (D8) (similar to the stationary
carsharing company Zipcar). In addition, customers can offer their private vehicles for rent
on the same platform (D7) (similar to the private carsharing company Turo). This
modification makes the business model more attractive for customers – because more
vehicles are available – and more profitable for the operator – because additional revenues
can be generated from commissions. The mixed carsharing business model is visualized
by the dashed line in Figure 2.
One completely new business model idea for Passenger Transport Inc. was to create an
integrated mobility portal. The value proposition offered by the portal is booking (D3) all
kinds of functional benefits (D2) for long distance travel (D1). Revenues are then generated
from commissions for each intermediation (D13). This business model does not require the
operator to own a fleet (D8) or any other physical infrastructure (D9) as the production is
outsourced to third parties (D10). The solid line in Figure 2 indicates a complete
specification of such a business model.
In sum, Passenger Transport Inc. very positively evaluated the proposed procedure.
The managers involved stated that it helped to dramatically expand their view on

PAGE 46 JOURNAL OF BUSINESS STRATEGY VOL. 38 NO. 2 2017

options for digital business model innovation and further provided first impressions on
how to realize those options (e.g. regarding potential partners).

Conclusion
In the future, digital strategy can no longer be viewed separately from the business strategy
(Bharadwaj et al., 2013). The pervasive diffusion of digital technologies leads to new
business models in almost every industry by affording new ways of value creation, delivery
and capture (Porter and Heppelmann, 2014). The awareness of these opportunities and
risks is particularly important for managers from traditional industries as the underlying
logics of digital business models are often fundamentally different from what they have
been used to. Thus, managers from these industries require tools and methods guiding
them through the transformation.
So far, business model frameworks describe the components belonging to general
business models (e.g. the canvas by Osterwalder and Pigneur, 2010) and digital
business models (e.g. the VISOR framework by El Sawy and Pereira, 2013). This paper
provides managers with a structured approach for relating these frameworks to a
specific firm’s context. The approach requires managers to follow three steps:
1. Identify existing products and services. Which target market segments should be
addressed in the future? Which existing products and services of their and other firms
already address them?
2. Deconstruct business models. How do these products and services differ along their Keywords:
digital business model components? Which additional business model dimensions and Digital business models,
characteristics are possible? Business model innovation,
Digital transformation,
3. Discover new configurations. How can existing business models be modified? Which
Taxonomy development,
completely new digital business models can be constructed?
Personal mobility sector,
By following these steps, managers will gain a deeper understanding of existing business Passenger transport,
models and discover new business model configurations that are relevant for their firm and Automotive,
suit the digital era. Transportation

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Appendix 1

Table AI Overview of different business models from the mobility sector

Cluster Instance of business model (example, country)

Traditional business models

Vehicle manufacturing Sell bike (Accell Group, NL); Sell motorbike (Piaggio, ITA); Sell car (GM, USA)
Vehicle rental Lease car (Volkswagen Leasing, GER); Rent car (Enterprise, USA)
Taxi Taxi operation (Yellow Cab Company, USA); Taxi agency (New York TLC, USA)
Public transport Bus (LA Metro, USA); Rail (Tube, GBR); Ship (HVV, GER)
Long haul Bus (Greyhound, USA); Rail (SNFC, FRA); Ship (Stenaline, SWE); Airline (American Airlines, USA)
Support and infrastructure Gas station (BP, GBR); Vehicle repair (ATU, GER); Insurance (State Farm, USA); Parking house
(Green Parking Council, USA); Tollroad operator (ASFINAG, AUT); Travel agency (Brownell, USA)
Innovative (mostly digital) business models
Bikesharing Stationary regular bikesharing (PubliBike, CH); Stationary advertising bikesharing (Vélib’, FRA);
Free floating bikesharing (Call a bike, GER)
Carsharing Stationary carsharing (Zipcar, USA); Free floating carsharing (car2go, GER); Private carsharing
(Turo, USA); Hosted carsharing (Citeecar, GER)
Ridesharing Deferred ridesharing (carpooling.com, GER); Recurrent ridesharing (Rideshare.com, USA);
Immediate ridesharing (Uber, USA); Commuter stations (Project CARLOS, GER)
Taxi services Third party taxi app (myTaxi, GER); Taxi agency taxi app (Taxi.eu, EUR); Limo service (Blacklane,
GER)
Smart parking Parkhouse booking (Gottapark, USA); P2P parking (Parking Panda, USA); Payment street parking
(Mobile City, GER); Parking information (Parkopedia, GBR)
Intermodal traveling Information on schedule (DB Navigator, GER); Comparison within transport mode (Kayak, USA);
Transport mode comparison (Rome2Rio, AUS); Booking of best route (Moovel, GER); Mobility card
(Octopus card, HKG)
E-mobility Operate charging infrastructure (State Grid Corporation, CHN); Battery exchange network
(BetterPlace, ISR); Battery leasing (E-Smart, GER)
Connected car Regular navigation kit (TomTom, NED); Regular navigation app (Google Maps, USA); Crowd
navigation app (Waze, USA); Pay as you drive insurance (Progressive, USA); Location based
advertising (Google AdWords, USA); Infotainment services (GM OnStar, USA)
Micro vehicles Substitute for walking/bike (Segway, USA); Substitute for bike/car (MUVe, ISR)
Rural mobility Community bus (Bürgerbus Bassum e.V., GER); Community carsharing (Dorfauto Eukirchen, GER)
Portals for comparison Intermediary for new cars (meinauto.de, GER); Portal for used cars (ebay, USA); Compare
insurance (Google Compare, GBR); Compare gas stations (Smart fuel, NZL); Compare
maintenance (Autoscout24 Werkstätten, GER)
Others Loyalty programs (Miles and more, GER); Platform remaining train tickets (L’Tur, GER)

VOL. 38 NO. 2 2017 JOURNAL OF BUSINESS STRATEGY PAGE 49

 Appendix 2

Figure A1 Decomposition of business models from the mobility sector

PAGE 50 JOURNAL OF BUSINESS STRATEGY VOL. 38 NO. 2 2017

About the authors
Gerrit Remane is a strategy consultant at Roland Berger and a PhD researcher at the
University of Goettingen. His research interests relate to the digital transformation, digital
business models and tools for business model innovation. His research has been
published in leading international conferences (e.g., International Conference on
Information Systems) and journals (e.g., International Journal of Innovation Management).
Gerrit Remane is the corresponding author and can be contacted at: gremane@uni-
goettingen.de
Andre Hanelt is head of the Digital Transformation Research Center (DTRC) at the
University of Goettingen. His research interests relate to the nature and diffusion of digital
business models, as well as eco-systems and their transformative impact on organization
and management. His research has been published in leading international conferences
(e.g., International Conference on Information Systems) and international journals,
including International Journal of Innovation Management and Information Systems Journal.

Robert C. Nickerson is professor of Information Systems at San Francisco State University.

His research interests relate to the diffusion of mobile technology, taxonomic theory,
taxonomy development in IS, wireless/mobile applications, electronic commerce systems
and database systems. His research has been published in international journals, including
International Journal of Innovation and Technology Management, Journal of Theoretical and
Applied Electronic Commerce Research, and European Journal of Information Systems.

Lutz M. Kolbe is professor of Information Systems at the University of Goettingen. His

research interests relate to sustainability, IT management and the digital transformation. His
research has been published in leading international journals, including Energy Policy,
Information Systems Journal, and MIS Quarterly Executive.

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