Business Planning (LC 2027) (Leaving Cert Business): Revision Notes
The Impact of Digital Technology
Digital technology has fundamentally changed how businesses operate in the modern world. This transformation affects everything from how companies interact with customers to how they generate revenue and manage their operations.
Understanding digital transformation
Digital transformation refers to the process where businesses use digital technologies to create new or modify existing business processes, culture, and customer experiences. This shift helps companies speed up their operations, improve customer experiences, and stay competitive in today's fast-changing market.
Digital transformation isn't just about adopting new technology - it's about fundamentally rethinking how businesses operate and deliver value to their customers.
The benefits of embracing digital technology include:
- Efficiency: Technology helps businesses work with fewer errors and at much faster speeds than traditional methods
- Customer value: Digital tools make businesses more willing to adapt to change, which ultimately benefits their customers
- Working together: Digital platforms provide opportunities for businesses to bring different areas of the company together virtually
- Employee engagement: Staff can upskill using new software, which improves their performance and productivity
Digital technology is providing businesses with platforms to reinvent their current business models with fresh, new and relevant ideas. This expansion is increasing market opportunities and opening up new areas of growth.
Digital business models
The digital age has created several new ways for businesses to generate revenue and serve customers. Understanding these models is crucial for modern business planning.
Marketplace model
A marketplace model operates as an online centralised platform where multiple buyers and sellers interact and carry out transactions. The platform acts as a mediator, connecting buyers and sellers without actually owning the products or services being sold.
Key characteristics include:
- Companies like Amazon, Etsy, eBay, and Uber operate using this model
- The marketplace doesn't own the products - it simply facilitates transactions
- Revenue is typically generated through commission fees or listing charges
- Provides value to both buyers and sellers by offering a central location for commerce
Did you know? 48% of online shoppers go straight to a large online marketplace for their purchases, showing how dominant this model has become.
Subscription model
The subscription model involves consumers paying monthly or yearly fees to access a service. Companies using this model receive recurring payments from their customers rather than one-off purchases.
Examples include Netflix and Spotify, where customers pay regular fees for continuous access to content. This model provides several advantages:
- Predictable revenue: Companies can forecast income more accurately
- Customer relationships: Subscriptions encourage ongoing interaction between business and customer
- Range of products: Both digital and physical businesses can offer various products and services to meet customer needs
- Customer interaction: Subscription services often provide continuous customer interaction and can build stronger relationships
Crowdfunding model
Crowdfunding involves raising small amounts of money from a large number of individuals, usually done to finance a new business venture. This model connects entrepreneurs with investors through online platforms.
The process typically works as follows:
- Entrepreneurs present their business ideas on crowdfunding platforms
- Investors with entrepreneurial thinking contribute funds
- Examples include platforms like Kickstarter and GoFundMe (£26 million raised through GoFundMe)
Key features include:
- Capital access: Both traditional crowdfunding and venture capitalists provide finance to launch businesses
- Public engagement: Online crowdfunding campaigns can reach wider audiences than traditional funding methods
- Lower initial investment: The initial start-up costs for crowdfunding campaigns can be lower than traditional business models
Advertising-supported model
This model involves businesses establishing an online presence with relevant content and then selling advertising space to companies. The revenue comes primarily from advertisers rather than directly from users.
Examples include Google, Facebook, and YouTube, where the platform provides free services to users while generating revenue through advertising sales.
Key aspects include:
- Free to users: The service appears free to end users, but they 'pay' by viewing advertisements
- Marketing focus: Advertising is the primary form of marketing that all businesses need to conduct
- Revenue generation: Advertising-supported models generate revenue primarily through online advertising (Facebook, Instagram, etc.)
Important statistic: Digital advertising spend in the US is expected to reach $298.5bn in 2024, showing the massive scale of this model.
Freemium model
The freemium model offers a basic version of a product or service for free, then charges for premium features or services. This approach allows companies to attract customers with free offerings while generating revenue from those willing to pay for enhanced features.
Popular examples include Spotify (free vs premium), Zoom, and many mobile apps that offer basic functionality for free with paid upgrades available.
Key characteristics:
- Customer acquisition: Both freemium and non-digital models aim to gain large user bases by offering something free or low-cost
- Cost considerations: Digital freemium models have minimal costs for offering basic services, while non-digital models face higher production and distribution costs
- Customer tracking: Freemium models in the digital world make it easier to track customer behaviour and gather data on service usage
- Feedback advantages: Digital models provide faster feedback compared to non-digital models, making it easier to gather direct customer input
Affiliate model
An affiliate business model occurs when a business or individual earns a commission from a member of the public purchasing something through a direct link from an advertisement they have mentioned.
The affiliate marketing ecosystem creates a win-win situation where affiliates earn commissions, merchants gain customers, and consumers discover products through trusted recommendations.
The affiliate marketing process works through a network:
- Affiliate (Publisher) promotes products through various channels
- Customer clicks on affiliate links and makes purchases
- Merchant (Advertiser) pays commission for successful sales
- Popular examples include social media influencers and Amazon associates programmes
Benefits of affiliate marketing include:
- High income potential: Affiliates linked to thriving businesses can earn substantial commissions
- Flexible working hours: Most affiliate marketers work part-time, giving them flexibility to optimise their promotional timing
- Remote working opportunities: Affiliates can work from anywhere with internet access to promote products
Case study: IKEA's digital transformation in shopping
Worked Example: IKEA's Digital Innovation Strategy
IKEA provides an excellent example of how traditional companies can successfully embrace digital transformation. The Swedish furniture retailer has implemented several digital initiatives to enhance the customer shopping experience:
Step 1: Augmented Reality Implementation IKEA allows consumers to use augmented reality technology to visualise furniture in their homes before making purchases. This technology helps customers make more informed decisions about products.
Step 2: Digital Platform Expansion In 2017, IKEA acquired TaskRabbit, a platform for hiring people to help with various tasks, including furniture assembly. This acquisition strengthened IKEA's position in e-commerce logistics.
Step 3: Advanced Visual Technology The company has developed advanced 3D and visual AI technology features. Customers can upload pictures that are automatically rendered in 3D, and the app provides features allowing customers to swap existing items for new ones virtually.
Step 4: Strategic Partnerships IKEA has collaborated with Geomagical Labs, a company known for its advanced 3D and visual AI technology, to create these innovative shopping tools.
Result: This demonstrates how digital transformation can enhance traditional retail models while maintaining the company's core business approach.
Key industry statistics
Understanding the scale and impact of digital technology helps put these business models in perspective:
Critical Market Data:
- The Big Four tech companies (Amazon, Apple, Google, and Meta) are collectively worth $4 trillion, demonstrating the massive value created through digital business models
- Consumer behaviour: 48% of online shoppers go directly to large online marketplaces for purchases, showing the dominance of platform-based models
- Advertising growth: Digital advertising spend continues to expand rapidly, with the US market expected to reach $298.5bn in 2024
These statistics highlight why businesses need to understand and potentially adopt digital strategies to remain competitive in today's marketplace.
Key Points to Remember:
- Digital transformation helps businesses operate faster, reduce errors, and improve customer experiences through technology adoption
- Multiple revenue models exist in the digital space: marketplace, subscription, crowdfunding, advertising-supported, freemium, and affiliate models each offer different approaches to generating income
- Real-world application is key - companies like IKEA show how traditional businesses can successfully integrate digital technology, particularly through augmented reality and platform acquisitions
- Market dominance of digital platforms is significant, with nearly half of online shoppers preferring large marketplaces and tech giants representing trillions in value
- Strategic choice matters - businesses must carefully select the digital model that best fits their products, customers, and long-term goals