Business Model Innovation in the Digital Economy

A viable business model in the digital economy must follow the fundamental economic principles and be able to capitalize on the disruptive characteristics of the Internet commerce. This chapter presents an analytical method to assist business executive and entrepreneurs in evaluating and building a viable business model in the digital economy. This method is based on the concept of disruptive innovation, economies of scale and scope, and the theories of switching costs and transaction cost economics. It takes into account various cost models from both demandand supply-side perspectives. The chapter contrasts the business transformation process and value creation strategies in the physical and digital economies, and discusses several ecommerce revenue models and pricing issues in the digital economy. This chapter appears in the book, Social and Economic Transformation in the Digital Era, edited by Georgios Doukidis, Nikolaos Mylonopoulos, and Nancy Pouloudi. Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited. 701 E. Chocolate Avenue, Suite 200, Hershey PA 17033-1240, USA Tel: 717/533-8845; Fax 717/533-8661; URL-http://www.idea-group.com IDEA GROUP PUBLISHING