What is Digital Business? Definition, Benefits, and Examples

Updated August 29, 2023

Businesses often leverage the power of digital processes to expand and improve their operations. Digital technologies are changing the traditional business model to incorporate new digital income and value streams that connect customers with better products, services, and experiences. Understanding how and why digital businesses work and exploring ways to transform them can help you learn more about the field and determine if a related career is suitable for you. In this article, we answer the question, "What is digital business?", outline its benefits, reveal opportunities, list common digital business models, and explain how to digitalize a business.

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What is digital business?

When answering the question, "What is digital business?" it's helpful to understand what digital means. It's an electronic technology that creates, stores, and transforms data. In business, digital is a way of doing or delivering something that combines the physical business world with the digital one. Digital business can create three important elements, including:

New value

Digital businesses typically look for new methods and opportunities to create value in developing and expanding market sectors that encourage innovation and technology. For example, digital business may include leveraging the internet of things (IoT) to create new supply chain opportunities in the lumber sector. It may also include enhancing logistics for better delivery efficiency in the transportation sector, or it may create new entertainment options for in-flight customers.

New experiences

Digital businesses strive to identify innovative and more efficient ways to enhance the customer experience across different sectors. Through digitalization, businesses can use big data and information technology to develop and implement new proficiencies throughout each step of the customer buying experience. For example, businesses may use customer purchasing data to identify behaviour patterns that may help them improve their product and delivery options, critical supply chain opportunities, and marketing strategies.

New digital mindsets

Digital businesses operate from a digital mindset that embraces a culture of agile methodologies and cross-functional collaboration that typically results in quicker, more efficient decision-making processes. It includes creating smaller agile teams that use dynamic, iterative processes to handle a wider range of projects and critical decisions concerning organizational and technological processes. This mindset can promote innovation, increase responsive customer care opportunities, and expand a company's overall competencies.

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Digital business benefits

Here are the benefits of digital business:

  • Improve customer engagement: Digitalization can facilitate better customer engagement through innovative communications opportunities. It can encourage a company to include innovation at its core, leading to consistent product and service development and greater customer experience opportunities.

  • Increase productivity: By transforming manual processes through automation, businesses can increase productivity. Automation can decrease errors, accelerate processes, and increase efficiency.

  • Reduce operational costs: Manual processes are more time-consuming and costly than automated systems. Digitalizing processes can reduce these issues.

  • Enhance process quality and consistency: Digitalization can help ensure processes are more consistent. This can facilitate an improvement in product quality and services.

  • Improve resource management: Digital businesses can centralize data and resources by integrating databases, software, and key applications into a primary repository. Having a central source of business intelligence can allow departments access to these vital tools to manage their resources more consistently and efficiently.

  • Reinforce system reliability and control: Businesses that achieve consistent quality are typically more reliable. Digitalization allows for greater control over a business's operations and processes.

  • Develop advanced decision-making processes: Digitalizing allows businesses to gather critical data about their operations, customers, and market position. Better decision-making processes allow business leaders to make use of this valuable information to make well-informed choices.

Related: What Is Digital Transformation and Why Is It Important?

How does digital business create new opportunities?

Here are some ways digital business creates different opportunities:

Transforms integral value propositions

In business, customers typically expect to receive value for their purchases. Known as the customer value proposition (CVP), these benefits can differentiate companies, build customer loyalty, and ensure profits. Digitalization can transform the CVP in several ways, including:

  • Improve customer experience: Digitalization can enhance a company's regular products with new technological features or services that may differentiate it from others and improve the customer experience. An example of this is when car manufacturers introduced self-parking cars and blind-spot detectors.

  • Enhance product offerings: More product offerings can increase the CVP, which may create additional revenue streams for the business, such as watches that also provide customers with metrics like real-time health data.

  • Restructure foundational business infrastructure: Digitalization can reshape value propositions, offering an increase in benefits for companies and consumers. For example, if a car manufacturer switches to a direct-to-consumer business model that allows customers to purchase cars directly from the factory, it circumvents the dealerships, lowers the consumers' costs, and increases its profits.

Related: How to Create Digital Transformation Strategies (With Steps)

Develops novel digital capabilities

Embracing digitalization allows companies to go beyond simple online channels to create unique digital capabilities. For example, to place an order, a restaurant may allow clients to use any device or service, such as social media or a virtual assistant, phone, or television. It can further enhance the customer experience by implementing zero-click ordering.

Supports product and service customization

Customization allows consumers to choose product or service elements that fit their preferences, such as colour, size, functions, and add-on features. Traditional manufacturing can't typically provide these options because of its machinery and the prohibitive costs, but digitalization provides options, such as small-batch or mixed manufacturing or 3D printing. For example, print-on-demand publishing permits authors to customize their books and also allows them to print one or more copies when they want, something traditional web printers are unable to do.

Related: What Is Mass Customization? (With Types and Benefits)

Common digital business models

Here are several common digital business models:

eCommerce

An eCommerce model is typically a one-sided sales method. Businesses sell products to online customers through a virtual store. Many businesses may profit from using the eCommerce model, from small sellers working from home with one or two products to larger retail sellers with hundreds of products.

Marketplace

Marketplace models are typically two-sided sales methods. Merchants and shoppers can use a virtual third-party platform or marketplace to exchange goods and services. For example, ride and restaurant delivery services or large retail platforms that sell almost anything in one place are common marketplace models.

Related: 5 Actionable Steps You Can Take When Finding a Niche

Free

In a free digital business model, companies typically offer customers a free service. Companies then offer their user information to advertisers who target their ads. An example is any social media site where users input or create useful data about themselves that advertisers can use, such as their demographics, buying habits, and preferences.

Freemium

Freemium models give users free access to a stripped-down product version that typically limits the options and functions available and is often full of forced ads. Users can opt for a premium or paid version with more features and fewer or no ads. Many digital businesses use freemium models, such as photo editing, media, music, movie, and gaming sites.

Related: What Is a Business Model Example? (With Types to Consider)

On-demand

An on-demand model provides users with a virtual product or service when they want it. This differs from a freemium model, as products are typically available for a specific length of time. This is common with on-demand video services, where movies are typically available for only a few days.

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How to create a strong digital business

Here are six steps to help build a successful digital business:

1. Embrace automation

Consider automating processes where feasible. Artificial intelligence (AI) is a key component of digital business. AI can save time and money that business leaders can use in other key areas, such as marketing.

2. Develop a digital mentality

The digital mindset sees technology as the foundation of successful business processes and customer experiences. Technology presents untold opportunities and innovative ways to disrupt the market and claim a competitive advantage. Creating a company culture and a team of individuals with similar ideas that recognize these opportunities can be key to a successful digital business.

3. Create the right roles for essential talent

The digital world is continually advancing and changing, requiring innovative leaders with specific talents to keep up with the market and surpass it. Successful digital businesses require leaders who can create extraordinary business strategies and outstanding customer experiences. They may consider building a core team that includes a digital strategist, marketer, and business systems expert.

4. Implement a powerful digital strategy

Successful digital strategies typically include a cross-functional team. Teams made up of people with a range of talents across all departments can be a powerful component of digital strategies. A successful digital strategy may also include:

  • Innovative digital business model

  • Unique virtual products and services

  • People with exceptional skills and talents

  • Innovative digital technologies

  • Access to knowledge and information

5. Incorporate agile methodologies

Agile methodologies can encompass an iteration that allows for faster decision-making when using consistent data, valuable collaboration, and important course correction. This can lead to better products and services and an increase in the CVP. To sustain success, it's important to continue using agile methodologies.

6. Make digital marketing a priority

In a busy digital market, marketing is vital for brand recognition and for creating a strategic, competitive advantage. Consider researching effective digital marketing strategies and tailoring them to create dynamic digital marketing campaigns. Then, constantly evaluate their progress using their target market and customer data.

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