Simple digital business models: pipelines using platforms
Pipeline business models create value in a linear way, usually through a one-way value-adding production process such as turning wood into furniture or grapes into wine. Platform business models generate value in a networked way, often by connecting buyers and sellers, producers and consumers
But pipelines and platforms aren’t mutually exclusive, they interact in all kinds of different ways to form our ever-changing economic ecosystem.
A simple pipeline business model like this requires production, promotion and sales. That’s the same whether you are making furniture or icons. Pipeline businesses are quicker and easier now than they were 10, 20, 50 years because platforms exist. Without the platform business models of Twitter, Gumroad, and lots and lots of others, those pipeline businesses would never be able to get started because of the high level level of investment. Platform business models drastically reduce the investment required to start a business using a pipeline model.
The production of digital goods
Digital goods are different from physical goods. They have completely different economics. There is always a production cost to physical goods (the drive of manufacturing over the last few decades has been based on the idea of ‘economy of scale’, of minimising the marginal costs through higher quantities) whereas digital goods, because they are replicable, have near zero marginal costs. Once you’ve paid to create it once, producing the second, third, etc., costs almost nothing. And as every version is sold at the same price, the return on investment from digital goods increases the more that sell, whereas it stays (roughly) the same for physical goods.
Digital goods suffer from a knowledge problem. You don’t know how valuable they are until after you’ve paid for them. You can’t inspect them before purchase in the way you can with a piece of furniture. The knowledge problem is overcome by extending it beyond the goods themselves to the person or brand selling them and their reputation.
Using the Internet for promotion
The myth of being able to reach anyone on the internet is questionable, but the power of platforms like Twitter to reach more and (probably more importantly) different people is undeniable. But it requires different thinking from the traditional approach of ‘putting an ad in a magazine’. The ideas of using networks, building an audience of interested people, openness and transparency and ‘sharing the journey’ to create connection, and many other approaches align to and utilise the nature of the platforms. On platforms reputation is currency, because reputation follows the rules of platforms.
Sales
Selling costs. Processing an order for a digital good and a payment has per-transaction costs that (as yet, until someone comes up with a new financial system) conform to pipeline rules. But anyone selling still needs a means for taking their customer’s money. Sales platforms like Gumroad provide the functionality for making the sale and taking the payment (through other platforms). They enable the pipeline businesses. Without the platforms all those pipelines would have no means of making a sale or fulfilling an order.
There are so many different ways developing digital business models, from combinations of pipeline and platforms, all enabled by the infrastructure of the internet. I think there may be some other commonality but I don’t know what it is yet.