Chapter 11: Business Model Innovation in the Digital Economy

Chung-Shing Lee
Pacific Lutheran University, USA

Nicholas S. Vonortas
George Washington University, USA

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Abstract

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 demand-and 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.