Business Model Innovation: Definition & Example

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  • 0:04 Innovation in Music
  • 1:12 Business Model Innovation
  • 1:57 What Necessitates Innovation?
  • 3:35 Lesson Summary
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Lesson Transcript
Instructor: Beth Hendricks

Beth holds a master's degree in integrated marketing communications, and has worked in journalism and marketing throughout her career.

Business model innovation happens when a company makes changes and adapts to remain relevant and competitive. In this lesson, you'll learn more about this concept, find out when it's needed and check out an example.

Innovation in Music

There's no doubt that Apple has been seen as an innovator over its past four decades of existence. First coming to life inside a small garage in California, Apple's initial business model began with designing and assembling computer hardware and then selling it. In the 1990s, the company turned its attention towards personal computers and laptops.

In 2001, the company's entire business model changed, however, when it used existing technology to introduce the world's first iPod. In turn, Apple joined with leaders in the music industry and transformed itself from a simple hardware and software manufacturer to a pioneer in how music lovers got access to their favorite tunes. Instead of buying CDs at music stores, Apple's iTunes program gave consumers a new way to buy music, one song at a time, if they wanted. Just that easily, Apple added a new line of business, the music industry, to its resume.

Apple is just one example of a large company that's changed its business model over the years, growing and adapting with the times, changes in consumer behavior, and technological advances. It's a business concept known as business model innovation.

Business Model Innovation

When we talk about a business model what we're really talking about is the purpose, plans, and goals that will help a business earn profits. Therefore, business model innovation talks about making changes to a business model when a company is trying to grow, reach new markets, or attack disruption in its industry.

Business model innovation is a shift in the way an organization does business to support its financial well-being through areas such as developing new revenue sources. The idea of business model innovation can be scary because it requires a business' leaders to think about and restructure the fundamentals of the business into something that's new for them.

Organizations that undertake a business model innovation do so in an effort to stay competitive in an increasingly diverse marketplace.

What Necessitates Innovation?

The need for business model innovation may come from one of several sources.

Customer behavior

The longer a company is in business, the more likely they are to be confronted by changing customer behavior. As customer behavior changes, businesses must grow and adapt in order to stay relevant.

For example, the way consumers access news and current events has shifted from picking up newspapers and magazines at a newsstand to logging onto a media outlet's website. As a result, news sources have changed their business models to include paid electronic delivery of the news headlines.

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