Strategic Business Leader · E-business: value chain

E-business Strategy Models and Digital Business Models

Updated 11 October 2026 · Fact-checked

E-business strategy decides how an organisation uses digital technology to create value. You analyse the digital business model, then apply ideas such as reach, richness, disintermediation and reintermediation to the scenario. Recommend an option, link it to the case, and cover benefits, risks and implementation.

Understand E-business Strategy Models and Digital Business Models

E-business means using internet and digital technology across the whole organisation: sales, buying, operations, customer service and links with partners. It is wider than e-commerce, which is only buying and selling online. Your strategy asks: where does digital technology give us advantage, and what must change to get it?

A business model describes how an organisation creates, delivers and captures value. A digital business model does this mainly through online channels, data or platforms. Common types include online retail, subscription, marketplace or platform, freemium (free basic service, paid upgrades), advertising-funded, and pay-per-use. In the exam, name the model that fits the case and explain how it earns revenue.

Value comes from reach and richness. Reach is how many customers or partners you can connect with. Richness is how much detailed, personalised information you can give or collect for each one. In the past, firms traded one against the other: a shop gave rich service to few people, a catalogue gave poor information to many. Digital channels let you improve both together.

Disintermediation means removing an intermediary from the supply chain, for example an airline selling direct instead of through travel agents. The firm keeps the margin and owns the customer data. Reintermediation means new intermediaries appear in the digital world, such as price comparison sites, online marketplaces or app stores. So going direct is not always safe. Customers may still prefer an intermediary that offers choice, trust or convenience.

Strategy choices include whether to go online only or combine online and physical channels, whether to build your own platform or join someone else's, and how fast to move. Always test options for suitability, acceptability and feasibility, and consider risks such as security, channel conflict and the cost of change.

Key rules to remember

Reach: Reach = number of customers or partners you can access; Digital channels extend reach across regions and time zones at low extra cost.
Richness: Richness = depth and quality of information exchanged with each customer; Includes personalisation, data collected and quality of service. Use it with reach, not instead of it.
Disintermediation: Removing an intermediary from the supply chain; Gains margin and customer data. Risk: you take on the intermediary's work.
Reintermediation: New online intermediaries enter the chain; Examples: comparison sites, marketplaces. Can reduce the benefit of going direct.
Option test: Suitability, Acceptability, Feasibility; Use it to evaluate any e-business strategy choice.

How to solve E-business Strategy Models and Digital Business Models questions

Use this method for any e-business or digital business model requirement. Keep each step tied to the case facts.

1Read the requirement and note the verb: explain, evaluate, recommend or advise. It sets the depth.
2Identify the current business model and where the organisation sits in the value chain or network.
3Pick the right tools: reach and richness, disintermediation or reintermediation, or a model type such as marketplace or subscription.
4Apply each tool to the case facts. Use the customers, products, competitors and numbers given.
5Evaluate the options for benefits, risks and cost, using suitability, acceptability and feasibility.
6Consider implementation issues: systems, security, skills, culture, channel conflict and change.
7Give a clear recommendation with a reason, in the format asked for, such as a report or email.
8Check your professional skills: structure, scepticism, commercial awareness and clear communication.

Quickest way: Four-point scan: Model, Reach and richness, Middlemen, Risks

When to use it: Use it when time is short or you need a plan for a 10 to 15 mark part of a longer task.

Model: name how the firm earns money online.
Reach and richness: say what improves and how, with a case example.
Middlemen: say who is cut out or who could appear, and what that does to margin and control.
Risks and recommendation: give two or three risks, then a decision with a reason.

Common mistakes in E-business Strategy Models and Digital Business Models

Treating e-business and e-commerce as the same thing.
Both involve technology and online activity, so the terms blur.
Fix: Say e-commerce is online trading, while e-business covers all internal and external processes. Then apply the right one to the case.
Defining disintermediation without applying it.
It is easy to learn as a definition.
Fix: Name the intermediary in the case, say what the firm gains and loses by removing it, and mention possible reintermediation.
Saying reach and richness are always a trade-off.
The older theory describes a trade-off, and students repeat it.
Fix: Explain that digital channels can improve both, and then say where the case firm gains most.
Listing benefits only.
Digital ideas sound positive and students stay optimistic.
Fix: Add risks such as security, customer trust, channel conflict, cost and capability. Then reach a balanced recommendation.
Writing generic answers that could fit any company.
Students rely on memorised models instead of reading the case.
Fix: Quote case facts in every point and tie each point to the firm's customers, products or markets.

Worked examples

Example 1

A regional furniture manufacturer sells only through independent retailers. The board is considering selling directly to consumers online. Explain the strategic benefits and risks of this move, using disintermediation.

Show the solution

Define: selling direct removes the retailers, who are the intermediaries, so this is disintermediation.
Benefit 1: the firm keeps the retailer margin, which could raise profit per item or allow lower prices.
Benefit 2: richness improves. The firm gets customer data on preferences and can personalise offers, which it did not see before.
Benefit 3: reach widens beyond the regions where retailers operate.
Risk 1: channel conflict. Retailers may drop or demote the firm's products, which could cut existing sales sharply.
Risk 2: the firm must take on delivery, returns, customer service and website security, and may lack these skills.
Risk 3: reintermediation. Customers may still browse on marketplaces or comparison sites, so the firm may have to pay them.
Recommendation: test the online channel on a limited range and region first, while keeping retailers informed and involved.

Answer: Selling direct is disintermediation. It brings margin, customer data and wider reach, but risks channel conflict, new operating demands and reintermediation. A phased trial with retailer engagement is the sensible recommendation.

Example 2

A music streaming firm offers a free service with adverts and a paid ad-free subscription. Explain how its digital business model creates value and what strategic risk it faces.

Show the solution

Identify the model: freemium with advertising. Free users attract scale. Paid users bring subscription revenue.
Reach: the free tier lets the firm attract a very large user base across many countries at low extra cost per user.
Richness: listening data lets the firm personalise playlists and recommendations, which improves the service and the value of adverts.
Value capture: advertisers pay for access to the audience, and some free users convert to paid, so there are two revenue streams.
Risk 1: if too few free users convert, income may not cover content licence costs.
Risk 2: dependence on rights holders, who may raise fees or withdraw content, and on rivals offering similar services.
Risk 3: data protection rules and customer trust, because heavy use of personal data can bring fines and reputational harm.
Recommendation: invest in features that encourage conversion and monitor the conversion rate and cost per user.

Answer: The freemium and advertising model creates value through wide reach and rich personalisation data, and earns from advertisers and subscribers. The main risks are low conversion, licence costs and data protection, so the firm should focus on conversion and cost control.

Exam tips

Link every model to a case fact. Marks go for application, not definitions.
Always discuss both sides. A balanced answer with a clear recommendation earns professional skills marks.
If the case mentions a middleman, think disintermediation and then reintermediation.
Match your format to the task, such as a short report or briefing note, and keep paragraphs short with clear headings.
Use the pre-seen material to prepare likely digital issues, such as channels, data and platforms, before the exam.

Practice questions from E-business: value chain

E-business Strategy Models and Digital Business Models in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

E-business Strategy Models and Digital Business Models: frequently asked questions

What is the difference between disintermediation and reintermediation?

Disintermediation removes an intermediary from the supply chain, so the firm deals directly with customers. Reintermediation is when new online intermediaries appear, such as comparison sites or marketplaces. Both can happen in the same industry.

What do reach and richness mean in e-business?

Reach is how many people you can connect with. Richness is how detailed and personalised the information exchanged is. Digital channels can raise both together, which is a source of value.

How do I answer an e-business question in SBL?

Identify the business model, apply tools such as reach, richness and disintermediation to the case, then weigh benefits against risks. Finish with a clear recommendation. Use case facts throughout.

Do I need to learn many digital business model types?

You need a few common ones, such as marketplace, subscription, freemium and advertising-funded. What matters more is explaining how the model earns revenue in the case and what could go wrong.