Charles Baden-Fuller, Stefan Haefliger
5 min
While business models and technological innovation are frequently discussed together, this paper argues that the business model is a stand-alone concept. The authors define a business model as a system that solves the problem of identifying customers, engaging their needs, delivering satisfaction, and monetizing value. By treating the business model as a 'model'—a manipulable instrument for reasoning—researchers can better analyze how firms create and capture value independently of the specific technologies they employ.
The authors propose that the interaction between technology and business models is bidirectional. First, the business model acts as a mediator; a superior technology does not automatically guarantee profit unless it is supported by an effective business model that aligns with market needs and monetization strategies. Second, the business model influences the trajectory of technological development. Decisions regarding 'openness' (the permeability of firm boundaries) and the level of user engagement (such as involving customers in the design process) act as strategic choices that shape what technologies a firm develops and how it evolves.
To move beyond the confusion of diverse definitions in existing literature, the authors propose a four-dimensional typology: customer identification, customer engagement, value delivery, and monetization. They distinguish between 'taxi' systems (bespoke, project-based offerings) and 'bus' systems (scale-based, standardized offerings). This framework helps explain why some firms succeed by applying known business models to new contexts, while others, like Google, achieve success through 'business model leaps' that fundamentally change how value is captured in two-sided markets.
This paper provides a necessary theoretical foundation for strategy and innovation scholars to untangle the complex interdependencies between technology and business models. By shifting the focus toward the business model as a cognitive and strategic tool, the authors offer a roadmap for managers to experiment with new ways of organizing innovation, ultimately helping to explain why some technologically advanced products fail while others thrive.
Business models are fundamentally linked with technological innovation, yet the business model construct is essentially separable from technology. We define the business model as a system that solves the problem of identifying who is (or are) the customer(s), engaging with their needs, delivering satisfaction, and monetizing the value. The framework depicts the business model system as a model containing cause and effect relationships, and it provides a basis for classification. We formulate the business model relationship with technology in a two-way manner. First, business models mediate the link between technology and firm performance. Secondly, developing the right technology is a matter of a business model decision regarding openness and user engagement. We suggest research questions both for technology management and innovation, as well as strategy.
Alex: Where does the taxi-versus-bus distinction fit into this?
Sam: It maps onto the customer engagement and value delivery dimensions. The taxi model is bespoke—high engagement, low standardization, difficult to scale. The bus model runs on standardization: lower marginal cost per customer, but you've constrained what you can offer any individual one. The failure mode the authors flag is when a firm builds technology suited to one model but tries to run it on the other. You get a taxi technology on a bus business model, and the unit economics never close.
Alex: That's a useful diagnostic frame. If your technology requires deep customization to deliver value, but your monetization strategy assumes commodity-scale volume, those are in tension at the level of the typology itself.
Sam: Precisely. And that's the practical payoff of treating the business model as a formal object rather than a narrative. When it's just a story about how a firm makes money, you can't identify the internal contradictions until you're already losing. When you decompose it into these four dimensions, the misalignment becomes visible earlier.
Alex: What's the paper's own assessment of its limitations? A typology is only as useful as its ability to generate falsifiable predictions.
Sam: The authors are fairly explicit that this is a conceptual contribution, not an empirical one. The typology is proposed as a framework for future research rather than tested against outcome data. So the honest read is that we don't yet have strong evidence that decomposing business models along these four dimensions predicts performance better than existing approaches. The claim is that it should, because it gives researchers a more precise vocabulary. Whether that precision translates into explanatory power is an open empirical question.
Alex: And there's a related issue: the four dimensions are presented as exhaustive, but it's not obvious they are. If a firm innovates along some other axis—say, the governance structure of a platform, or the data architecture—does that fall cleanly into one of the four, or does the typology need extension?
Sam: That's a fair challenge, and the paper doesn't fully address it. The typology is parsimonious by design, which is a virtue for tractability but a potential liability for coverage. A referee would reasonably ask for either a principled argument that these four dimensions are jointly exhaustive, or an explicit acknowledgment that the framework is a starting point rather than a complete map. The authors don't quite deliver either.
Alex: So the contribution is a conceptual infrastructure—a more precise instrument for researchers who've been working with an underspecified construct. Useful, but the empirical validation is still ahead of it.
Sam: That's the right framing. The paper gives the field a cleaner way to ask the question. Whether the answers it enables turn out to be more reliable than what came before is something the next generation of empirical work will have to settle. Thanks for listening to ResearchPod.