Business Model Innovation: Seven Essentials

In an age where innovation reigns supreme, it’s easy for leaders to believe that a novel business model equals a ticket to success. The logic is appealing: Be the first to offer something new, or something familiar in a new way, and the profits will follow.

This idea becomes even more compelling in times of technological upheaval. Technologies like artificial intelligence, blockchain, and renewable energy systems are not only tools for operational improvement but also foundational enablers of new ways to create and capture value. In this type of landscape, your organization’s business model becomes a strategic lever — not just for profit but for purpose. The rise of multisided platforms, subscription models, as-a-service models, and data monetization has shown that how you deliver value can be just as important as what you deliver. AI, in particular, is redefining how companies personalize experiences, optimize operations, and even cocreate value with users.

And yet, many organizations make missteps when engaging in business model innovation. After studying nearly 300 internet-enabled companies across two technological eras — the dot-com boom of the late 1990s and the mature digital economy of the 2010s — we discovered a more nuanced reality: A novel business model alone does not guarantee high performance, not even when the related technology is new and surrounded by hype. What really matters is how that business model novelty is configured — how it works in concert with other business model design elements, such as efficiency, lock-in, and complementary partnerships.

Our research shows that top-performing companies don’t just chase novelty for its own sake. Instead, they configure business models that strike a deliberate balance between value creation and value capture. They tailor those models to fit their strategy, size, industry dynamics, and the maturity of the technologies they use.

Business Model Innovation in the AI Age: Realities for Leaders

For leaders looking to build high-performing business models and avoid the common pitfalls of innovation theater, it’s important to examine lessons from companies that got it right and those that didn’t. Here’s what the research shows.

1. Novelty is powerful when paired with operational discipline. Spotify redefined the music industry with a novel business model: unlimited streaming via a freemium platform. But the company didn’t stop at novelty. It built strong lock-in (through personalized playlists and algorithms), efficiency (through low marginal costs of distribution), and complementary partnerships (like those with podcast creators). This systemwide approach helped it grow from a disrupter to a dominant platform.

Contrast this with Clubhouse, a once-hyped audio social network that featured virtual rooms where users could listen in on other people’s conversations. While novel in concept at the time of its 2020 launch, Clubhouse failed to lock in users, monetize effectively, or integrate with complementary offerings.

The lesson? Novelty alone won’t carry you past the hype cycle. What sustains a novel business model is strategic and operational discipline, marked by the ability to capture value (monetization) and grow through fast and scalable transactions, high customer-switching costs, and complementary services. Without these reinforcing mechanisms, even the most novel models struggle.

2. Efficiency is not just for cost cutters: It’s a strategic advantage. Novelty often excites investors and customers, but efficiency sustains performance. The e-commerce apparel brand Shein combines data-driven novelty (rapid fashion-trend prediction using AI) with extreme operational efficiency in sourcing, logistics, and production. This fusion allows it to launch 1,000-plus new styles daily — something traditional retailers can’t replicate. Similarly, Tesla’s direct-to-consumer model was novel, but its vertical integration, from battery design to charging infrastructure, gave it efficiency and control over margins.

The lesson? Even breakthrough models need robust “plumbing.” Your operational infrastructure must scale with your ambition.

3. Strategy matters: Build a clear market position. Business model novelty needs to fit well with your competitive strategy. In our study, we found that in highly competitive industries such as consumer electronics and retail, companies that combined business model novelty with either a differentiation or cost leadership strategy outperformed those with novelty alone. Warby Parker’s online-first, vertically integrated eyewear model was novel but also clearly aligned with a differentiation strategy: better design and its “vision for all” social mission. In the consumer electronics sector, Apple’s iPhone ecosystem combined novelty with differentiation through design, brand, and seamless integration.

Southwest Airlines paired its novel business model with a cost leadership strategy, keeping fares low and operations lean by using a single aircraft type, orchestrating quick turnarounds, and offering no-frills service.

The lesson? It’s important to ask yourself, “Is our business model aligned with our strategy — or at odds with it?”

4. AI-driven business models are powerful — when a system’s components work together. AI is not a business model, but AI tools can supercharge one. Take Duolingo, the language-learning app. The company uses AI to create personalized learning paths, efficiency in content delivery, gamified lock-in, and monetization via ads and premium subscriptions. Duolingo is not just “tech-enabled”: Its business model is designed around AI as a core enabler.

Similarly, Netflix uses AI for its recommendation system (lock-in), adaptive streaming (efficiency), and content strategy (complementarity through original productions). These elements reinforce one another in a tightly configured model.

The lesson? AI-powered novelty needs to connect to value capture, not just wow the user.

5. Sustainability requires business model integration, not just reporting. More companies are turning to sustainability not just as a PR move but as a design principle. Patagonia’s circular economy model, which encourages product repairs and resales and incorporates “buy less” messaging, is a radical form of lock-in built on values. It integrates complementarity (through used-gear resales and trade-ins), efficiency (durability), and novelty (anti-consumerism).

In heavy industry, Ørsted — a Danish energy company that was previously one of Europe’s most coal-intensive utilities — transitioned from fossil fuels to renewables by redesigning its business model to capture value from offshore wind and power purchase agreements. This was not just a technological shift — it was a strategic reconfiguration.

The lesson? Real climate leadership means rethinking how you generate, deliver, and monetize value, not just minimizing harm.

6. Size and timing: What works for a startup may backfire for an incumbent. When a technological ecosystem is new (such as AI today), smaller or upstart companies are often better off with simple business models — like OpenAI’s initial API access and subscription services — because they can move fast, experiment freely, and don’t carry the burden of defending an existing business. In turn, large companies are better off when they deploy complex, resource-intensive configurations that combine novelty with efficiency and scale — like Microsoft integrating AI deeply into its Azure and Office products.

But in mature tech environments (like the internet today), the pattern flips. Smaller companies can thrive with more complex configurations: Canva blends a freemium model, community templates (complementarity), cloud-based access (efficiency), and lock-in through brand kits and team folders. Large businesses can compete with simpler models that fit their legitimacy and customer bases, such as Adobe’s straightforward shift from one-off licenses to Creative Cloud subscriptions.

The lesson? Match your model’s complexity to your company’s capacity and the maturity of the technology you’re using.

7. If you’re chasing outlier success, novelty is often necessary — but never enough. We found that business model novelty was a necessary ingredient for exceptional business performance in new tech environments. But still, novelty alone never sufficed. Again, you need other business model design elements around it. Companies like Airbnb, Square, and Stripe didn’t just introduce novel ideas: They designed value-capture mechanisms (such as fees, trust systems, plug-ins, and B2B integrations) that made the models sustainable.

The lesson? To go from good to great, your business model novelty must be embedded in a coherent configuration — as Nvidia did in combining a novel GPU platform with developer toolkits, licensing, and ecosystem partnerships to drive sustained growth.

The Bottom Line: Think System, Not Sizzle

Business model innovation is not like choosing a winning lottery ticket, where simply picking a novel combination of numbers pays big dividends. It’s a system design challenge. In an age of AI, sustainability pressures, and relentless competition, companies need to think beyond bold ideas and ensure that their business models are cohesive, scalable, and strategically aligned.

Before launching a new business model, ask yourself:

• How will we create value in ways others cannot?
• How will we capture value consistently and sustainably?
• Are our value drivers — novelty, efficiency, lock-in, and complementary partnerships — working together?
• Is the model aligned with our company’s strategy, structure, size, and technological context?

Only when the answers add up to a model with holistic strength will novelty lead to peak performance, and innovation translate into impact.