Revenue models for digital services in the railway industry: A framework for choosing the right revenue model

While digital servitization provides manufacturing companies with the potential to earn additional revenues in the transition process from physical to digital offerings, the implementation of adequate value-capturing mechanisms is a major hurdle. The literature discerns little on the factors that influence the choice of revenue models for digital services. To address this knowledge gap, we build on a case study approach involving two global manufacturing companies in the railway industry that have experience in offering diverse digital services. The analysis reveals specific features and characteristics of three major revenue models for digital services - namely, subscription, usage-based, and performance-based revenue models. In addition, we identify overarching factors influencing the choice of revenue models for digital services. They are related to a) customer digital readiness, b) digital service sophistication, and c) digital ecosystem partnerships. Building on these influencing factors, we propose a framework that recommends that companies evaluate revenue models in relation to specific digital services. We furnish several theoretical contributions to the digital servitization literature and provide managerial implications for practitioners to assist in the choice of revenue models for digital services.

Automated summary

While digital servitization offers manufacturing companies the potential for additional revenues during the transition from physical to digital offerings, choosing the right revenue models for digital services is a significant challenge. This study examines two global manufacturing companies in the railway industry that offer a variety of digital services, identifying subscription, usage-based, and performance-based revenue models as the three main options. Factors influencing revenue model choices include customer digital readiness, digital service sophistication, and digital ecosystem partnerships. The study proposes a framework to help companies evaluate revenue models for specific digital services, providing theoretical contributions and managerial insights for practitioners.