Technovation xxx (xxxx) xxx–xxx

Contents lists available at ScienceDirect

Technovation
journal homepage: www.elsevier.com/locate/technovation

The digital transformation of business models in the creative industries: A

holistic framework and emerging trends
Feng Li
Cass Business School, City, University of London, 106 Bunhill Row, London EC1Y 8TZ, UK

A R T I C L E I N F O A B S T R A C T

Keywords: This paper examines how digital technologies facilitate business model innovations in the creative industries.
Business model Through a systematic literature review, a holistic business model framework is developed, which is then used to
Portfolio model analyse the empirical evidence from the creative industries. The research found that digital technologies have
Holistic framework facilitated pervasive changes in business models, and some significant trends have emerged. However, the re-
Creative industry
configured business models are often not ‘new’ in the unprecedented sense. Business model innovations are
Digital technology
Digital economy
primarily reflected in using digital technologies to enable the deployment of a wider range of business models
Transformation than previously available to a firm. A significant emerging trend is the increasing adoption of multiple business
Innovation models as a portfolio within one firm. This is happening in firms of all sizes, when one firm uses multiple
business models to serve different markets segments, sell different products, or engage with multi-sided markets,
or to use different business models over time. The holistic business model framework is refined and extended
through a recursive learning process, which can serve both as a cognitive instrument for understanding business
models and a planning tool for business model innovations. The paper contributes to our understanding of the
theory of business models and how digital technologies facilitate business model innovations in the creative
industries. Three new themes for future research are highlighted.

1. Introduction technologies have been used to facilitate business model innovations. It

also explores the potential role of the creative industries in stimulating
This paper examines how digital technologies have been used to innovation and entrepreneurship across different sectors of the
facilitate business model innovations in the creative industries. Over economy.
the past two decades, the theory of business models has been devel- The creative industries are selected for their broad coverage in both
oping rapidly, with strong interest from both academics and business traditional (e.g. art, publishing) and digital native sectors (e.g. video
leaders. Digital technologies are regarded to play a critical enabling role games). They are not only a significant engine of economic growth, job
in facilitating business model innovations in different sectors. However, creation, and social cohesion (Pratt and Jeffcutt, 2009), but also a hub
despite the growing number of research papers, journal special issues of managerial innovation and experimentation and new organisational
and conference sessions on business models, the concept of business and business practice to stimulate innovation and entrepreneurship in
model itself remains rather elusive; and the multitude of con- other sectors of the economy (Lampel and Germain, 2016; Petruzzelli
ceptualisations has slowed down cumulative research (Zott et al., and Savino, 2015). They are selected to serve both as an important
2011). Significant emerging trends in business model innovations, in domain for business model innovations through digital technologies
particular, the digital transformation of business models, remain poorly and an ideal setting for a systematic study of the subject.
understood (Spieth et al., 2014; Visnjic et al., 2016). The holistic business model framework is developed, refined and
Through a systematic literature review, this paper develops a hol- validated through a multi-stage, recursive, learning process (Straub and
istic business model framework to systematically define its key con- Carlson, 1989). It is developed to serve both as a cognitive instrument
structs (what); and then uses the framework to analyse how business for understanding business models (Badden-Fuller and Morgan, 2010;
models have changed and why, and explore the role played by digital Furnari, 2015) and a planning tool for developing business model in-
technologies in business model innovations, based on the empirical novations (Doganova and Eyquem-Renault, 2009; Sabatier et al., 2010).
evidence from the creative industries. The paper contributes to our The next section reviews previous studies and develops a holistic
understanding of the theory of business models and how digital business model framework. Then the research design and empirical

E-mail address: Feng.Li.1@city.ac.uk.

https://doi.org/10.1016/j.technovation.2017.12.004
Received 19 January 2017; Received in revised form 8 November 2017; Accepted 29 December 2017
0166-4972/ © 2017 Elsevier Ltd. All rights reserved.

Please cite this article as: Li, F., Technovation (2017), https://doi.org/10.1016/j.technovation.2017.12.004
F. Li Technovation xxx (xxxx) xxx–xxx

work are discussed. Following this, business model innovations fa- The papers included several recent comprehensive reviews, which
cilitated by digital technologies in the creative industries are system- covered previous research on business models. Zott et al. (2011) re-
atically analysed, and emerging trends are identified. The contributions viewed 103 papers (selected from 1253) on business models and found
to theory and practice are then discussed. Finally, three new themes for that the literature has largely developed in three silos, namely, e-
future research are highlighted. Business and information systems, strategic management, and innova-
tion management. Despite significant conceptual differences between
1.1. Literature review: developing a holistic business model framework these studies, they also identified five common themes. First, business
model is emerging as a new unit of analysis. Second, it emphasises a
Despite the surge in literature since the late 1990s, the concept of holistic approach in explaining how firms do business. Third, it focuses
business model is still poorly defined today. Many definitions co-exist, on the activity system of the firm and its partners. Fourth, both value
which are often idiosyncratic in nature, pragmatically adopted to fit the creation and capture are included. Fifth, digital technologies are a key
purposes of particular studies (Demil and Lecocq, 2010; Eckhardt, enabler of new business models.
2013). In everyday conversation, there appears to be a working con- Several other review papers and journal special issues were identi-
sensus on what business model is, but as an analytical concept it lacks fied (e.g. Demil and Lecocq, 2010; Baden-Fuller and Haefliger, 2013;
clarity and rigour. Business models have been approached from dif- Spieth et al., 2014; Visnjic et al., 2016). These papers collectively
ferent perspectives in several disciplines, to serve a variety of objectives provided the starting point for this review. Through a reverse search,
at multiple levels and scales of analysis. This has limited the ability of some key seminal works were identified from the citations, which were
researchers and practitioners to draw effectively on the work of each then combined with the 50 identified papers. A total of 80 papers and a
other. number of books and chapters were also used for this study. The focus is
We initially identified and reviewed several well-known conceptual on the definitions and key constructs of business models, and the role of
frameworks on business models from the literature, including the fra- digital technologies in enabling business model innovations. An initial
meworks by Gordijn and Akkermann (2001); Chesbrough (2007, 2010); holistic business model framework is developed based on the review,
Johnson et al. (2008); Lindgardt et al. (2009); Kiron et al. (2013); and which is then refined and extended through discussions with other
selected one of the most comprehensive and widely used framework to academics and with business leaders in our case studies and in the in-
structure the case studies – the Business Model Canvas (Osterwalder vited the workshops. This process will be discussed in more detail later
and Pigneur, 2010). However, its limitations for this research became in this paper.
apparently very quickly after the first few case studies. Although very
effective in capturing detailed insights for understanding the business 1.1.1. Defining business models
model of a specific firm and how its different constructs change over Business models are a complex, multi-dimensional concept. It has
time, the amount of semi-structured details within each canvas become been defined by previous studies as ‘a statement (Stewart and Zhao,
a liability when comparing a large number of firms or investigating 2000), a description (Applegate, 2001; Weill and Vitale, 2001), a re-
emerging trends in a diverse domain such as the creative industries. presentation (Morris et al., 2005; Shafer et al., 2005), an architecture
Further, the canvas does not distinguish between strategic and opera- (Dubosson-Torbay et al., 2002; Timmers, 1999), a conceptual tool or
tional constructs. Most of all, while the notion of value is central to any model (George and Bock, 2009; Osterwalder, 2004; Osterwalder et al.,
business model, value only features in one of the nine constructs of the 2005), a structural template (Amit and Zott, 2001), a method (Afuah and
business model canvas – the value proposition. It is not designed to Tucci, 2001), a framework (Afuah, 2004), a pattern (Brousseau and
identify and capture changes in value sensing, creation, distribution Penard, 2006), and a set (Seelos and Mair, 2007)’ (Zott et al., 2011,
and capture. Therefore, a new holistic business model framework is pp1022). A more recent review by Massa et al. (2017) identified 71
needed for this study. definitions/conceptualizations of the business model from 89 papers
A systematic literature review was conducted on previous studies of and outlined their first order components and themes. These definitions
business models, which included both emerging new business models only partially overlap, which promote dispersion rather than con-
and reconfigured traditional business models enabled by digital tech- vergence of perspectives. Most previous studies focused only on one or
nologies. A systematic review follows a rigorous process, which aims to some aspects of the concept.
identify, analyse and synthesise research evidence on a specific research First, business models are often defined as models, or cognitive
topic in a systematic manner (Transfield et al., 2003; Petticrew and configurations as representation of a class of firms in the way they
Roberts, 2006). The ISI Web of Knowledge was used, which pools four operate rather than something real, similar to scale models that can be
indices: Science Citation Index (SCI), Social Sciences Citation Index presented, illustrated and manipulated (Furnari, 2015). In this sense, a
(SSCI), and Arts and Humanities Citation Index (A&HCI) since 1970, business model is not a complete description of what a firm does, but a
plus Conference Proceedings Citation Index-Science (CPCI-S) since ‘stripped-down characterization that captures the essence of the cause–effect
1990. A systematic search of relevant publications was conducted in relationships between customers, the organization and money’ (Baden-
Business Management, Innovation, E-Commerce and E-Business, Com- Fuller and Mangematin, 2013, pp419). Second, business models are
puting and Information Systems, and Social and Behavioural Studies. A also treated as recipes, ideal types or role models that firms aspire to
multi-staged filtering process was followed to narrow down the refer- become, often used to plan business model innovations (Johnson et al.,
ences, through a combination of key words, year of publication, and 2008; Doganova and Eyquem-Renault, 2009; Sabatier et al., 2010).
relevance of title and abstract. In addition, based on existing knowledge Third, some studies identified specific types of business models, in-
and peer recommendations, key references from known authorities on cluding both empirically-based taxonomy (Timmers, 1999; Rappa,
the subject were identified. 2016) and theoretically-inspired typology (Afuah and Tucci, 2001;
The keyword search of ‘Business Model’ or ‘Business Models’ in Title Massa and Tucci, 2012). Fourth, some ontological business models
generated 7610 returns. By limiting the search to 2010–2016, the frameworks have been developed for communications between het-
number was reduced to 1239, of which 796 were journal articles and erogeneous groups (e.g. Al-Debei and Avison, 2010; Lindgardt et al.,
editorials. By further refining the search with the word ‘Technology’ or 2009; Olsterwalder and Pigenour, 2010), although none of them have
‘Technologies’, 174 papers were identified, which was further reduced been universally accepted and their limitations have been highlighted
to 33 when the word ‘Digital’ or ‘Information’ were added. The titles (Spieth et al., 2014; Visnjic et al., 2016).
and abstracts of the 174 papers were downloaded, and from which, 50 Most previous studies emphasised the notion of value in business
papers were selected through a manual process, with a particular focus models (Lepak et al, 2007), although some focus on value creation
on business model constructs and the role of digital technologies. (Chen et al., 2012; Porter et al., 2013), while others on value capture

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(Chesbrough and Rosenbloom, 2002). As will be discussed later in the

paper, our initial case studies and discussions with business leaders in
workshops also highlighted the need for value sensing and value dis-
tribution, which prompted additional literature review. In this paper,
business model is defined as a firm's rationale and logic for value sen-
sing (Day and Moorman, 2010; Teece, 2010), creation (Amit and Zott,
2001; Porter, 2001; Kivleniece and Quelin, 2012), distribution
(Casadesus-Masanell and Ricart, 2010) and capture (Massa and Tucci,
2012; Baden-Fuller and Mangematin, 2013). It explains how a firm
makes money now and in the future, and a good business model can
create sustainable competitive advantages (Magretta, 2002; Mitchell
and Coles, 2003). By providing the vital link between a firm's vision and Fig. 1. The Initial Holistic Business Model Framework.
strategy with its organisational structures and processes (van der
Heijden, 1996; Porter, 2001; Li, 2007), the business model determines
et al., 2008). The key stakeholders and their expectations may change
the way a firm defines objectives, motivates effort, coordinates activ-
over time. Financial sustainability and stakeholder accountability are
ities and allocates resources, as well as its sources of revenue, cost
often linked, particularly because the demands and expectations by
structure, and make-or-buy options (Doganova and Eyquem-Renault,
stakeholders can significantly influence the structures and goals of the
2009; Seelos, and Mair, 2007). It defines the value logics specific to the
firm and its sources of revenue and controllable costs (Froud et al.,
firm, and how much room is available for operational manoeuvre
2009). Other criteria – such as operational scalability – were also
(Massa and Tucci, 2012). Many recent business model innovations are
highlighted by some business leaders, but they were not universally
enabled by digital technologies (Al-Debei and Avison, 2010; Zott et al.,
regarded as critical or essential.
2011; Klang et al., 2014; Visnjic et al., 2016).
1.1.4. Developing a holistic business model framework
1.1.2. The key constructs of business models
Despite the fact that several business model frameworks have been
Previous studies highlighted that a business model consists of
developed and used by previous studies (e.g. Afuah and Tucci, 2001;
multiple layers and components of inter-locked constructs. The top
Osterwalder and Pigeur, 2010; Al-Debei and Avison, 2010), none of
layer is the value proposition, which defines the product offerings of the
them were able to systematically capture the multiple levels and con-
firm, its market segments and its model of revenue generation. The
structs of the concept; and nor were they universally accepted by re-
middle layer is the value architecture, which defines how a firm senses,
searchers or practitioners. Therefore, it is necessary to develop a new
creates, distributes and captures values. At the foundation is the func-
framework based on a synthesis of previous studies, which is further
tional architecture, consisting of core activities of a firm, namely, pro-
refined and extended through a multi-stage, recursive learning process
duct innovation and commercialisation, infrastructure for production
(Straub and Carlson, 1989). Based on the literature review, an initial
and delivery, and customer relations management (Abell, 1980; Hagel
business model framework was developed (Fig. 1), which was used to
and Singer, 1999; Li, 2007). Business model innovations can emerge in
guide early case studies and the result was presented to an invited
the value a firm offers its customers; the segment of customers it offers
business audience. As will be discussed in more detail later, this fra-
the value to; and its sources of revenue. It can also occur in the way that
mework is refined and further developed based on the empirical re-
value is identified, created, distributed and captured; and the activities
search and feedbacks from business leaders through three facilitated
it must perform to create and offer value to chosen customers, and the
workshops. The feedbacks and reflections prompted additional litera-
organisational capabilities these activities rest on. These constructs are
ture review in order to refine and extend the framework, which was
closely and dynamically inter-related with one another.
used to extend existing case studies and guide data gathering for new
ones. After multiple iterations, the holistic framework was finalised as
1.1.3. Evaluate business models: financial sustainability and stakeholder
Fig. 2.
credibility
A business model starts with its Value Proposition - including product
Since a business model is essential for translating commercial op-
offering, target market segment and revenue model - to reflect the vi-
portunities into revenue generating activities, the most critical criterion
sion and strategy of the firm. The value proposition is underpinned by
for its evaluating is its financial sustainability (Desyllas and Sako, 2013;
the Value Architecture involving value sensing, creation, distribution
Esslinger, 2011; Lazonick and Tulum, 2011; Seelos and Mair, 2007;
and capture. The value architecture is supported by the Functional
Clemons, 2009). Even for organisations not focusing on profit making,
Architecture including product innovation and commercialisation, in-
financial returns are still important to cover costs and sustain social and
frastructure to support production and distribution; and customer re-
cultural objectives. So a business model is only ‘good’ if it generates
lations management. The initial framework focused on the value pro-
more revenues than it costs; and a ‘new’ business model needs to create
position and value architecture, but discussions with business leaders
new value adding sources, mechanisms or logics by identifying new
value generating opportunities, developing new products and services,
or creating new ways of producing, delivering and capturing them. The
links between business models and the competitiveness of the firms
have been studied by previous research (Casadesus-Masanell and
Ricart, 2010; Giesen et al., 2007).
As will be discussed in the research design section, our discussions
with business leaders also highlighted the need for a firm to respond to
the expectations of key stakeholders, which has not been fully covered
by previous research. So an equally important criterion for a ‘good’
business model is the confidence it can instil in its different stake-
holders. In the creative industries, an added consideration is the need to
manage the tensions between commercial values and social and cultural
values (Bielby, 2011; Roberts, 2010). So a business model should also
Fig. 2. The Holistic Business Model Framework.
be evaluated by its stakeholder credibility (Froud et al., 2009; Laplume

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and the early case studies highlighted the need to include the functional The creative industries provide an ideal setting to systematically
architecture as the operational layer of business model, which examine business model innovations. They include the full range of
prompted further literature reviews to extend the framework. organisational characteristics and activities, from large multinationals,
A business models is evaluated by its Financial Sustainability and national and regional businesses to micro-businesses; and from digital
Stakeholder Credibility. The latter is particularly important for organi- native sectors (such as digital games) where many new business models
sations focusing on social and cultural values. Many creative organi- are developed, traditional sectors that have been transformed by digital
sations are located between profit-making and not-for-profit organisa- technologies (e.g. publishing, advertising, design and music), to areas
tions. Their credibility with key stakeholders is often critical to their where the full impacts of digital technologies are still to emerge (e.g.
survival. fine art, museums and cultural heritage). Emerging trends in the crea-
tive industries have strong potential to diffuse into other sectors of the
1.1.5. How digital technologies change business modes: automate, extend economy (Lampel and Germain, 2016; Petruzzelli and Savino, 2012,
and transform 2015).
Digital technologies have been a key driver of business model in-
novation by enabling new ways of creating and capturing value, new 1.2.2. The research design: protocols for validity and reliability
exchange mechanisms and transaction architectures, and new Given the complexity and nature of the research question, this paper
boundary-spanning organisational forms (Al-Debei and Avison, 2010; adopts mixed methods to collect and analyse the empirical data
Gordijn and Akkermans, 2001; Lindgardt et al., 2009). The holistic (Bartunik et al., 2006; Creswell, 2008; Harrison, 2013; Fetters et al.,
framework enables a systematic examination of business model in- 2013). Two strands of case studies were conducted for this research,
novation through digital technologies. Changes in business model supplemented by three facilitated workshops with invited business
constructs can be classified into three broad categories: automation, leaders and academic facilitators, each addressing a specific aspect of
extension and transformation (AET) (Li, 2007; Lindgardt et al., 2009; the research question. To ensure validity and reliability, a set of pro-
Massa and Tucci, 2012). Automation refers to cases when a firm uses tocols for data collection and analysis were followed (Larsson, 1993;
digital technologies to automate or enhance existing activities and Miles and Huberman, 1994; Yin, 2014). Using theory-guided case stu-
processes, such as displaying information or supporting communica- dies (Levy, 2008; Eisenhardt, 1989; Li et al., 2016), the structure of
tions. Extension illustrates cases when a firm uses digital technologies each case study is defined by the holistic business model framework.
to support new ways of conducting business, which supplement, but not Compared with conventional inductive case studies, theory-guided case
replace, existing activities and processes. Transformation refers to cases studies provide more structured explanations of the materials, which
when digital technologies are used to enable new ways of conducting enhance internal validity and generalizability (Eisenhardt, 1989).
business to replace traditional ones. The AET classification enables this A large number of case studies were selected to ensure a). all sectors
study to systematically capture the role of digital technologies in and types of firms in the creative industries are covered, b). both
business model innovations. qualitative and quantitative cross-case comparisons can be conducted,
following the case survey methodology by Larsson (1993). This also
1.2. The research design and empirical work serves to enhance external validity and reduce observer bias (Miles and
Huberman, 1994). The case selection is based on two factors: all cases
1.2.1. Why the creative industries? use digital technologies; and collectively they cover all sectors of the
The creative industries are a significant sector of the world economy creative industries. The research followed the duplication rather than
(Bendassolli, et al, 2009; Bilton, 2007). The UK Department of Culture, the sampling logic (Yin, 2014). Cross case analysis was only undertaken
Media and Sports (DCMS) defined the creative industries as an umbrella after a case study has been documented independently (Larsson, 1993).
term for those industries ‘based on individual creativity, skill and talent First, 30 mini case studies were selected globally to identify emer-
and have the potential to create wealth and jobs through developing in- ging business model innovations enabled by digital technologies, pri-
tellectual property’ (DCMS, 1998). This definition has since been widely marily through online research. These cases were specifically selected
adopted as a de facto world standard (NESTA, 2013; Solidoro, 2009). for their perceived novelty in using digital technologies to support new
The UK creative industries are comparable to the financial industry in business models (Table 2). Following the holistic framework, a report
size, accounting for about 10% of its exports, with a global reputation in was prepared for each case using data from different sources. The focus
design, fashion, film, game, media, music and publishing (Work is on how each business model construct is changed by digital tech-
Foundation, 2007; TSB, 2009; NESTA, 2013). nologies. The case reports were then read by all team members and
DCMS (1998) identified thirteen sectors in the creative industries discussed in group meetings. The initial framework and the mini case
(Table 1), but this is not an exhaustive list. It includes software, but studies were then presented to an invited audience of business leaders
excludes museums and cultural heritages, creative writing and jour- and academic facilitators for feedbacks (workshop 1). The purpose is to
nalism. Many emerging activities, particularly those enabled by digital ensure the framework and the findings accurately reflect radical busi-
technologies (such as social media or digital art) are subsumed into ness model innovations in the creative industries in practice.
existing categories (NESTA, 2013). Some scholars increasingly use the The framework is refined and extended based on additional litera-
‘creative and cultural industries’ as a more inclusive concept ture review prompted by the feedbacks from the case studies and par-
(Comunian, 2011; Ferrandiz, 2011; Hesmondhalgh and Baker, 2010; ticipants of the workshop. The pricing model in value proposition was
Pratt, 2009; Paltoniemi, 2015; Petruzzelli and Savino, 2012, 2015). extended to revenue model. The value architecture was extended from
value creation and capture to including value sensing and value dis-
Table 1 tribution as well (Day and Moorman, 2010; Keen and Williams, 2013;
The Main Sectors of the Creative Industries. Massa and Tucci, 2012). A new operational layer – the functional ar-
Source: UK Department of Culture, Media and Sports (DCMS) chitecture – was added to the framework (Fig. 2). The revised frame-
1 Advertising 8 Film and video
work is used to extend all mini case studies and guide the main case
2 Architecture 9 Music studies.
3 Art & antiques markets 10 Performing arts Second, 50 main case studies were selected from different sectors of
4 Computer & video games 11 Publishing the creative industries, using semi-structured interviews supplemented
5 Crafts 12 Software
by background research from private and published sources. Different
6 Design 13 Television and radio
7 Designer fashion from the mini case studies, these cases were selected to provide broad
coverage of all sectors and organisational characteristics in the creative

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F. Li Technovation xxx (xxxx) xxx–xxx

Table 2 construct were coded as AET – automation, extension and transforma-

The Two Strands of Case Studies. tion. Third, some significant emerging trends in business model in-
novation from selected case studies are further analysed.
Mini Case Studies Main Case Studies
Total Number of Cases 30 50 The protocols were designed to ensure construct and internal va-
lidity, including using multiple sources of evidence, establishing chain
Advertising – 3 of evidence, having different researchers and key informants review
Architecture – 2
draft case reports, undertaking case analysis and cross-case comparison
Art and antiques markets 4 4
Computer and video games 2 4 collectively amongst the research team for pattern matching, explana-
Crafts 1 3 tion building, and addressing rival explanations. A shared database for
Design 5 5 all case studies and supporting materials was created to ensure external
Designer fashion 5 2 validity and reliability.
Film and video 1 3
The empirical analyses are presented in the following three sections:
Music 11 9
Performing arts – 4 a cross case analysis, the mini case studies, and the main case studies.
Publishing 1 3 The results are then synthesised in the discussions and conclusions.
Software – 3
Television and radio – 2
1.3. Digital technologies and changing business models: a cross case analysis
Others (e.g. Museums) – 3
Sizes (No. of Employees)
< 10 13 23 Each of the 30 mini case studies and 50 main case studies were
11–50 9 12 selected, conducted and analysed independently following the dupli-
51–500 4 6 cation logic (Yin, 2014). In every case, changes in each business model
> 501 4 9
construct facilitated by digital technologies were coded as AET -auto-
Market Orientation
UK 4 28 mation, extension or transformation. For every case, the coding is un-
European 4 12 dertaken by two researchers independently. The result is then com-
Global 22 10 pared under the guidance of the project leader. Inconsistencies were
discussed in group meetings, and resolved collectively.
Changes are observed in all business model constructs, following
industries, although this was partly dedicated by our ability to gain
Larsson's (1993) case survey method. Even when a product cannot be
access to senior business leaders. We worked closely with creative in-
easily digitised (such as live concerts, fine arts), it is often digitally
dustry Trade Associations to identify and gain access. The main purpose
extended (e.g. The Royal Opera House in London live-streams selected
was to build on insights from the 30 mini case studies to explore the
performances in cinemas across the UK); and the distribution and in-
extent to which digital technologies were used to facilitate business
teraction with customers (audience) are digitally transformed. In ad-
model innovations.
dition to identifying and targeting new customers, digital technologies
The main case studies included freelance, self-employed artists,
are often used to add value to core services by extending and enhancing
micro businesses and SMEs in design and computer games, and multi-
user experience in existing markets. For example, a mobile app was
national firms in advertising, software, publishing and the music in-
used to supplement oil paintings in exhibition to show the different
dustry, covering all sectors of the creative industries. Each case study
layers of the paintings and the painting process over time. However,
involved at least one 60–90 min interview, usually by two researchers,
changes are not evenly distributed (Table 3).
with a senior executive who has a strategic overview of the firm.
The 30 mini case studies were specifically selected for their per-
Interviews were supplemented by extensive background research.
ceived novelty in adopting new business models. At the value propo-
Questions were organised around how digital technologies have fa-
sition level, 43% (13) used digital technologies to transform their
cilitated AET – the automation, extension and transformation of dif-
product offerings; 53% (16) transformed their market focuses; and 60%
ferent business model constructs. A semi-structured approach was
(18) transformed their revenue models. A further 47% (14) extended
adopted to allow sufficient flexibility for capturing emerging trends.
their product offering, 40% (12) extended their market focus, and 23%
Notes were taken both during and immediately after each interview,
(7) extended their sources of revenue. In contrast, those using digital
but deliberately not recorded on the advice of some interviewees to
technologies to automate existing constructs are relatively small, with
encourage uninhibited discussions. Follow up e-mails, phone calls and
only 3 (10%) in product offerings, 2 (7%) in market focus and 5 (17%)
additional meetings were used for clarifications. A report is written up
in revenue models (Table 3). At the level of value architecture, the
for every case and discussed in project meetings. The report is then
pattern was similar, with many using digital technologies to transform
shared with the interviewee for verification (Table 2).
their value sensing (87%), creation (33%), distribution (67%) and
Third, we also conducted three facilitated interactive workshops
capture (80%). At the functional architecture level, 60% transformed
during different stages of the study, attended by 25, 34 and 40 invited
their product development; 40% transformed their production and
senior business executives primarily from the main case studies. We
distribution processes; and 80% transformed their relations with cus-
introduced the project, and the initial framework developed from pre-
tomers. Most remaining firms extended the different constructs of their
vious literature is extended through a recursive learning process to
value architecture and functional architecture using digital technolo-
ensure it accurately reflects business models in practice. Feedbacks
gies.
from the participants prompted us to review additional literature and
However, similar levels of business model innovation were only
collect further information for the mini and main case studies.
found in a small proportion of the 50 main case studies. The majority of
Data analysis started immediately after each case study, structured
the main case studies used digital technologies to extend or automate,
around the constructs of the holistic framework and how digital tech-
rather than transform, their business model constructs.
nologies facilitated their automation, extension and innovation. Each
case is treated independently (Yin, 2014), but techniques for constant
1.4. The mini case studies: the digital transformation of business models
comparison were used for cross case analysis (Strauss and Gorbin,
1990). The analysis followed a three-step procedure. First, changes in
Further analysis of the mini case studies pinpointed how different
each business model construct in every case study was described, in-
business models constructs have been transformed. 90% of them used
cluding the nature of the change and the role of digital technologies in
digital technologies to transform their relations with customers in the
facilitating the change. Second, changes in each business model
functional architecture; 87% redefined value sensing, and 80%

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F. Li Technovation xxx (xxxx) xxx–xxx

Table 3
How digital technologies change business models.

30 Mini Case Studies 50 Main Case Studies

Automate Extend Transform Automate Extend Transform

Value Proposition
Product offering 3 (10%) 14 (47%) 13 (43%) 32 (64%) 17 (34%) 1 (2%)
Market segment 2 (7%) 12 (40%) 16 (53%) 32 (64%) 18 (36%) 0 (0%)
Revenue model 5 (17%) 7 (23%) 18 (60%) 37 (74%) 10 (20%) 3 (6%)
Value Architecture
Value sensing 1 (3%) 3 (10%) 26 (87%) 24 (48%) 20 (40%) 6 (12%)
Value creation 5 (17%) 15 (50%) 10 (33%) 40 (80%) 9 (18%) 1 (2%)
Value distribution 1 (3%) 9 (30%) 20 (67%) 26 (52%) 20 (40%) 4 (8%)
Value capture 1 (3%) 5 (17%) 24 (80%) 32 (64%) 12 (24%) 6 (12%)
Functional Architecture
Product innovation 2 (7%) 10 (33%) 18 (60%) 34 (68%) 12 (24%) 4 (8%)
Infrastructure management 2 (7%) 16 (53%) 12 (40%) 30 (60%) 19 (38%) 1 (2%)
Customer relations management 1 (3%) 2 (7%) 27 (90%) 25 (50%) 20 (40%) 5 (10%)

transformed their value capture in the value architecture. Interestingly, 1.4.2. Association and brand extension
only 33% transform their value creation; and 43% transformed their A closer examination of the transformation of value sensing (26/
product offering. These changes are reflected in a series of significant 87%) and value capture (24/80%) highlighted a trend to increase
trends in the digital transformation of business models. revenue through association and brand extension. In several cases, de-
signers and artists came together to trade their artworks, which in-
creased the customer base for all and enhanced their credibility col-
1.4.1. Exclusivity through personalisation lectively. Some artists worked in partnerships with commercial brands
27 (90%) of the 30 mini case studies used digital technologies to to create original characters, which are then licensed to both the
transform their relations with customers. A closer examination of the commercial brand and in other unrelated areas (target segments). Each
changing customer relations, together with value sensing and capture, additional revenue stream is often small, but the combined revenues
and the target segment and revenue model revealed the increasing use can be highly profitable (revenue model). Digital technologies are used
of exclusivity, often through personalisation of products and services in to distribute products to different markets and manage relations with
different firms. Digital technologies are used to enable customers to customers at low costs (functional architecture).
personalise products to various degrees, and pay different prices ac- Business model innovations are reflected in the value propositions
cordingly depending levels of exclusivity. This business model in- in terms of market segments and product offerings. The revenue model
novation was first made popular by NineInchNails, the rock band, who is extended from one traditional core market to a portfolio of different
successfully sold different packages of their 36 track album – Ghosts I-IV markets. At the value architecture level, digital technologies are used to
- in 2008 using a new revenue model, from a free download of the first identify new sources of value (value sensing) in adjacent areas; and
volume, a $5 download of all four volumes, two standard CDs for $10, distribute and capture value in new markets. This maximised value
to a premium package including an exclusive vinyl record with a signed capture for each artist and designer, and increased their financial sus-
book and photograph for US$300. Digital technologies enabled them to tainability and stakeholder credibility.
efficiently identify different types of fans (value sensing, distribution Brand association can significantly increase stakeholder credibility.
and capture), and manage the relations with them efficiently. For example, antiques – an important cultural sector – are traditionally
Many others have imitated them. For example, Jill Sobule, a re- small volume business, and most independent dealers relied on brick
cording artist, offers multiple options to purchase her music at different and mortar stores to attract customers in local market. The online
prices, from a standard CD to a personalised live home concert. The channel was primarily used for information and marketing (automa-
Internet enabled her to reach individual customers easily and maximise tion). However, this was changed by the rapid growth of 1stdibs.com, an
revenue according to a customer's ability to pay. Similarly, Carrie Chau antique marketplace started in Paris in 2001 which has successfully
sold her (non-digital) artwork online through limited editions only, gone global. The website charges independent antique dealers a
which ensured premium price through exclusivity. Digital technologies monthly subscription to list their merchandises, but each dealer is
enabled her to identify and reach the small number of potential cus- carefully vetted, including a visit by the 1stdibs.com founder Michael
tomers (target segment) around the world who are willing and able to Bruno or a member of his team. The vetting gives credibility to the
pay premium price for her artworks. The music group Marillion offered antique dealers listed on the website, and that stamp of approval en-
fans the opportunity to pre-order its 15th album, and those fans were ables a dealer in the USA to sell a $10,000 antique table to a client in
formally acknowledged in the album. In addition to music, the chil- the Middle East without first seeing the product. Business model in-
dren's book publisher, Flatten Me, sold personalised books with the novations in member antique dealers are significant. Some are able to
children's photos as characters. This was made possible by the digital sell large volumes of antiques internationally online (market segment
uploading of photos and small batch digital printing. and revenue model), which is unimaginable through brick and mortar
In all these cases, the value propositions were transformed in terms stores. Many of their main income sources have changed from physical
of product offering (exclusive and personalised), target customer seg- stores to online sales (value sensing, distribution and capture); and their
ment (wealthy fans) and revenue models (premium prices or differ- customer bases are extended from the local market to the international
entiated prices based on exclusivity). The value architecture is trans- market. Key to the success of the antique dealers is the increased
formed by using digital technologies to identify customers (value credibility with international customers afforded by 1stdibs.com.
sensing) who are willing and able to pay premium prices for exclusivity
and personalisation (value capture). The functional architecture is also
transformed, by digitally managing personalised customer relations and 1.4.3. Pay as much as you like, dynamic pricing and ‘wisdom of the crowd’
the efficient production and delivery of products to different customer A new business model was pioneered by Radiohead when they re-
segments. leased their 7th album, In Rainbows, in 2007 using the ‘pay as much as

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you like’ model, which allowed each customer to decide how much they manage the relations with writers and customers at low costs. In doing
wish to pay. This model was imitated by others, for example, by so, a new value proposition, value architecture and functional archi-
Aralie.com for music downloading, and by the Leading to War doc- tecture were added to the existing one, which enhanced overall fi-
umentary film maker who released the film for free download but of- nancial sustainability.
fered the option to purchase the DVD. This business model exploits the An art studio displayed online art portfolios for independent artists
emotional bond and goodwill between artists and customers, using the and graphic designers, which allowed potential customers to buy or
interactivity of digital channels for distribution and transaction. rent original or bespoke artworks. The online art portfolios mainly
Similarly, dynamic pricing was adopted by several cases. Amie Street served as an additional channel for independent artists, alongside their
priced music tracks from US$0–0.98 depending popularity, which own traditional channels, to reach customers. Digital technologies were
changes dynamically according to demand. A similar model was also used to facilitate development of new relations with partners; and
adopted by Digonex. This business model was only possible by digitally offered a new interface between sellers and buyers. This created a
managing customer interactions and using the Internet as the dis- network effect that benefited all artists, reduced search costs for buyers,
tribution and transaction channels for value sensing, distribution and and enabled some artists to gain access to digital channels. However,
capture. the digital portfolios were mainly used to supplement existing business
The concept of ‘wisdom of the crowd’ inspired a new business model. models by adding new revenues streams, extending value distribution
Slice the Pie allows users to rate and determine which music bands are and capture, and generating new customer relations.
offered recording contracts; and invest real money in artists they like. A science museum used it website to provide information about
This is one form of crowd-funding. In doing so, the risks for signing new displays, new exhibitions, programmes and events, and live video
artists (value sensing) and identifying customers are reduced. streaming. This allowed the museum to reach a broader audience, in-
Business model innovations are particularly visible in the revenue cluding those who are unable to visit the museum in person. Interactive
model in value proposition; in value sensing and value capture at the technologies are used extensively in the museum to provide visitors
value architecture level; and in customer relationships management in with richer information and interaction to enhance visitor experience.
the functional architecture (Table 3). Similarly, the British Fashion Council live-streamed selected fashion
shows during London Fashion Week to reach out to broader audience
1.5. The main case studies: from automation to digital transformation both locally in underground stations and globally via the Internet. The
main purpose was to maximise impacts through new digital channels.
In contrast to the pervasive business model transformation in the The product offering is enhanced and customer relations are extended,
mini case studies, most main case studies used digital technologies to but the traditional business model is retained.
automate or extend their business models.
1.5.3. Digital transformation of business models
1.5.1. Automation and digital enhancement Digital technologies were used to transform business models in
All 50 main case studies used digital technologies as a new channel some of the main case studies. The impact, however, has been mixed,
for information or interaction with customers and other stakeholders. highlighting the high risks involved. Historically, a software firm pro-
They all have websites, either internally maintained or via third party vided customised software for large clients. The software was devel-
providers. Compared to the mini case studies, many firms used digital oped and implemented to client specifications at premium prices, and
technologies to automate, rather than to transform their business once completed the intellectual properties (IP) were transferred to the
models (Table 3). clients. An opportunity allowed the firm to buy back a project man-
For example, 74% (37) main case studies maintained traditional agement software from a major client. This enabled the firm to adapt
revenue models (compared to only 17% (5) of the mini case studies). and sell a standardised version of the software to multiple new clients,
Many of them continue to rely on funding from public sources (e.g. the and also set up an online hosting service for large project management.
Arts Council), or incomes through traditional means such as selling This led to a fundamental transformation of its business model – de-
products (e.g. artworks) and services (e.g. live performances and scribed by its CEO as ‘productisation of services’ – from selling custo-
singing lessons, dancing and performing arts), or renting out facilities mised services to specific clients to selling standardised products and
and spaces (e.g. studios and art galleries to independent artists). Digital services to multiple clients. The firm can sell the licence multiple times
technologies were mainly used to enhance their business models, by which maximised revenues as the reproduction cost is minimal; and the
providing digital information and facilitate communications with cus- new hosting service enabled the firm to tie in multiple clients for long
tomers and other stakeholders. periods (e.g. 5–7 years for large construction projects), which stabilised
service revenues and significantly improved the firm's financial resi-
1.5.2. Digital extension of traditional business models lience. Key to the success of the new business model is the pervasive
Some main case studies also used digital technologies to extend connectivity enabled by broadband and 3 G/4 G networks to connect
their business models. For example, 36% extended the market segments with customers.
in their value propositions, 40% extended their value sensing and value The business model is significantly transformed. The product of-
distribution in the value architecture; and 40% extended their customer fering was transformed from software developed to specifications for
relations in the functional architecture (Table 3). These firms combined one client, to a standard product and a hosting service using the soft-
digital with traditional business models to generate additional revenues ware for multiple clients. The revenue model was changed from char-
and increase the reach and impacts of their products, although their ging a few clients premium development fees plus regular service
core business models were largely retained. charges, to licence fees plus recurring hosting fees from multiple clients.
For example, a digital printing firm worked with freelance writers to The value architecture, particularly value sensing and capture, is sig-
produce personalised children's books, which are ordered online and nificantly changed. In the functional architecture, a tailor made product
then printed and distributed at premium prices, by sharing the digital was transformed into a standard product, which is also used to support
infrastructure with commercial volume printing. This activity gener- the hosting service. The infrastructure required for the production and
ated additional revenues for the printing firm to supplement its volume delivery of the product and the hosting service is significantly different
printing business; and created new income for freelance writers. from before. Customer relations are transformed from managing cus-
However, the personalised children's book business is not commercially tomised relations with a few large clients, to managing general relations
viable as a stand-alone business due to its limited volume. Digital with multiple clients.
technologies were used to enable the provision of a new product and A video game firm historically worked exclusively with major game

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publishers. The publisher made an upfront payment to fund the de- 1.6.2. The emergence of the portfolio business models: four variants
velopment of a new game. Once completed, the game was transferred to One significant trend emerging from the case studies is the in-
the publisher, and the firm then received a small royalty for each copy creasing adoption of the portfolio models in four different variants. The
sold. Even though the firm produced several chart topping games, most notion of portfolio management is not new (Bardhan et al. 2004; Faems
profit went to the publishers. With rapid increase in broadband con- et al., 2005; Kang and Montoya, 2013; Kock et al., 2015), but so far the
nectivity, the firm decided to use its own cash reserves to fund the literature has not examined the adoption of a portfolio of business
development of a new game. The new game was played online rather models within one firm. The first variant, the market portfolio model, is
than distributed by publishers via retail outlets. Through a pay-as-you- when a firm simultaneously deploys two or more business models to
play model, the firm bypassed the publishers and retailers, generating tackle different market segments. Each of the business models might not
significantly more revenue for itself than through the traditional busi- be new, and the financial returns in some of the markets segments are
ness model. The new business model also enabled the firm to retain the often financially modest, but by sharing some components of the
IPs it created; and live-stream advertising to online gamers to generate business models, the total cost can be contained and the combined
new income. revenues often make the ‘portfolio’ very lucrative, thereby making each
Changes in the business model were extensive. The product offering market viable. Digital technologies play a key enabling role by reducing
was transformed from video game as a product distributed by pub- costs and making the management of the portfolio administratively and
lishers and retailers, to a service based on pay as you play. The revenue financially viable. Examples were found in several case studies dis-
model is radically transformed. The new value proposition is supported cussed earlier (such as the printing firm and the video game firm dis-
by new value distribution and capture mechanisms in its value archi- cussed earlier).
tecture. Changes in the functional architecture are mainly in its infra- The second variant, the product portfolio model, is based on the fact
structure and customer relations. This new business model worked well that many creative products can be consumed at different levels of
for several new games. However, as online games grew exponentially in value-added, or re-combined as new products. This creates opportu-
the market, the firm found it increasingly difficult to attract new cus- nities to develop a wide range of new niche products by monetising
tomers. Its revenues declined rapidly over a short period, resulting in different stages of work-in-progress. In some sectors, direct contact can
cash flow problems. This case highlighted the high risks in transforming be digitally established between consumers and various stages of pro-
business models, and the different timescales required for their eva- duction, which generated new product types. Consumer choice is in-
luation. creased because work-in-progress can be consumed either in-
In several cases, firms used loss leaders to attract customers, and dependently or as supplement to the final product. For example, an oil
then generated revenues from associated products and services. In a painting by a famous artist is sold as the final product, but the images of
major music label, the firm gave away music through free downloading different stages of producing the painting was digitally captured and
in order to sell merchandises and live performances for selected artists, consumed either as new products, or as supplements to the final pro-
essentially changing its product offering from selling music tracks to duct. One frame of an unfinished painting can be consumed digitally or
selling live events, merchandises and advertising. It also experimented printed out as a new piece of artwork. Similar examples were found in
with the ‘pay as much as you like’ model for selected artists, allowing case studies in films, music, publishing and media. This creates a range
customers to decide how much to pay by capitalising on the strong of niche markets that supplement the traditional core market. By ex-
emotional bond between artists and fans. This enabled the firm to tracting values from such niches as well as the final product, the
maximise revenues while expand the fan base. The initial financial re- combined revenues often significantly enhance the financial sustain-
turns were very encouraging, although the sustainability and transfer- ability of the business. In some cases, the traditional core product is
ability of the model are still uncertain. used as a loss leader so a range of supplement products can be mone-
tised. The extended scope for new products often required the firms to
adopt a range of business models and manage them as a portfolio. The
1.6. Discussions: reflections on emerging trends
main objective was to create a sustainable business by extracting value
from products, services and other assets.
One of the original objectives of this research was to identify new
The third variant is the so-called multi-sided business models, where
business model innovations enabled by digital technologies using a
value is created through interactions with multiple stakeholders up-
large number of case studies. However, in many cases the new or re-
stream, downstream and horizontally in a complex value network or
configured business models are often only new to the firm itself or its
ecosystem (Bughin et al., 2010; Lin et al., 2011; Mantena and Saha,
sector, but not ‘new’ in the unprecedented sense, as clear precedents are
2012; Markides and Charitou, 2004; Smith et al., 2010). This is dif-
often found elsewhere. This raises a fundamental question: what is a
ferent from the market portfolio based on interactions with multiple
‘new’ business model?
segments of customers; or the product portfolio where different stages
of work-in-progress are consumed either as final products or as sup-
1.6.1. What is a ‘new’ business model? New concept, new domain and new plements to the final product. In multi-sided business models, the firm
impact uses different business models to engage with suppliers, customers and
This issue was extensively debated in the three workshops with other stakeholders. The digital platform enables the efficient manage-
business leaders and during the case studies, and we found that a ment of multi-sided relations efficiently. Examples are found in the
business model can be new in at least three different senses. First, a music industry where revenues are extracted through ‘360 degree
business model can be new because the idea is unprecedented, which is contracts’, including music sales, advertising, live concerts, merchan-
very rare as most ideas have been used somewhere before. Second, in dise and appearances. Similar examples are found in films and per-
most cases business model innovation is about borrowing an idea from forming arts.
one domain and adapting it for another domain. Third, in some sectors, In addition, some firms adopted a portfolio of different business
digital technologies enable the scaling up of a traditional business models sequentially over time. For example, a digital artist first charged
model by removing conventional barriers, resulting in unprecedented live audience an entrance fee to experience the process of art creation in
impact. Business model innovations are rarely about creating new his digital studio (similar to going to the theatre). The completed digital
business models based on unprecedented ideas. In most cases, digital art is then licenced to clients for a fee. Eventually, the artworks and
technologies allow firms to deploy a wider range of business models bespoke products derived from the creation (e.g. a signed print) are sold
than previously available to them. This is reflected in the increasing to collectors.
adoption of the ‘portfolio models’ by some case studies. The level of integration between the business models within a

8
F. Li Technovation xxx (xxxx) xxx–xxx

portfolio depends on the nature of the products, services and markets, cognitive instrument for understanding business models and the role of
which can range from a loose collection of discrete business models, to digital technologies in enabling business model innovations. Some
hybrid models where some key components are shared, to the full in- business leaders in our case studies and workshops also found the fra-
tegration of multiple business models as a new business model. The firm mework useful as a practical tool for planning business model innova-
capitalises on its core capability to maximise revenues from different tions, which should be further examined.
markets, products and stakeholders, by supporting multiple value pro- Much remains to be done in future research. Firstly, more research
positions, value architectures and functional architectures. is needed to define the conditions when particular business models
Our case studies suggest that the portfolio models can significantly should be deployed to enhance their financial sustainability and sta-
enhance a firm's financial sustainability and stakeholder credibility. By keholder credibility. Second, given the increasing adoption of the
maximising revenues from different market niches, different stages of portfolio models, new research is needed to quantitatively examine
work-in-progress, or multiple sides of the market, the portfolio model whether the portfolio models can increase a firm's financial sustain-
reduces the reliance of the firm on one particular source of income, ability over time, and what types of firms should and should not adopt
therefore reduces risks and increases the overall resilience of the firm. them. Third, a significant methodological challenge we faced is to in-
In some cases, when previously insignificant market grows in volume vestigate emerging trends that are still at very early stages of devel-
and the traditional market declines, the nature of the business is opment with limited empirical presence. In the area of digital art, for
transformed. Further research should quantitatively examine the prof- example, traditional business models are no longer valid (what is an
itability of firms using the portfolio models compared to those using a ‘original’ digital art when the artwork can be copied perfectly at no
single business model. cost?), but new business models are yet to fully emerge. New research
methods, such as research prototyping and fictional design, are needed
2. Conclusions and future research in such areas.

The paper contributes to our understanding of the theory of business Acknowledgements

models and how digital technologies have been used to facilitate
business model innovations. Based on a comprehensive literature re- This research was supported by the Research Councils UK (RCUK)
view and the empirical work, a holistic business model framework was under the Digital Economy Programme, Grant numbers EP/G066019/1
developed, extended and validated through a recursive learning process and EP/K039857/1. This research was supported by the Research
to systematically define business model constructs and their complex Councils UK (RCUK) under the Digital Economy Programme, Grant
relations. The role of digital technologies was systematically captured numbers EP/G066019/1, and a previous ESRC research project, Grant
using the AET classification. Pervasive changes were identified in the number RES-185-31-0017.
value proposition, value architecture and functional architecture of the
business models in our case studies. These changes significantly affect References
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