Transforming the music industry: How platformization drives business ecosystem envelopment

Abstract

Digitalization allows new entrants to enter and transform industries with new technologies or business models. Often, these new entrants introduce digital platforms that modify prevalent value creation and capture mechanisms to allow them to take on powerful keystone positions. While prior research has mostly analysed the organizational consequences for firms, we follow a growing field of interest studying the effects of digital platforms on business ecosystems and explore when and how platformization of a business ecosystem occurs. Our study of the platformization of the Dutch music industry from the 1990s to 2016 makes two contributions. First, we identify two mechanisms that drive the platformization of business ecosystems: digital transaction platforms reconfigure value capture as well as value creation, and translators – a new actor-type proficient in digital technologies – emerge that help incumbent keystone actors translate physical products into digital offerings. Second, we theorize this process as business ecosystem envelopment; a viable strategy for digital transaction platforms to absorb a traditional business ecosystem's focal offering without taking over its functionality.