The Impact of a Radical Innovation on Business Models: Incremental Adjustments or Big Bang?

Abstract

In this paper we study the impact of a radical technological innovation on business models. Do firms react by adjusting their business models incrementally, through iterative steps? Or do such innovations lead, instead, to a big bang of new innovative business models that are all adopted and experimented by the industry? To answer these questions, we analyze the impact of digitization — a radical innovation — on business models in the recorded music industry. Using an economic analysis of the effects of digitization, we begin by building five potential digital business models for the music industry. Then, using data from a survey on a sample of French record companies, we map these record labels on our digital business models. Our analysis suggests that digitization has led to a big bang of business models in the music industry, rather than to incremental adjustments of the existing business model.

Keywords: business models, innovation, digitization, recorded music industry

JEL Classification: L2, L86, Z1