This chapter investigates how digitization changes the internal organization of firms. Gig economy platforms and freelancing agencies are rapidly taking over market share changing our very definition of a “firm,” whereas those who still work for traditional firms increasingly rely on virtual tools and external digital platforms to coordinate and communicate. Similarly, many of the firm’s other production activities may be outsourced to external providers, including inputs, manufacturing, assembly, logistics, marketing, and even R&D. We explore the emerging nature of the firm if much of its activities are carried out by other organizations, and pinpoint the key characteristics that determine what activities firms may want to continue in-house and which activities they can conveniently use digital markets and platforms to pursue.

This case study investigates the structure and perfomance of Spotifys music streaming platform. Daniel Ek and Martin Lorentzon founded Spotify in 2006 in Stockholm. The platform grew as a response to rampant online piracy afflicting the music industry. After Napster, LimeWire, and other file-sharing services “disrupted” the traditional music model, Spotify entered in Pandora’s footsteps by offering a free service funded through advertising. However, Spotify’s goal was to funnel users towards an ad-free subscription service. Although Pandora remained the US market leader, globally Spotify’s main rival was Apple Music. Apple cornered a market by securing exclusive deals with popular artists such as Drake, Frank Ocean, and Taylor Swift. Music streaming services operated by licensing content from record labels and independent artists and then paying the artists, songwriters, and labels royalties depending on how often the music was streamed. Some superstars objected to this model, however. As of 2022, this business model remained contentious and unprofitable.

Innovation is about change: the introduction of novelty into an economic system. Managing any type of economic or organizational change is challenging because its effects are usually uncertain and affect participants unevenly. Managing technological change requires a heady cocktail of creativity, flexibility, and perseverance in the face of novelty and turmoil. This chapter explores the specia features of digital innovation of new businesses. Digital business innovation deals with improved technology-based business models for information and communication – core elements of all economic activity. Furthermore, we look at the long-term patterns of technological change and notice how digital technologies arise from the combination of electronics and instruments and lead to new kinds of technologies that accelerate invention activity itself.

Human minds are particularly biased when processing information in digital environments. Behavioral economics has highlighted many cognitive biases that afflict our economic decision making. We may choose people like ourselves for important jobs or we may focus on irrelevant characteristics. We may also focus on recent, available information because our brains interpret that as more relevant for the current situation, whereas, optimally, we might benefit from a deeper dive into collecting more representative or comprehensive data and analyzing it appropriately. Even the way information is presented influences whether we believe it. Designers of digital content and experiences need to be aware of and account for such biases when engaging users.

Competition under network effects takes on interesting dynamics for which any digital innovator will need to plan. If there is more than one competing network battling to reach critical mass, the marketplace can be even more volatile and the outcome very unpredictable. If network effects are strong and users care relatively more about the connections than about the inherent features of the product, the market may “tip” and feature “winner take all” dynamics. This chapter explores strategies that facilitate competition against other networks.

Epic Games, the creator of the hugely popular computer game Fortnite described itself as an “interactive entertainment company and provider of 3D engine technology.” Tim Sweeney, while a mechanical engineering student at the University of Maryland, founded the company in 1991 under the name Potomac Computer Systems out of his parents’ home. In addition to games, Epic Games also created Unreal Engine, the 3D game creation tool that powered a large array of games and 3D design by film, TV, simulation, architecture, automotive, and manufacturing companies. Furthermore, Epic Online Services facilitated content development for a variety of platforms. Epic Game Store was a distribution channel for Epic’s in-house games and those by third-party developers. This case explores the network and platform strategies of Epic Games and finishes with a discussion of the lawsuit that the company filed against mobile platform providers Apple and Google.

Once the value configuration, a distinct value proposition, and an initial plan for the revenue mechanism or the internal benefits of the innovation are clarified, it is time to scope the business potential of the innovation. This involves thinking through the resources and activities needed to implement and deliver the innovation and assessing how they should be organized and how much they would cost to offer or access. The innovator now needs to identify the resource base needed for the value configuration designed in the first stage. This chapter analyzes how the value configuration relates to the broader business ecosystem in which it is embedded.

This is a case study about the development and growth of e-books at Barnes & Noble. By 2012, both Apple and Barnes & Noble had gained footholds in the e-book marketplace. While Amazon initially controlled 90 percent of the e-book market, in 2012 Barnes & Noble had about 25 percent and Apple 11 percent of the market, pushing Amazon down to about 60 percent. However, the struggles were not over. How could Barnes & Noble create a sustainable competitive advantage, and a profitable business, against the e-commerce giant Amazon on one side and the electronics giant Apple on the other side?

Having examined the production, consumption, and valuation of information and data, we can start to design business models for information goods. We examine the fundamental characteristics of information and data goods that we need to consider. It is critical for a digital innovator to design mechanisms that allow users to discover their valuation and preferences, and that allow the innovator to discover users’ willingness to pay. Ideally, such mechanisms account for cognitive tendencies to prefer intuitive, familiar, simple, and quick solutions to our data and information needs.

Newspapers are an archetypal information business. They have been struggling to transition to the digital marketplace. Around the year 2000, newspaper revenues consisted primarily of advertising revenue. Classified ads were a particularly lucrative market where major newspapers practically held monopolies in their primary circulation region, such as the New York City metro area for The New York Times. This case explores the journey of The New York Times to adopt digital features and compete in the digital ad market.

Communication technologies change relentlessly and “coevolve” with the social and economic systems within which they are embedded, particularly with the dynamics of the marketplace. Many high-technology industries evolve through a cyclical pattern that helps predict how the next-generation networks and services take shape and grow. This chapter describes this pattern of evolution to understand what to expect in information and communication technology markets and how to make decisions about adopting and innovating new information and communication services. It then discusses the implications of this pattern for future communication networks and products.

The models of Chapter 3, based on technology- and factor endowment differences can explain inter-industry trade but not intra-industry trade – the simultaneous import and export of similar types of goods and services – which is empirically important, especially between rich countries. Competitive pressure by foreign firms and strategic interaction may entice companies to engage in mutual trade flows of homogeneous products, leading to lower mark-ups, lower prices, larger volumes, and welfare gains for consumers. Firms can also engage in trading similar for better use of scale economies, lower prices and access to a larger number of varieties. The international business literature focuses on multinational firms, investigating why some multinationals can do better than others by creating a competitive advantage. In a setting of intra-industry trade, international business (dealing with firm-level competition) thus meets international economics (focusing on country-level trade).

All firms have to deal with risks and uncertainty, but international firms face additional risks and uncertainties, as analysed in this chapter. The first part of the chapter deals with largely manageable risks that international firms are familiar with, can quantify, and know how to confront, such as foreign exchange risk and spreading risks via diversification. The second part of the chapter asks how international firms should act in the face of fundamental uncertainty when the external environment in which they operate changes because of a systemic shock or global crisis. We will show that risk assessment by firms plays an important role, both in terms of the causes and the consequences of crises. We use various insights of previous chapters to understand how firms deal with uncertainties. We conclude with our view of how the rise in risk and uncertainty might affect the global economy.

We analyse the difficulties and opportunities of managing firm activities across national borders. Firms can enter foreign markets via six entry modes, where three are non-equity-based (exporting, licensing, franchising) and three are equity-based (greenfield investments, acquisitions, joint ventures). First, we discuss the advantages of and risks associated with each entry mode. We show how transaction costs theory, real options theory and institutional theory can help explain the optimal entry mode. Second, we include time and show how firms dynamically learn about markets to reduce their liability of foreignness. Third, we discuss the digital aspect, where we show that digital firms are different in various ways, but the arguments used to explain the entry mode still apply. Fourth, we discuss the challenge to balance pressure for global integration, cost effectiveness and standardisation with the pressure to make local adaptations. We evaluate four possible strategies, in particular for international HRM and marketing.

Evolving communication networks create expanding opportunities to measure real-time economic activity, such as social behavior or performance of production equipment. This chapter explores how to deploy instruments to measure, adjust, and analyze business activities, and how to commercialize the resulting data through internal or external channels. By contributing to a better understanding of the drivers of business performance, data can help improve and innovate new products and services, and potentially generate additional revenue streams.