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Business Model Canvas and Business Ecosystem of Music Streaming Industry:

Case Study of KKBOX Inc. in Taiwan

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Business Model Canvas and Business Ecosystem of
Music Streaming Industry: Case Study of KKBOX
Inc. in Taiwan
Wei-Chen Chang
Business Administration, Soochow University,Taipei, Taiwan, [email protected]

Mahdi Fathi
Information Technology and Decision Sciences, University of Noth Texas, Denton, USA, [email protected]

Jei-Zheng Wu
Business Administration, Soochow University,Taipei, Taiwan, [email protected]

Marzieh Khakifirooz
Industrial Engineering, Tecnológico de Monterrey, Monterrey, Mexico, [email protected]

Purpose – This study aims to explore the forthcoming trend of MS industry by examining its business
model canvas and describing the business functions and role of the players in this industry.
Design/methodology/approach – In order to discover the potential market, other than mining the
academic paper, an in-depth interview method is implemented to gather and aggregate the information.
Acting as the most famous MS operator in Taiwan, KKBOX Inc. is selected as the case study for proposing
an innovative business model by visualizing the key factors of the business ecosystem of this company.
Finding – Based on SWOT analysis we simply generalize the future chances and possible risk of KKBOX
Inc.
Research implications – Transformation of technology in the past two decades has changed the business
ecosystem of music industry completely. Significant innovations happened in the music streaming (MS)
industry globally and business is no longer a self-concern. For the MS service operators, seizing the actual
need from customers, making the adaptation, and creating the largest value with partners in industry are
important missions.
Originality/value – The result conducted that the developments of the MS industry market in Taiwan
structured by mutual adjustment; Functions, customers’ needs, and the behaviors have influences on each
other mutually.
Keywords – Mobile Commerce, Music Streaming Industry, SWOT analysis, Business Model, Business
Ecosystem, Innovation, Adaptation
Paper type – Research Paper

1
2

Introduction
In recent decades, in consequence of the developments of information and communications tech-
nology and digital devices all over the world, the business ecosystem of the music industry has
totally transformed, particularly in online music stream (MS) subdivision.
Under the trend of high-technology development, the features of the music industry have grad-
ually changed; for the way of delivering service, for the way of approaching customers, and for
the way of operating music business. Music enthusiasts are taking benefit of a speedily evolving
scenery of technologies and services that are redefining their experience of music, and expanding
their engagement with music and artists in ways that were unthinkable previously. Technology
produces creative destruction to the whole industry, from contents to devices. It brought a shock
to the industry and the ecosystem. Also, the needs of the customers have completely changed.
Meanwhile, technology is experiencing an irreversible rapid growth in this digital era Broekhuizen
et al. (2018). Therefore, this growth also motivates the innovation for the whole business environ-
ment continuously. The lifetime of new products or technologies become shorter due to the rapid
changes in market needs. Therefore, in order to create the opportunity of sustainable development,
it is crucial that how the key player using components of the business model (strategic choices,
value network, create value and capture value) to drive the transformation of online MS industry’s
business model (Hennig-Thurau and Houston 2019).
In addition, in online MS sector, generation stratification still can be found clearly, age and rate
of reaching the product show inverse ratio (Online music service survey and music-related types of
website usage profiles in Taiwan, October 2015 n.d.). Therefore, this study is motivated to focus
on the strategic development of online MS industry’s future.
Trying to find a new macro business model canvas (de Oliveira and Cortimiglia 2017, Oster-
walder et al. 2005) which can fit into the ecosystem of the current online MS industry is a vital
concern. It also suitable for stabilizing competition relationship, profit-sharing relationship and
core-advantage-imitating relationship for all attendants in this industry (online MS provider, sub-
contractor, and end-user).
This study aims to explore the integrated analysis structure of business canvas of the online
MS industry, with Taiwanese most famous streaming-music platform dealer, KKBOX Inc. (http:
//www.kkbox.com) as the case study.
In order to fulfill the gap between the theories and practices, recognizing the interaction between
music platform dealer, customers, record companies and the whole ecosystem, the objectives of
this study are raised as follows:
1. Describe the new business ecosystem of MS platform dealer under exponential growth of
technology development.
 3

2. Provide the relatively optimal approach for the MS industry through observing the information
which revealed by earlier research papers and the real operating situation in the industry.
3. Provide managerial suggestions based on interview questionnaire analysis and the results
derived from the case analysis of KKBOX Inc. to the MS industry.
The remainder of this study is organized as follows: Section 2 reviews the literature on busi-
ness canvas model and business ecosystem analysis which applied in both theoretical background
and practical application plus some basic concepts of online MS industry and non-direct theories
from previous studies which can be integrated within the canvas model and ecosystem analysis of
KKBOX Inc. as the case study.
Based on the theoretical approaches in Section 2, Section 3 aims to propose a realistic research
technique with a framework to implement the case study. Section 4 investigates in business canvas
model of current industry and proposes the innovative business model according the interview
and SWOT analysis. Likewise, Section 5 reviews the business ecosystem of current stream music
industry in Taiwan and designs a new ecosystem based on the innovative business model canvas
in Section 4. Section 6 offers the conclusion along with some limitations and recommendations for
future research direction.

Literature Review
MS Industry
Nowadays, music plays an important character in our daily life. Several scholars have shown in-
terest in observing the impact of the music from multiple perspectives; not only focusing on business
strategies Naveed et al. (2017), Hogan (2015), but also examining the social or psychological func-
tions of the music Schäfer et al. (2013). Due to the impacts of music on features relating to human
needs, the music industry has evolved a vast economic front-runner. Merely in 2017, the total rev-
enue of the recording industry equaled USD 17.3 billion in the world of the Phonographic Industry
(n.d.).
In the past three decades, by the birth of the 3rd industrial revolution and industrial digitaliza-
tion, the appearance of the businesses changed worldwide. The same variation can be found in the
music industry. At the end of 19th-century gramophone records have been in the market. After the
1970s, since CD and CD-player invented, access to music content converted from stimulation to
digital approach Koung and Wen (2003). In 1991, German research organization, Fraunhofer Insti-
tute, developed MP3 Denegri-Knott and Tadajewski (2010). Owing to the emergence of MP3 into
the music industry, the flow channel of the music products has changed dramatically. According to
Statista Statista (n.d.) (https://www.statista.com/), global revenue of the music industry from
2002 to 2017 declined gradually, from USD 25.2 billion in 2002 to USD 17.3 billion in 2017 (31%
down) with 38.4% contribution of MS and only 5.4% of physical sales.
4

Movie and TV industry also encounter the same situation of their business model variation by the
beginning of the 3rd industrial revolution. However, they set up a new strategy called “Windowing”.
Using “Windowing” strategy, when a new movie released, first it was available in theater, then
DVD, then video-on-demand, and finally for pay-TV or streaming service (e.g. Netflix). Scholars
showed that there could be some opportunities for windowing in MS services Burstimo (n.d.).
The MS service is a technique of supplying music service without directly downloading files of
different audio formats. Music services such as Spotify, Pandora, Pandora, Amazon Music Unlim-
ited, YouTube Music, and Apple Music are using MS service to deliver songs that can be enjoyed
on all types of different devices by their customers. Through development in information and com-
munications technology, bandwidth enlargement of the Internet and existence of new music format,
not only the quality of music is improved, but also the volume of the music product narrows down,
and gradually MS service becomes an industry which is worth several billion over the world of the
Phonographic Industry (n.d.).
Comparing to past retailing music ways (e-shop, or CD retailer shop), MS service equipped
with a different business model. Differences can be known as new customer segments, and different
payment models Wagner et al. (2015).

Business Model Canvas

Research on Business Model Innovation Under the trend of internationalization, the macro busi-
ness environment has changed quickly, and difficulties of operating a business come one after
another. In order to meet the requirements of the dynamic business environment, and creating
the effect of innovation, businesses need to utilize their resources readily available, and deliver
innovative value proposition or develop different strategies for their customers. Business model
innovation does not only release new products or services to change the revenue structures; it also
change the policies to new market to get away the competitive red ocean. For the companies, busi-
ness model innovation creates the new mechanism of value-creating to change the organizations
Teece (2010). Business model innovation can be separated into two similar part which may easily
be misunderstood, “innovation” and “invention.” According to Betz Betz (1993), when business
brings the “invention” into the market to produce the profit, it so-calls “innovation”. However,
the importance of innovations of the business model for a company’s accomplishment is a research
question for a long time Wirtz (2011).
Therefore, to envisage the main dissimilarity between traditional retailing music and MS services
concerning their classic business models, clear comprehension of business model innovations is
needed. Teece Teece (2010) mentioned that business model innovation is the process of creating,
delivering and obtaining value. To get at the root of the matter, the basis of creating value in the
organizations is the source for designing the business model.
 5

Due to innovation development in Information Technology and electronic devices, and renovation
of the business model in the music industry, this industry is started to be dependent more on
“Internet” in recent descends. The Internet acts as an important character of resource to deliver
the core value proposition in the MS industry. A typical innovation example of an Internet business
model in Taiwan is KKBOX Inc., which is providing online music services in Taiwan and some
other countries in Southeast Asia.

Basic Definition and Introduction on Business Model Canvas Reviewing the history of the busi-
ness model shows that the brief concept of business model has existed since 1950s Osterwalder
and Pigneur (2010). However, after the 1990s, with the disintermediation of e-commerce, and the
impact of retailer virtualization, scholars defined the term “Business Model” as “the process of
creating value by company” Chesbrough and Rosenbloom (2002), Amit and Zott (2012), Zott and
Amit (2017). Gradually, the business model became a popular word for business starters and in-
vestors. It makes public trust once a company is equipped with a good business model which means
that the company is on the way to success.
There are several definitions of the business model. Timmers Timmers (1998) considered the main
framework of the business model with embracing product stream, service stream, and information
stream. Under his definition, any other characteristics in the business activities could be defined
under the main framework such as potential profits and the sources of receiving profits.
Chesbrough and Rosenbloom Chesbrough and Rosenbloom (2002) termed business model as “the
process of changing”. According to their definition business models are the concrete performance
of business logic and revenue concept when operating the enterprise. Business models are stories
that explain how enterprises work Magretta (2002). In addition, business models are the methods
and a set of assumptions that explains how a business creates and earns a profit in a competitive
environment Schaltegger et al. (2016), Lumpkin and Dess (2004).
Before the business model canvas be widespread, two principal trends of definition were identi-
fied for the business model. The first and the most common and broadly used definition derived
by Osterwalder et al. Osterwalder et al. (2005). They combined and compared the frequently-used
models and the components from the past studies Timmers (1998), Magretta (2002), and built
“Nine Building Block Model” including four main areas of a business: customers, products, infras-
tructure, and financial aspects. Soon after that, they revised their model Osterwalder and Pigneur
(2010) to identify business model terms with the principle of creating, delivering, and capturing
value in the organization perspective.
Meanwhile, other scholars thought in different viewpoints as exploring on business models.
Hamel’s perspective Hamel and Ruben (2000) was increasing the profit. According to his model,
6

the purpose of an innovative business model should help the enterprise to react transformation of
the environment rather than repair the traditional model. The scopes of Hamel’s model Hamel and
Ruben (2000), named “Business Model of Enterprise Core” are core strategy, strategic resources,
customer interface, and value network. In addition, in order to operate the business model smoothly,
it is needed to link the theory with customer benefits, configuration and company boundaries. The
model of Shafer, Smith and Linder Shafer et al. (2005) categorized four main dimensions including
strategic choices, value network, create value and capture value. Later on, Johnson Johnson (2010)
proposed a four-element business model framework called “four-box framework”. This model di-
vided the business model into customer value proposition, profit formula, key resources, and key
processes.
Summarizing and merging all of these concepts, the business model was termed as a depiction
of a firm’s fundamental logic and strategic choices for creating and capturing value within the
framework of the value network. Making sure the real want of the consumers, and then setting the
relatively applicable value proposition for the company.
Fundamentally, the definitions of Johnson’s four-box framework Johnson (2010) and Oster-
walder’s business model canvas Osterwalder and Pigneur (2010) are similar. The differences are
the derivative frameworks. Johnson’s framework is often classified as a conceptual model, on the
other hand, Osterwalder’s canvas is closer to business operating situation. In short, Osterwalder’s
business model canvas can be regarded as the advanced version of Mark Johnson’s four-box frame-
work.
Therefore, to adjust the online MS industry model more specifically, carefully and properly, this
study adopts the Osterwalder’s canvas business model Osterwalder and Pigneur (2010) (Figure 1).

Long Tail Strategy

The distribution and inventory costs of businesses which successfully spreading on a long tail
strategy allow businesses to realize weighty profit out of retailing small volumes of hard-to-find
(niche) products to many customers instead of only retailing large volumes of a condensed number
of hit products. The entire sales of this large number of “niche products” is termed as “the long
tail”. In brief, the long tail strategy carries an effect on the industry that makes the shift from hit
products to niche products.
Essentially, in the music industry, the step of transformation in recorded music technology has
accelerated faster than the past few decades due to the emergence of digital technology Ordanini
and Nunes (2016). As mentioned in Ordanini and Nunes Ordanini and Nunes (2016), the advance
of audio recording and reproduction is perhaps the most dominant factor to have affected the
music’s role plays in our daily life.
 7

Figure 1 Business model canvas of Osterwalder and Pigneur Osterwalder and Pigneur (2010)

Long tail theory can be explained as the key partners of companies by helping their customer
in operating fundamental technologies and business procedures to integrate the local, temporary,
or even investigational capabilities of long tail suppliers into the company’s construction Su et al.
(2016).
Long tail strategy combines the advantages of getting into the innovative competences of niche
players with the competencies provided by the original major partner. With the policies of cooper-
ating with others, the companies may have larger chance to create something different. However,
the emphasis of long tail strategy is not only for handling a super large number of suppliers and
then setting up regulations and standards for them. Actually, the companies should look carefully
on suppliers’ background, cautiously evaluating and cultivating different strategies (arrangements)
for different types of businesses.
In addition, by uniting with minor strategic partners, companies can mutually generate win-win
possibilities via the constant flow of innovative technologies and approaches. Yet, the execution of
long tail strategy is not easy for those who run the companies. In contrast, the long tail theory is
such a driver of innovation and value creation in this digital age. More specifically, in the music
industry, the long tail strategy can pursuit diversification strategy to catch all customers and their
needs rather than sticking on certain hot products.
8

Business Ecosystem
According to Subramaniam et al. Subramaniam et al. (2019), in the current environment, each
company that operates in the market will gradually evolve into the competition. In addition, the
upcoming performance of the business model is also one type of race.
Not only focuses on separate self-affairs of the enterprise, but the business ecosystem also empha-
sizes the cooperation between inter-field industry. Moore Moore (1993) stated that “The business
ecosystem is an economic association based on organization and individual interaction”. For the
connotation of the business ecosystem, it can be termed several actors in a business community in-
cluding suppliers, producers, sellers, consumers, investors, and the governments. In a nutshell, most
of the companies reside in the ecosystem that spread over the boundaries of their own industries,
may be influenced by numerous other businesses Iansiti and Levien (2004).
Through reviewing the development of a business ecosystem in literatures Kandiah and Gossain
(1998), Barquet et al. (2011), Henningsson and Hedman (2014), Moore (1996), De Reuver et al.
(2013), we sum up we three core characteristics of business ecosystem as follows:
• Interdependence: business ecosystem particularly focuses on the resource dependency.
• Mutual-benefiting: every participant in the whole business ecosystem increase their partic-
ipation, sometimes also happen with special competition.
• Adaptation: re-adaptation continuously happens in the business ecosystem.
Through ecosystems’ self-growing and the change of environment, the participants also adapt in
the same time. Some specific technology and critical factors affect the relationship of participant
abreast as well. Therefore, a business may modify itself naturally.

Business Ecosystem of KKBOX Inc. KKBOX Inc. is an MS service company founded by some
Taiwanese software programmers in 2004. To avoid competing with Spotify directly, KKBOX only
targets the Asian market by cooperating with a telecommunication company, focusing on regions
like Taiwan, Hong Kong, and Malaysia. KKBOX features thirty million tracks, including the most
comprehensive Asia-Pop music library with a premium basis, only “pay-per-month for USD $5”.
Not only focusing on music service, also KKBOX trying to get 360-degree clicks-and-mortar to
strengthening its offline service.
KKBOX Inc. is one of few Taiwanese start-up company which can break new ground in oversea
markets. Easy to surf on the web or not is a critical factor for online music operation Stepping with
Digital Life (n.d.). Despite this fact, KKBOX corporates with large telecommunication providers in
Taiwan and overseas market to produce profits and access niche market The only profitable music
streaming service in Taiwan, KKBOX is stepping into phase three (n.d.), KKBOX builds joint ven-
ture with Chunghwa Telecom, supporting digital music (n.d.). In Taiwan, through working together
with telecommunication provider companies, KKBOX can control the basis of its customers and
their needs efficiently and build up the right business model.
 9

Methodology
To discuss the business model innovation of MS industry in Taiwan, and to find the unsatisfied
target customer and the market segment, knowing the background, operating duty and the current
situation of the industry, is the first priority. Therefore, in order to observe the potential market,
we employed an in-depth interview method. We collected and aggregated the current industry
condition through the interview process with the company. In addition, by taking original business
model canvas of Taiwanese MS industry as the basis for mature pioneering business model, we find
out new value proposition for the industry and draw out the first version of the innovative business
model canvas.
To construct the solid analysis framework, the research supplemented with the actual case from
the MS industry and collected information via secondary data and unstructured interview. The
interview has discussed the performance of the business ecosystem of KKBOX Inc. with end-users
and record companies.

Research Design
• Collecting Secondary Data: The secondary data is collected out of literature review.
• In-depth Interview : This study adopts in-depth interview (qualitative interview) Johnson
(2002) to realize and evaluate opinions of all parties in the digital MS industry including
end-users, music recorders and MS companies. Through dialogues between interviewer and
interviewee, the interchange of opinion and the real construction have been recorded.
Regards the purpose of this study to find the innovative business model of MS industry, by
applying the advantage of the in-depth interview, interviewee shared their core opinions and
the depiction or description of the issue. In addition, interviewee’s attitude and motivation
have been noticed and recorded during the content and process of interviewing to deal with
answers which may appear occasionally.
In order to collect the efficient information, interviewees have been chosen specifically based
on some characteristics to fit the framework of research and to meet the qualification of the
research. The background and description of interviewees are summarized in Table 1.
• Research Framework : Based on the integration of the theories from the past researches
and the depiction from the interviewee’s conversation, the research framework of this study
is portrayed as shown in Figure 2.

Analysis of Business Model Canvas and Business Ecosystem

Original Business Model Canvas of KKBOX Inc.
After getting some first-hand opinions from interviewees the original business model canvas of
KKBOX is designed as shown in Figure 3, and following further analysis is going to proceed.
10

Table 1 Description of Interviewees

Interviewees The purpose of interview Description
Record Investigate on marketing strat- As the music provider and licensee, record
companies egy for online MS industry companies play an important role in the MS
industry. The ecosystem of the MS industry
without them is incomplete.
MS in- Investigate on marketing strat- In order to understand the development of
dustry egy for online MS industry MS industry in Taiwan more clearly, the
(KKBOX largest MS platform, KKBOX has been in-
Inc.) vited for an interview. The deputy manager
of corporate public relations department and
the director of the digital division of KKBOX
were interviewed.
End User Provide some recommenda- End users are planned to choose randomly
of MS tions from customers’ perspec- in the public. Before the interview officially
Software tive started, some basic restrictions have been set
for these interviewees including:
• Having user experience on more than
one MS platform.
• Paying fee for legal music over one year.
• Spending more than two hours per day
to enjoy music through MS platforms.

Figure 2 Research framework

Unlike Europe and U.S., Asia is a special market for operating music business due to users’
habit. The KKBOx strategy is not to develop its market to more countries; it decides to focus on
some countries which KKBOX can have actual influence over there. To satisfy the target customer
segments, KKBOX develops business at the countries where have dissimilar culture, lifestyle and
language from the rest of the world, mainly located in Asia. Meanwhile, KKBOX plans to build
different natural threshold with other giants brands around the world in this industry. On the other
hand, smartphone carriers’ providers and telecommunication service providers have huge impacts
 11

Figure 3 Original business model canvas of KKBOX Inc.

for MS contents. KKBOX cooperates with Chunghwa Telecom in Taiwan, with Hutchison Telecom
and Three Telecom in Hong Kong and Macau, with StarHub in Singapore, with Advanced Info
Service Telecom in Thailand, with Digi Telecom and U mobile in Malaysia, and with KDDI in
Japan.
In the past, the price was a serious issue for the music industry in Taiwan. Consequently, KKBOX
holds the principle of providing music legally and therefore, KKBOX had to stick to user charge
principle. In terms of payment issue, KKBOX hopes to have a win-win situation between copyright,
creators, record company and users. Thus, unlike Spotify, KKBOX rejected the freemium (free plus
premium) service. On the contrary, KKBOX teaches the customer to pay; music is valuable.
In fact, KKBOX is not only operating MS service but also promoting itself via horizontal al-
liances. Even KKBOX is a pioneer in Taiwanese start-up and MS industry, but it cannot control
the power of setting price due to the pressure from the record company. Therefore, if MS companies
can negotiate well with the record companies, they will get relatively value advantage.
Following we analyze the part-by-part business model canvas of KKBOX Inc.
• Value Proposition: Using the advantage of smartphone and internet, MS services offer un-
limited music access to a complete database. On condition that customers pay the subscription
fees (per month or per year), they can access to music via streaming and offline-downloading
service.
12

• Customer Segments: Avoid battling with international giants such as Spotify and Apple
Music directly, KKBOX chooses a different path to step. KKBOX operates its business at the
regions where have different culture, lifestyle, and language.
• Distribution Channels: Since Internet invented, MS services become an intermediary be-
tween music content providers and music customers. By means of several platforms (websites
or software applications) and digital carriers (PC, smartphone or tablet), KKBOX delivers its
core service, music to numerous users.
• Customer Relationships: In order to interact with all potential customers and keep the
current customer groups, KKBOX creates a social network service platform and online cus-
tomer service to have KKBOX’s community and maintained the online relationship between
KKBOX and its customers.
• Revenue Streams: KKBOX gains its revenue with advertising along with receiving recurrent
subscription fees.
• Key Resources: For KKBOX, music (including lyrics and songs) licensing agreements are
the most significant resources because the licenses of music contents are required to offer access
to the music database. In a nutshell, training the engineers of software and network performs
is another key resource for KKBOX.
• Key Activities: In order to fascinate more customers and catch their need, KKBOX pays
lots of efforts on developing its platform and obtaining a license, especially for maintaining
multi-platform service.
• Key Partners: For KKBOX, the interviewee agrees that the most important partners are
music (including lyrics and songs) right holder because of the licensing activities. On the other
hand, another important partner of KKBOX is a telecommunication service provider such
as Chunghwa Telecom in Taiwan, which assisted KKBOX through bandwidth development
corporation.
• Cost Structure: Not only KKBOX needs to pay a lot to the right holders, but also KKBOX
needs to make itself alive by paying salaries to its employee and paying bandwidth costs to
telecommunication providers.

Innovative Business Model Canvas of KKBOX Inc.

In order to find the basis of business model innovation of Taiwanese MS industry, Table 2, simply
generalizes the forthcoming chances and potential risk (SWOT analysis) of KKBOX Inc.
The results summary shows that the MS industry does not fully focus on its original profession.
Therefore, developing an innovative business model canvas of MS industry is necessary. Based on
the innovation process theory proposed by Osterwalder et al. Osterwalder and Pigneur (2010),
 13

Table 2 SWOT Analysis of KKBOX Inc.

Strength Weakness
• Interactive listening user interface. • High premium to get music from a record
• Acceptable price to enjoy music per company.
month (only USD $5 for all-you-can- • Updating speed of music database.
listen per month).
• Robust environment of mobile network
development.
• Long history of MS development in Tai-
wan.

Opportunity Threat
• MS market is not saturated yet. • Database of songs is still smaller than
• Regulations of MS are going to be ma- other International competitors.
ture. • It is very easy for a user to transfer to
• Traditional record companies are more another provider.
welcoming to accept the business model • MS Industry is super fierce for competi-
of MS operation. tion.

following are brief processes and ideas of business model innovation for MS in Taiwan (see Figure
4).
• Value Proposition: According to the interview analysis, the physical competitor of MS
industry is other consumer applications. Sometimes, customers are not willing to buy music
because mobile game and drama also attract them. If the music industry does not take a
severe revolution, the music industry may be defeated by a mobile game. Thus, firstly the
value proposition must operate a new way of business. KKBOX focuses not only on providing
MS service to the public, it also provides 360-degree service What Exactly Is a “360-Degree
View of the Customer”? (n.d.) and creating a new lifestyle for its customers through music. In
short, any service and value-added service which provided by KKBOX is for enhancing user’s
experience. KKBOX always sticks on one principle, “music is valuable”. Thus, KKBOX never
focuses too much on price to compete with its rivals. Instead, KKBOX focus on enhancing
the users’ experience by providing value-added services.
• Customer Segments: due to the re-design of value proposition, KKBOX purposes to find
out any potential users and attracts them to consume its products. For KKBOX, any users
who may contact with consumer electronics and Internet technology are its target customers.
Also, KKBOX is devoted to create a truly immersive music experience for music lovers and
to empower artists and their music through the innovation of technology.
• Key Partnership: According to new customer segments and new value proposition, and in
order to strengthen its competence and construct its own ecosystem, KKBOX works together
with several cross-industry partners (e.g. Paganini+ (https://www.paganiniplus.com),
14

Figure 4 Innovative business model canvas of MS industry

HTC (https://www.htc.com), Space Cycle (www.spacecycle.com), and some social media

platforms) to make itself unique.
• Key Activities: Meanwhile, acting as a leading company in Taiwanese MS industry, KKBOX
tries its best simultaneously to analyze its users’ habit. Then KKBOX uses its user experiences
data to design fit service for its users and tries to keep users’ loyalty.
• Cost Structure: Basically, cost structure does not change a lot. Royal to right holders,
salaries, bandwidth costs still need to pay from KKBOX. In order to get and maintain the
key resources in further operation, cost of reinvestment is essential for KKBOX.
• Key Resources: No matter over a cross-industry partner or KKBOX itself, KKBOX needs
to level up the ability to deal with big data carefully. Then, as the corporation becomes larger,
KKBOX also needs to have sufficient abilities to integrate all services provided by KKBOX.
 15

• Customer Relationships: In order to achieve more customers who may not appear in the
market yet, other than building up the relationship online, KKBOX also organizes certain real
(face-to-face) activities such as public concerts.
• Distribution Channels: To boost the exposure of KKBOX streaming service, KKBOX not
only retails its music service on existed devices or in certain authorized shops, but KKBOX
also authorizes music service to some of its cross-industry partners such as Space Cycle. In
addition, customers now can listen to music on browsers and trial favorite songs on the social
platform directly.
• Revenue Stream: For the operator of KKBOX, the existed market is a red ocean. KKBOX
needs a new service to create a blue ocean. However, the all-you-can-listen company like
KKBOX never face with a loss, since they hold the right of music.

The Long Tail of MS Industry

The business model of MS is also somewhat corresponds with the phenomena of long tail theory.
There have three economic-oriented triggers:
1. The democratization of tools in production: In the past, people hardly have opportuni-
ties to approach electronic music production’s tools. Thus, once the creators want to publish
their production of music, they need to find out the sizable record company to publish their
production. Therefore, the total quantity of the music production was limited. But currently,
thanks to the reduction of technology costs, not only different hits, also more different types
of music production can be found in the market to meet the needs of customers in this new
platform. This situation makes the tail of music industry longer.
2. The democratization of distribution: Through the Internet, the commodities (music pro-
duction) have distributed in the digital channel for downloading or streaming listening. The
Internet has dramatically lowered inventory, communications and the transaction costs of the
commodities; it also creates new markets for niche products, and this makes the tails become
longer.
3. Falling search costs to connect supply with demand: The situation of information
asymmetry has gradually declined in this era of IoT and particularly in MS industry. However,
the real test of retailing niche products is discovering attracted potential customers. There-
fore, a huge music database, powerful search engine and recommendation mechanism and the
communities of music lovers can transfer the business from hits to niche products.
In short, in an era without the constraints of physical shop location and other limitations of
distribution, narrowly-targeted goods and services can be as-economically attractive-as mainstream
fare. Thus, diversification and innovation are important for the business model of the MS industry.
16

Through innovation and diversification, the MS industry can make its tail longer to attain more
revenues.
For the case of KKBOX Inc., it provides several music-related services which customers may
like, including KKBOX music award, KKBOX music store (for downloading service), KKBOX
MS service, KKTIX ticket service and Let’s Music Magazine. In short, KKBOX’s new model not
only provides the original mainstream music productions (head) but also supplies new products or
services (tail). For KKBOX, the profit of investment and the existed revenue can help it to walking
on the path; KKBOX earns money from its long tail niche contents and uses them to support its
core business (buying the copyright of those music).
On the other hand, currently, music-authorization and artist-management have become the main
basis of profits in MS industry, and music-authorization is the important tails of the music industry
in the long tail model. In the past, in the physical record shop, the record company may earn the
profits after retailing a certain large amount of records. But currently, thanks to the marketing
of digital (streaming) music platform, the creator can survive via selling relatively less music.
Therefore, old music model and new music model co-exist with each other under the exponential
growth of technology development.

Rise of the Business Ecosystem

Sustainable advantage comes from innovative competition basis. This noticeable strategy inno-
vation also called mutual-operating network model, bionic competitive strategy.
Moore Moore (1993) believed that it is a wrong strategy for the firms to attempt to response
to their competitors. Principally, when the natural environment transforms strongly, peripheral
species will be the core of new ecosystem very quickly. Moore Moore (1993) recommended that
firms should regard themselves as a member of the ecosystem, developing new products and new
innovation with different system member. As Iansiti and Levien Iansiti and Levien (2004) men-
tioned, in order to prevent the shock and impact of whole business ecosystem happened in future,
the firms should take competition environment seriously.

The Evolutionary Stages of a Business Ecosystem

To some extent, the evolutionary stages of a business ecosystem are predictable. Moore Moore
(1993) proposed a four-stages idea to ponder the future of the ecosystem. These four stages are
birth, expansion, leadership, and self-renewal respectively.
Every stage brought a different development strategy. For those companies which already stayed
in the ecosystem or desired to enter into the ecosystem, knowing the possible challenges can lead
to more precise action.
Following are the description of each step.
 17

• Birth: Business ecosystem is a shape for a firm. By linking value proposition and ability,
business ecosystem creates core contribution, and assure that the core product in the new
ecosystem need to surpass existing product, creating better and larger value than the current
situation. Thus, the leader company needs to understand the actual need of the customers, to
negotiate with partners and to create an efficient value chain.
• Expansion: the Business ecosystem is in the stage of adopting expansion strategy, creating
value and trying the best to increase its economy of scale and economy of scope. Thus, in
order to expand its core business, sometimes a business ecosystem also expands to similar
fields.
• Leadership: After the development form the expansion stage, this stage is relatively stable.
The case company acts as a leader in the core of the ecosystem. Compare to other members,
the leader has better bargaining power. Moreover, the leader also provides a vision for all
members of the ecosystem.
• Self-Renewal: Company retains its own competence by improving its performance continu-
ously. Make sure the ecosystem can provide something more valuable than any other ecosys-
tem, and build a system of co-evolution.
The further introduction of the evolutionary stages of KKBOX business ecosystem is shown in
Figure 5.

Position of the Actors in the Business Ecosystem

Iansiti and Leiven Iansiti and Levien (2004) sorted characters of business players by examining
if they equip ability of core techniques or control operating rules; the actors who equip called
“Keystone” actors and “Dominator” actors, others who do not equip called “Niche Players”. Al-
though keystone actors and dominator actors both provide the platform (whole ecosystem) to
niche players to create value, keystone actors tend to achieve the optimum between sharing value
or attaining value. In contrast, the dominator actors control most of all valuable activities of the
business ecosystem mighty via horizontal or vertical integration. Thus, if dominator actors are too
mighty, they may break the robustness of the whole ecosystem. Finally, niche players are the user
of the platform; by unleashing their unique technique or ability, they can create maximum value
by uniting with others in the platform.
According to the theory of business functions mentioned by Mohr et al. Mohr et al. (2011), it is
challenging for a single company controlling whole business by itself, each company may have its
own strength. Therefore, to investigate on design of KKBOX ecosystem, the following discussion in
this section is separated into two parts: inside activities which ran by KKBOX itself or its object
of investment and outside activities ran by other actors.
18

Figure 5 The evolutionary stages of a business ecosystem

Keystone actors play an important role in the business ecosystem even though they may only
occupy small position in the system; they aim to increase the robustness of ecosystem and link
the members in the system. In the case of MS industry, telecommunication service provider is one
of the keystone actors as the Internet service provider. KKBOX needs the bandwidth to maintain
its platform’s operation. without Internet, MS platform cannot operate and performs easily. Also,
KKBOX’s service itself is another keystone actors of the ecosystem owing to the importance of a
stable service platform. KKBOX has its own localized method to do business in Taiwan.
Dominator actors also act as a certain vital role in the system, but dominator actors use
non-direct way to control the system. For example, in MS service business, record companies are
the natural contributor to authorize music to KKBOX. They have the power of setting the price
of royalty to affect MS provider’s decision and strategy.
 19

Niche players do not have a huge influence to affect the whole ecosystem individually, however,
they are the activator of forming the process of the ecosystem. The keystone actors decide what
ecosystem do, and niche players follow the flow of the ecosystem. In fact, niche players are the
activators for the ecosystem. By adopting the resources from other niche players or keystone actors,
niche players can focus on strengthening their professional action.
Figure 6 illustrates the ecosystem map of MS industry.

Figure 6 The ecosystem map of MS industry in Taiwan

In the ecosystem of KKBOX Inc., for the inside activities part, there are several niche players.
These niche players can further separate into ticket service (i.e., KKTIX in Taiwan), marketing
service, and the user experience service.
For KKBOX, once it plans to hold more face-to-face activities, it needs to have enough ability to
handle the affairs of ticket service. In addition, due to the deep connection between ticket service
and KKBOX, ticket service can benefit from KKBOX’s large customers base.
It is important to make customers be accustomed to staying with the service in the MS industry.
Then, KKBOX expands its service circles step by step and gives its customers more experience
on music. Thus, multi-dimensional niche players were counted in the ecosystem, including sports
industry, activities holder, technology supplier and the media.
For the outside activities part, there are other niche players also step with KKBOX together.
KKBOX provides 60 minutes’ trial per day which sponsored by advertisers even though KKBOX
does not provide freemium music. Also, KKBOX uses Amazon Web Services (AWS) to enhance its
20

computing ability on the cloud. Then, in order to approach maximum potential customers, KKBOX
cooperates with the top two largest social media platform operator, Facebook (KKBOX provides
trial on Facebook’s platform) and Twitter (KKBOX uses @KKBOX to introduce exclusive contents
on Twitter’s platform and uses @KKBOXTW to broadcast the activities live on Periscope).
In addition, some creators (songwriters & lyric writers) and management company also play as
niche players in the ecosystem due to complicated authorization mechanism of music in Taiwan.
Lastly, retailers and mobile carriers company also occupy certain parts of the ecosystem because
KKBOX still needs channels to deliver its music service.
Nevertheless, due to the rapid change of Internet-related business, each character in the ecosys-
tem is not fixed. A company may act as one of the keystone actors in the current ecosystem but
performs as dominator actors or niche player in another field in the future.

The Mixture of Business Model Canvas and Business Ecosystem

To uphold the principle of creating the most immersive music experience for music lovers and
empowering artists and their music through the innovation of technology, core service of KKBOX
is belong to value proposition principals. To enhance its connections with the potential users,
KKBOX develops new services or activities to attract and maintain the communities. Thus, several
niche players were categorized into customer relationships part; including media service, ticket
service, management company, social media platform operator, concert service, activities website,
and sports industry; each of them helps KKBOX to approach new potential customers.
In Taiwan, users not only can buy the physical albums in a record shop but also can top up the
music credits in retailers (convenient stores), and then enjoy the music on KKBOX via portable
devices. Therefore, mobile carriers company and retailers were sorted to the canvas of distribution
channels because these two niche players were both benefited from the business model. Besides,
acting as a huge music platform (advertisement platform), KKBOX also finds the advertisers
(sponsors) to support its operation. By paying for the advertisements and putting on the platform,
those advertisers can also raise their profile. The advertisers belong to the canvas of revenue streams.
Other than the record companies, the most important partners of KKBOX, those songwriters and
lyric writers also play a crucial role in KKBOX’s partnership management. Creators belong to the
key partners in business model canvas.
However, in this rapid-changed business environment, the boundary lines between every business
element are unclear. It is very hard to define which actors (niche players, dominators or keystones)
exactly meet particular canvas. For record companies and telecommunication service providers,
both of them meet several factors which covered in key partners, key resources, and cost structure.
Moreover, the same situation happens in big data marketing. Based on the principle to find more
 21

potential users for the KKBOX, the big data marketing is shared by key activities and value
proposition together. The same situation is valid for cloud computing service provider. KKBOX
needs this critical technologies to support its operation and sustain the management of the business.
Figure 7 the trapezoid diagram (Block A diagram) for KKBOX Inc. including all niche players.
According to the block A digram, all KKBOX’s new products, activities and services start from
the core value proposition of making customers to like music; then explore the suitable customer
segments based on value proposition; and then finally communicate with its customers via various
service. In short, all niche actors in KKBOX ecosystem were not only included into customer
relationships part, but they were also included into value proposition and customer segments part.

Figure 7 The mixture of business model canvas and business ecosystem

Conclusion and Suggestion

The ultimate goal of this study was trying to discover the synergy of the MS industry through
building an innovative business model and creating a blue ocean for the featur of this industry.
The research starts from the idea of canvas and ecosystem, then inspect the challenge, formation,
and development of MS ecosystem in Taiwan. And then finally stick on the relationship of each
player in the industry.
The developments of the MS industry in Taiwan can be described as the process of mutual
adjustment. The MS service provider (KKBOX) tries hard to diversify its service because of the
variation of the market trends and technology advances. On the other hand, users also change
22

their listening behavior due to the occurrence of the MS platform. Then MS provider designs more
functions to meet users’ needs. The adjustments and interactions between MS provider and users
have not stopped. By having a differentiated and hard-to-imitate service, KKBOX can make itself
being able to meet particular customers’ needs. Then it can build up a multivariate value network
by observing the transformation of customers’ needs.
Furthermore, the MS industry is quite fierce. KKBOX acts as an Internet new venture; in the
new venture industry, the advance of Internet technology usually brings globally waves. But in
fact, not every pattern of Internet new venture equip the advantages of globalization. John Doerr
first raised the idea of “SoLoMo” Hsieh (2018) in 2011. SoLoMo means “social”, “local” and
“mobile”. Actually, “social”, “local” and “mobile” exist in the world for a long time individually.
“Social” means socialization activities which brought by social media platform. “Local” means
location-based service. And “mobile” means the rise of the mobile internet. For MS industry,
understanding the value of the integration for these three nouns is an important issue in the future
industry research. KKBOX needs to maintain its current advantage in Taiwan and makes itself more
socialization, localization, and mobilization. KKBOX tries to provide more localization-oriented
service to its customers continuously due to the cultural uniqueness of music product. For instance,
KKBOX holds lots of face-to-face activities such as KKBOX’s concert.
According to the result, the Internet industry is not always far-reaching. Customers’ behavior
connects with customers’ cultural region. For the new-comers, other than regulations and laws,
the understandings of culture and customers’ preference are also crucial points. The diversification
strategies of KKBOX prove the advantage and opportunity of Internet service localization. Once
the MS providers have enough songs, bandwidth, and conditions of hardware, still they need to
pay lots of effort on integrating every resources that they have. No matter for KKBOX or a foreign
competitor such as Spotify, integration is hard. Once MS providers solving the pain points, some
businesses which seem useless in short-term operation, may bring larger industry value in long-term
operation. Also, once KKBOX creates new battlefield, it may have new first-mover advantages to
living better in the fierce environment.
The business model includes tangible and intangible assets for the customers Teece (2010), they
not only need the final products (music service) but also require the one-stop services. The MS
industry (KKBOX) can make profits by keeping creating a unique and efficient business model if
it integrates its tangible and intangible assets successfully.
Last but not the least, music is a business, but it is also an art. In order to share better stories
and productions to users, the MS industry in Taiwan should study deeper to realize the authentic
idea of users. In short, users listen to music while music providers are listening to the users. In order
to prove if the new business model can be the tomorrow of industry, further researches need more
 23

input of quantitative methods. Also, this study focuses more on adjustments of industry-fields.
For MS industry in Taiwan, user-oriented topics deserve further investigation in the future. In a
nutshell, the music industry should be more open to accepting the more adaptive business model.

Acknowledgement
This study is supported by Ministry of Science and Technology, Taiwan (MOST103-2410-H-031-
034, MOST 104-2410-H-031-033-MY3).

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