Previous research has emphasized the importance of matching innovations with a suitable business model. The design of business models for digital innovations such as telemedicine is a major challenge in health care systems. In this regulated context, the institutional environment plays a critical role for the sustainability of business models. In this paper, I propose an extended business model framework for network-based digital innovations. My study examines how the institutional environment and network-based organizational benefits affect the total value creation of telemedicine networks. I show how both perspectives acting in concert are able to account for the total value created in network-based business models in health care and contribute to the diffusion of digital innovations. My findings suggest that institutional bodies present important key partners in business models in regulated contexts, especially during the early stages of development and diffusion. Second, preexisting network structures, upon which network-based digital innovations can build, may accelerate the diffusion. Third, my study demonstrates the importance of value co-creation and appropriation that encompass all stakeholders in a network. Finally, I describe four key drivers for total value: (1) improvements in quality of and access to care, (2) reimbursement regulation, (3) network-based organizational benefits such as efficiency gains, learning, or knowledge transfer, and (4) legitimacy gains resulting from institutional isomorphism.
