Service innovation is a crucial source of competitive advantage across firms and markets and has become critical to firm growth and profitability. Firms face market challenges both when designing and introducing new service offerings to the market. Service innovation can be used as a lens to understand how firms can overcome market challenges to improve their performance. This chapter provides an integrating framework to explain three key market challenges: novelty, diffusion and value capture from the perspective of engaged actors. The chapter shows how the framework can be applied and finishes with some theoretical implications and managerial guidelines.