Innovating with digital technologies is becoming increasingly necessary as firms seek to remain competitive. Previous scholarship has showed how digital innovation can be managed to be competitive and gain value creation internally. However, the use of diverse digital resources in creating novel services has shaped an opportunity for research in Digital service innovation (DSI). To date, DSI have started to spread in Information System research. However, to understand DSI and its associated value creation dynamics – the relations between internal and external IT-based value creation are unreported. Therefore, in drawing on a qualitative case study of construction firm’s use of DSI capabilities through a Web-based 3D Configurator. This thesis aims to understand its role and dynamics between internal and external IT-based value creation. The results illustrate the role of the Web-based 3D configurator as a fundamental means for delivering both internal and external values. Contrasting previous research, the findings reveal how the firm first needed to achieve external IT-based value creation before internal IT-based values could be realized. This findings contributes to a deeper understanding of DSI and its value creation dynamics, which in the future can be a starting point for creation of new frameworks in managing DSI.