Ecosystem concept captures the idea of the coming together of firms with shared interests and goals to provide customers with a solution. Business platform ecosystems establish inter-firm relationships with the links for products and the surrounding services or complements. They usually take on the shape of a hub and spoke model of a network. The platform hub (owner, leader, sponsor) is at the center with the array of firms connected via technologies. Few of the members of this model of the ecosystem take on the governance aspects for the members of the ecosystem. Firms in the ecosystem deal with complementarities (essential core and the peripherals for example) in a fashion that seamlessly interoperate. For a short read on the paradigm shifts from a business ecosystem to a digital business system, I suggest reading the research article here.
There are two types of platforms and a few in between. There is scope for innovation on one type of platforms. On the innovative platforms, the base provides the infrastructure to create value thru complementary products by third parties. Google Android, Force.com falls in this category. The Android ecosystem is enabled by developments around the APIs. When engineering and technology building is primary to the culture of the business, the platform definition is explained by centering the infrastructure layer.
The other type of platforms is the transaction type of platforms. Here, there is an exchange of goods and services as in Amazon marketplace, people interactions as on Facebook. Salesforce, Apple, SAP fall in the in-between category where the emphasis is on a combination of product and platform. For a more complete treatise on the platform business models, read the section in chapter one “Platform thinking” in the book Business of Platforms.
Two-sided platforms and multi-sided platforms are yet another way of viewing platforms based on how exchanges happen on the platforms. In a two-sided platform, the exchange happens between two parties – customers and providers. In a multisided platform, providers cater to groups of interdependent consumers. Network effects come into play to grow the platform value.
Characteristics of Ecosystems
Ecosystems definitions highlight the design thinking of purpose behind the formation of hubs and links in a network. When the interactions of partners or complementarities are dominant in the design, the definition takes on as you find in this article here.
Modularity with loosely coupled components and self-organizing/ optimizing capabilities are the dominant characteristics of ecosystems according to the definition of ecosystems here.
Modularity enables the conditions for the complementors of the ecosystem to co-ordinate and emerge with ease creating sub-ecosystems around the hubs. Samsung and Motorola thrive on the Google Android hub. The relationships are unique, governed by standardized roles and rules. The extent of coordination and co-specialization needed among the members of the ecosystems determines how the complementors of the ecosystem are aligned for production and consumption. Open-source software Android, and Nike wearable devices are both ecosystems – the underlying mission is for production in one case, consumption in the other.
Modularity enables the conditions for the complementors of the ecosystem to co-ordinate and emerge with ease creating sub-ecosystems around the hubs. Samsung and Motorola thrive on the Google Android hub. The relationships are unique, governed by standardized roles and rules. The extent of coordination and co-specialization needed among the members of the ecosystems determines how the complementors of the ecosystem are aligned for production and consumption. Open-source software Android, and Nike wearable devices are both ecosystems – the underlying mission is for production in one case, consumption in the other.
These characteristics in the definition of a digital business ecosystem show the open relationships of partners in an ecosystem with changing roles based on the demand. Ideally, the links of relationships are subject to change giving the ecosystem capabilities to organize itself over time releasing from the tensions of authoritative hubs. This is a fundamental shift from the traditional supply-side “pipeline” of resources to meet the customer’s demands.
Dimensions to Ecosystems:
Several dimensions to ecosystems come into play for ensuring engagement and interactions, building relationships with the partners of the ecosystems.
The degree of openness is valuable to determine the strategy for the platform/ ecosystem owner and stakeholders. With many moving parts, openness comes in many flavors. The levels affected can vary from determining choices at the architecture, marketing, standards compliance, IP management, and governance for managing boundary resources. The practices impact the roles and relationships of the various participants of the ecosystems.
For a grasp on how the various dimensions such as the degree of openness, engaging and collaborating with participants, tie strengths and relationships among the participants, read here.
For understanding the glaring differences of the traditional and ecosystem/ platform models and interpretations for management practices, read here.
Capturing Value:
It should be clear where the main or blended value is rooted in the business model. Cost, Experience, Platform values are often thought when it comes to considering value. Each of these value types is dependent on the type of business model adopted. Successful businesses adopt a variety of value deriving models combining with their business models.
Low cost/ No cost provisions are a norm when the business model enables producing one or many with no cost differences. Often, the customer owns a huge chunk of the product with very low or cost-free.
Customer experience has often been associated with retail – chasing the customer all through the journey. An entire customer relationship management system is often associated with ensuring customer empowerment, recommendation systems, and personalization of products and services.
Platform value-driven business models are quite varied. Communities are often the channel for distribution, communication or executing for a specific cause. Think Twitter, Facebook, Reddit here. Connecting and enabling group/ peer to peer dynamics is the strength of Digital market places. Transactional value is exchanged for buyers, sellers for a specific purpose in a market place. Airbnb, Etsy are good examples of digital market places. Ecosystems enable inter-connected firms to co-specialize, co-market, or co-create by leveraging resources. Think Google Android and Apple iOS for ecosystem value. Data orchestrators operate with real-time data to obtain analytics and recognize patterns for decision making. Think companies like GE, Cisco here.
Strategies for thriving with new value creation, discarding the old.
Ben Thompson’s Aggregation theory throws light on how disruptive business models take the internet advantage while designing for value. Fundamental shifts in capturing value have happened in the internet age. This is due to the ability to modularize components of the system of suppliers and buyers resources to provide consumers the best experience. Distribution of digital goods has found a free medium through the internet. There is direct access to the large numbers of consumers for personalized experience and value delivery. The value is delivered free via the internet by aggregating the modularized resources to the consumers.
For competitive advantage, think how your business models can seize value, fill the existing gaps in value delivery and keep it for a slightly longer time. Sounds harsh while diving deep on digital disruptors when considering competitive strategy. DBT's Prof Michael Wade defines value vampires and value vacancies. Value vampires squeeze and drain the value out of the incumbents. Filling value vacancies to exploit the digital opportunities sound kinder than the vampires. Beware incumbents on the aggressive pursuits of the disruptors who wipe away traces of the incumbents to the past! For more on this, read the post here.
Conclusions:
There are plenty of resources to define and interpret what goes into platforms and ecosystems design thinking. Organizing the thoughts and workings of your business units and stakeholders is a major part of the understanding behind ecosystems/ platforms. No one’s views can be neglected, not a single point of view can be insisted. The journey is experimental and focused on the short and long term strategy for winning and meeting the customer expectations of your business.
Suggested Readings:
https://www.linkedin.com/pulse/why-understanding-your-business-ecosystem-roadmap-strategic-armani/
Books:
Digital Vortex by Jeff Loucks, James Macaulay, Andy Noranha, and Michael Wade.
Business of Platforms by Michael Cusumano, Annabelle Gawer, and David Yoffie.
