Some of the most successful companies that we see today owe their success to the ecosystems they have created. Apple is of course the best example, but a handful of so-called tech disruptors today have also done so.
There is a lot to learn from how the tech platform companies have secured their dominant market positions today.
They have understood some basic principles about the future:
- Consumers are driving all purchases; the consumerisation of technology
- The world is driven by networks
- This in turn makes exponential growth the norm
- Costs are strictly aligning to revenue, and everything is moving to a unit economics basis
Ecosystem thinking is an important part of building a business, but what exactly is ‘ecosystem thinking’? And how can it inform entrepreneurs and investors so that they can succeed?
A recent article by Haydn Shaughnessy, an economist and strategy advisor, articulates ecosystem thinking very well. He says that while everyone is now delivering their theories on platform thinking, what’s missing in this new theory is ecosystem thinking.
He comments, “A decent platform will motivate third parties to do business on its behalf. It will encourage these other companies to make risky investments in innovation. And it will stimulate a good deal of content that binds the ecosystem in one body of collectively created and curated intelligence. That’s what makes it an ecosystem.”
He says that ecosystems comprise dynamic relationships and have a disruptive power that can change an industry, a way of work, society at large and commerce systems. Companies wanting to develop platforms need to consider how they will enable change at each of these levels.
“The ecosystem represents all the new management thinking that goes into co-innovating with third parties and their assets. When you start to delve into it, you realise that ecosystem thinking is what challenges you to change your assumptions about management. The platform, in the end, is the technology behind relationship building.”
Shaughnessy cites Uber and Airbnb as being considered the ‘poster-childs’ of platform thinking. “Each of these is an interesting case study in something. But they are not necessarily platform companies in the sense that Apple or Google have defined this new form of business.”
“Uber has no ecosystem to speak of. Yes, it has millions of drivers using its mobile app. But there is little in the way of innovation that these drivers can attempt or little contribution that they make to a collective intelligence space that informs everyone on how to improve their business opportunities. But the sum, it might be said, is less than the parts.”
“Airbnb is a different proposition but it needs to be viewed through two lenses. It has ecosystem characteristics and managerially these differentiate it from say an Expedia or a Booking.com. However, it has not gone far enough with its ecosystem to build a defence against Booking.com copying its formula.”
Shaughnessy says people very often use the term ‘ecosystem’ when what they really mean is a community or group. For business ecosystem to have any power, it has to mean more than a community and more than an aggregation of economic activity.
Firms that adopt ecosystem economics will win
We’ve long said that there are three basic tenets which lead to a firm understanding how to benefit from ecosystem thinking:
- They need to understand that industries have shifted to be organised around platforms which are organising the economics of the ecosystems in which they operate. Firms need to move from being a company with distribution which is selling product to a platform with understood customer segments where revenue exchange for value accrues per users. Life time value of users and the cost of customer acquisition become the key KPI’s.
- They need to understand how to engage upwards with the application economy which is at the core of being a platform.
- They need to recognise that large firms (the Goliaths) can’t easily beat the smaller firms (the Davids). Entrepreneurs have the consumer insights which unlock the future of industries through the products and services that they create.
Successful entrepreneurs and investors will be talking about the importance of ecosystem thinking and ecosystem economics at the Follow the Entrepreneur Investor Summit in Dubrovnik in October 2018. For more information and registration, click here.