A BizTech Byte
An ecosystem is the network of cross-industry players who work together to define, build, and execute market-creating customer and consumer solutions. Ecosystem-based companies are creating tremendous value on a global scale, which is driving strong interest from many organizations to evolve towards an ecosystem-based business model. Almost half of executives (46 percent) say they are actively seeking ecosystems and new business models.1
How have these organizations been able to create and capture so much value?
The rationale behind the incremental value of an ecosystem model compared to a traditional business model is based on the ability to create network effects. In short, network effects represent the growth in value for all with every platform participant that joins.
Traditional companies follow a typical production and distribution value chain to customers, resulting in little interaction between sellers and end customers. This limits the scope of the network effect for traditional business models. There are two kinds of network effects typically taking place in an ecosystem, same-side network effects, where an increase in usage leads to a direct increase in value for other users. This is, for example, the case with telephone systems, or social networks. And cross-side network effects, where the increase in usage of one element increases the value of other elements and vice versa, such as with phones and apps.
In an ecosystem, network effects increase as the number of ecosystem participants and the quality of their participation increase. Several value drivers can have a positive impact on the number and quality of participants.
This is the theory, right? But in practical terms, how have successful organizations enabled and developed network effects to create and capture more value than those with traditional business models?
There is no single recipe for success
The economic impact of network effects is driven by the number of an ecosystem’s participants and by the quality of their participation.
Several value drivers can affect both the number of participants and quality of participation. Accenture Strategy analyzed which value drivers have been adopted by successful ecosystem-based organizations. While each organization has developed a different strategy, common value drivers emerge:
Activation of dormant supply: Attracting participants who would not supply their goods or services in a traditional business model
Activation of dormant demand: Attracting participants who would not buy their goods or services in a traditional business model
Provision of services/features: Providing special services and benefits to specific sets of users
High variety of products/services: Offering a diverse range of products or services from the supply side of the ecosystem
Subsidy of demand side: Providing (non-)financial support to buyers, to stimulate growth in number and quality of participation
Subsidy of supply side: Providing (non-)financial support to suppliers, to stimulate growth in number and quality of participation
Pricing scheme for supply side: Pricing structure adopted by the ecosystem orchestrator to enable supply-side participation
Creation of a trust-based environment: Creating mechanisms that help drive buyer trust (e.g., reviews, ratings, third-party verification)
Attraction of high-value users: Providing support to participants who can influence user growth and quality of participation
Effective data monetization: Using buyer information to optimize or tailor the offering of products and services by suppliers
Creation of new supplier capabilities: Providing support to suppliers to improve the quality of the ecosystem’s product and service offering
Elimination of information asymmetry: Sharing information among ecosystem participants to reduce risk in decision making
What can we learn from this?
Many company leaders see a strong future in ecosystems. In the next three to five years, they believe ecosystems will create new competitive advantage (56 percent), allow them to better serve customers (50 percent), and drive innovation and disruption (44 percent).2
But how do you execute an ecosystem vision? From our analysis we can derive several insights:
- Value creation in an ecosystem-based model is higher than a traditional business model and many factors can drive value growth.
- Evolving to an ecosystem-based business model is not a trivial exercise. It requires a thorough understanding of the value drivers that can stimulate network effects. Leveraging the right drivers derives from the vision that each organization wants to achieve.
- There is no magic formula that can be used to predict the best combination of value drivers that maximize the value of an ecosystem-based model.
- The focus and importance of value drivers varies over time. So, the strategy must adapt to maximize the development of network effects and, consequently, the value growth of the ecosystem.
- Successful ecosystem-based models have demonstrated that the best approach is to adopt an “apply and learn” strategy, adapting and evolving the optimal mix of value drivers as the network effects develop, driving value growth.
1 Accenture Strategy, Cornerstone of Future Growth: Ecosystems, 2018
2 Accenture Strategy, Cornerstone of Future Growth: Ecosystems, 2018