Digital ecosystems are gaining momentum in the business landscape, ushering in a new era of value chain evolution. The challenges are great, but the companies who face them and seize the power of platforms will be rewarded with the keys to the markets of the future.
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All over the world, digital ecosystems are growing and flourishing, fundamentally changing what it means to add value. The ascendancy of native platform companies demonstrates this perfectly: by shaping new business ecosystems around themselves, they create transformative benefits for both their partners and the markets they serve.
Buoyed by the strength of its platform, Spotify has grown into a force to be reckoned with in the music industry, with more than 100 million users tuned in worldwide. By providing an attractive value proposition for music lovers and a new revenue model for musicians and record companies, they have succeeded in becoming a household name in little over a decade. At the same time, its digital ecosystem has created paths to markets that were previously unavailable.
Meanwhile, platforms also provide fertile soil for new business models to grow and develop. After launching the Echo, Amazon invited developers to add new features to Alexa, the intelligent personal assistant that constitutes the backbone of its platform. Entry is free to all, and developers can pitch their ideas to secure investments via Amazon Fund. This approach not only guarantees that Alexa will be able learn new ‘skills’ and delight its users, but also creates strong incentives for outside talent to help fortify the company’s digital ecosystem.
Clearly, these platforms are far more than just another revenue model. Their reach extends far into a diverse array of markets, which allows these business ecosystems to create new value propositions simply by existing. At the same time, they interact with entire organizations, frequently bridging the traditional boundaries between industries and enabling new partnerships.
Building Blocks of the Platform Economy
Raising up a digital ecosystem requires many essential ingredients, but none are more essential as APIs. They are the building blocks of the platform economy, the tools with which disparate parts of new ecosystems can be woven together and locked into place. And as is common in infrastructure, the choices we make greatly affect the potential outcomes.
Internal APIs are inherently closed, accessible only from within your company. There may be many reasons to choose this approach, but building a thriving digital ecosystem is not one of them. After all, healthy ecosystems always have some degree of permeability. Open APIs, on the other hand, extend a clear invitation to the outside world. With a truly open API, anybody can contribute to the strength of your platform. This won’t happen overnight, of course. Creating a community takes time and effort. You will need to provide clear incentives to join the fray.
Complete openness can lead to unexpected outcomes, both good and bad. Limiting your API to a trusted network of partners can help shave down the risks to an acceptable degree, but may also blunt your potential for radical innovation. These are difficult trade-offs to consider, especially for businesses in more traditional industries, but decisions must be made in order to move forward.
As the cornerstone of your digital ecosystem, everything rides on your API. For a service like Spotify, this technology has already moved far beyond the smartphone and the computer. Its applications are already being included in cars, home entertainment systems and other integrated solutions. Each of them represents a new addition to the platform, with exciting new ways to reach consumers.
Opportunities for Value Chain Evolution
Open digital ecosystems encourage cooperation and participation across conventional market lines, which creates new avenues for value chain evolution. By escaping traditional modes of thought and offering new options, platform providers can transform the way products and services are experienced, deploying visionary alternatives that rapidly become the new normal.
Take travel, for instance. At first glance, there are only a few realistic options to get from point A to point B. You can either hop in your own car or hail a taxi, take some form of public transportation, or fly to wherever you need to go. These options have become part of the fabric of everyday life, to such a degree that we don’t really think about them. They’ve always been there.
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Now, however, some of these tigers are changing their stripes. The car is learning to drive on its own. The traditional taxi has been usurped by Uber. And public transportation providers are exploring new business models as well. So what would happen if we brought all these travel options together in one ecosystem? All roads lead to Rome, but it’s still up to the traveler to find the one most convenient for them. And when faced with the onerous burden of sorting through a multitude of choices on their own, most travelers will choose the familiar. What if there was an app for that?
In São Paulo, Uber tested helicopter services which allowed commuters to escape the gridlock. In France, they ran an experiment where travelers could book a plane ticket along with their ride. Of course, these are only tests, but they offer a glimpse of what might be possible if components of different ecosystems are linked through a single API.
Data monetization is another strong opportunity. Even though many data sets remain unconnected, the commercialization of data is already worth hundreds of billions of dollars on an annual basis. To realize that these revenues are just the tip of the iceberg is mind-boggling. Clearly, an exclusionary approach will bear no fruit here. After all, the ability to identify new data sources and incorporate them into new data sets depends on the ability to recognize, select and interface with new partners.
Facing the Challenges of Platform Creation
When it comes to building ecosystems, the importance of digital architecture cannot be overstated. Without strong architecture, there can be no digital ecosystem, thriving or otherwise. The technology must be flexible, accessible and cost effective. It must meet or exceed common industry standards, and it must be trustworthy and secure.
For many, building this architecture will be a challenge in and of itself. After all, many companies are still stuck with aging data architecture. Spaghetti architecture, unnecessary redundancies and legacy systems hamper their progress. This is not merely an expensive situation to be in, but an impediment to creating and joining new digital ecosystems. These organizations will have to renovate their core if they want to ready themselves for the future.
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At the same time, building or entering a digital ecosystem requires a sound strategy and a flexible game plan. There is no sense in going in blind. Companies must decide which role they want to play and how they want to add value. They must be able to select the right partners and find a place for themselves in the stakeholder landscape. They must find the talent they need to move forward. And since the organizational models and governance structures of the industrial age are increasingly unable to keep up with the times, they must abandon traditional waterfall models and become agile.
Lastly, the growth of these digital ecosystems will raise an entirely new breed of questions as well. As major corporations invest billions into the self-driving car, its arrival has become all but inevitable. It will succeed, and transportation as we know it will be transformed utterly. But who will decide where these autonomous cars plug in to recharge their batteries? Who will decide which car wash they use? Who will determine insurance premiums for people who still choose to drive in a world where 80% of all traffic is self-driving? The ethical and regulatory implications are enormous, but the existing legal framework is underprepared to handle them. As a result, platform providers will have to shoulder this responsibility proactively.
Boundless Potential in Uncharted Waters
Many digital ecosystems are already showing exponential growth. As they develop further, they will influence and accelerate each other. The possibilities are endless.
In the near future, data scientists will be supplanted by artificial intelligence. There are technologies on the horizon that will reduce the time required for data analysis from months to mere minutes. What will happen when academics across the world gain access to this type of technology? We have no reference frame for these types of shifts. This is new territory.
These advances in artificial intelligence and sensor technology will have impact on every industry. Already, agricultural equipment is learning to optimize care for individual plants across populations of hundreds of thousands. Likewise, software modeling of wind turbines will help energy providers optimize the output of each individual unit, boosting efficiency. And predictive maintenance systems will allow companies within the ecosystems of the future to source their manpower dynamically from workforce marketplaces.
These are only a few examples of the power and potential of digital ecosystems, and they raise a host of fascinating questions. Most important among them is what our place will be in all this. Will we be the disruptors, or will we be disrupted?
Over the past decade, many established players proved far less immortal than previously thought. In the end, they simply weren’t ready for the new world. But even comparatively ancient corporations can become frontrunners if they embrace the spirit of the times. We must ask ourselves how we can become an integral part of the future, then prepare ourselves accordingly.