Horváth Innovation Insights

Ecosystems - Far From Biology

The rapid rise of ecosystems in the business context is a reaction to the market dynamics of the digital world. Growing customer demands require alternative product and service experiences. The most successful companies of our time manage to build up strong partner networks leveraging different specialized skills and resources in the ecosystem to create new value propositions.

The new business model ecosystem

Digital disruption is leading to a paradigm shift in our economy: Horizontal value-added processes for products and services are largely obsolete - competition is increasingly taking place as co-opetition (cooperation and competition). Prominent example: Daimler and BWM, for decades in fierce competition for the mobility services of the future, today jointly operate the mobility ecosystem "Your Now". This system is intended to cover all the needs of urban customers for mobility. COMECO (Sparda Banken) and its new platform TEO or Iconic Finance (Allianz) are also creating bancassurance ecosystems in other sectors, such as the financial industry.

These approaches have one thing in common: they want to keep customers in their enviroment, the ecosystem, as long as possible by creating everyday relevance and convenience and preventing them from switching to other solutions (lock-in effect). The basic idea behind such ecosystems is that companies do not create the services they offer themselves - they use partnerships with other providers to combine specialized offers into attractive packages.

Traditional business models that tend to focus on internal competencies are no longer sufficient in a world with highly interconnected ecosystems. Today, successful companies use the joint competencies of an entire network of partners to gain a competitive advantage.

Dr. Marco Iansiti, Harvard Professor

What is an ecosystem?

Ecosystems are a form of platform-based business models, as they use digital or physical platforms to bring suppliers and consumers together and minimize transaction costs between actors. Unlike traditional vertical markets, companies organize themselves in ecosystems around customer needs.

An ecosystem is a network of players that, by merging, makes the best possible use of the market performance and added value of each company in the sense of an end-to-end, customer-oriented overall solution. In an ecosystem, the combination of individual capabilities and services offered by the players expands the value proposition and thus the range of services offered to the customer. In this way, services are created for customers that consist of many individual offers from the players. For the end customer, ideally the many individual services are not recognizable as such anymore.

A company that wants to build an ecosystem must ask itself in which areas of the customer's life it wants to satisfy needs and how partners can help to cover these areas in the best possible way. Only companies that consistently innovate from the customer's point of view when building an ecosystem and demand the same from other players will be successful and achieve the desired lock-in effect for their customers.

Positioning in the ecosystem

Depending on their capabilities, the various actors in the ecosystem can assume different roles in the ecosystem and pursue three basic strategies which can also be combined:

  1. There is usually a leading company in the ecosystem, called the orchestrator. It provides the infrastructure or platform on which the ecosystem is built, sets the rules for interaction and defines the degree of openness of the ecosystem.
  2. Partners are those actors in the ecosystem who bring their content, products and services to the ecosystem. They extend the value proposition of the leading company in a meaningful way in different areas of life.
  3. Another approach that enables a company to position itself in the ecosystem is as a supplier. The supplier acts more in the background by adding technological components to the platform. This can be, for example, the provider of a payment platform, a shop system or other technologies that the ecosystem needs to provide its services.

Which of the three strategies a company adopts in the ecosystem depends on its capabilities. However, the strategies are not mutually exclusive. For a company that decides on the strategy of the orchestrator in one area of life, it can be useful to position itself as a partner or supplier in another area.

It is clear to see that successful platforms occupy a dominant market position - this is known as "winner-takes-it-all markets". Therefore, each CEO must decide for the platform strategy of its company. Either a company builds up an open industrial platform itself in the role of an orchestrator, or waits until someone else does so and becomes part of it by offering its own products and services on the platform. The first case is the more promising when considering previous research.

The age of ecosystems has just begun. Currently, companies in almost all industries are trying to fill the essential areas of customers' lives with attractive bundled products. It will soon emerge which players, as orchestrators, will shape the offerings of the future, which ecosystems will prevail over others, and ultimately provide the actors with the hoped-for returns.

Outlook: Building an ecosystem in the financial industry

The time pressure of building an ecosystem as an orchestrator is increasing. In our next article we will explain how to successfully build an ecosystem in the financial sector, which questions you have to ask yourself and which skills are needed to build it.

Basic logic of business models: From product companies to platforms and ecosystems (based on Tyoschitz, 2018)

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