Ecosystems: What are they and why should you care?

Collaboration is at the heart of one of the digital era's most significant business trends.

by Paul Simpson
Last Updated: 03 Jun 2019

What is it?

Essentially, it is a management strategy based on the belief that in a fast-moving, fiercely competitive, technological global economy, it makes no sense even for large multinationals to try to do everything themselves when they can align with other companies with useful expertise.

That’s why, for example, Marks & Spencer and Kroger, America’s largest grocery chain, are both investing in Ocado, making use of its distribution network and market-leading robotic warehouse technology.

Hasn’t Amazon done this for years?

Absolutely. Jeff Bezos developed an ecosystem to sell books online. He has expanded that to cover many other products, providing a platform for more than five million third-party sellers and making billions of dollars in revenue providing services to other companies.

It even lends money ($3bn since 2011) to small businesses on its platform. It’s not just Amazon. In China, Alibaba, JD. com and Tencent are all flourishing. In India, Flipkart is now wholly owned by Walmart. Rakuten, the largest e-commerce player in Japan, has allied itself with Walmart to defend its turf against Amazon. By 2025, McKinsey estimates that digital platforms could mediate $60tn in revenue – 30 per cent of global economic activity.

They are also spreading their influence across B2B. "The bulk of the power in industries is likely to shift to ecosystems," says Geoffrey G Parker, a research fellow at the Massachusetts Institute of Technology. "The message is that every firm needs to understand platforms and figure out their place in the industry structure of the future."

What does it mean for business?

"Companies have three choices when it comes to platform businesses," says Willy Kruh, global chair of consumer markets at KPMG. "They can compete, defend or join." Many have already chosen the latter: more than 150,000 brands are available on Alibaba, including Maserati. When the Italian sportscar marque launched on the platform in 2016, it took just 18 seconds to sell 100 vehicles.

Yet according to one survey, 90 per cent of executives recognise their business model is not fit for the future, and McKinsey estimates 97 per cent of established companies don’t have an effective platform strategy. As first-mover advantage is so critical in the platform economy, businesses that don’t compete, defend or join risk being left behind.

Image credit: lalesh aldarwish from Pexels 


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