Friday, March 12, 2021

Ecosystem Strategies Dominate the Future - Cowboys or Not

In the rural west of the United States, it is common to meet people with libertarian political views - leave me alone and I will leave you alone.  It’s a cowboy type ethos of being independent and self-sufficient.  That’s one reason it’s so hard to get them to be compliant with social distancing and mask wearing.  They seem to struggle with sacrificing some independence for a common community good. 

Although these perspectives may serve rural cowboys well, working alone is not helpful when a business is trying to operate in an environment with emerging and competing ecosystems, which are organizations working together for their mutual benefit.  Ecosystem business strategies change the operating conditions and rules of business.  In order to survive and thrive in business today, a basic understanding of ecosystem business strategies is required.  In addition, the ability to cooperate and play nice with others in order to develop a shared and mutually beneficial value chain is critical.

When I was the CEO of an start-up mobile technology company 19 years ago, it was before Apple had mobile devices, iTunes and the Apple App Store.  It was before Google had developed Android and Google Play.  Our mobile software solutions had to be downloaded directly from our servers and individually loaded on every mobile device.  We had to spend massive amounts of time developing standardized ways of supporting and servicing our own customers.  Today all of these processes are standardized within giant ecosystems and all the ecosystem participants share in the value that was created.

The internet enabled organizations to aggregate buyers and sellers and supply and demand.  It enabled ecosystem organizers and market aggregators to create services that could be shared across the globe by ecosystem participants.  The internet enabled an explosion of ecosystem business strategies.  It changed the business dynamic of entire markets and industries.  Buyers and suppliers can now easily find each other online and begin to organize around shared value.  Online marketplaces allow products from all around the world to be efficiently warehoused, marketed, sold and delivered, as Amazon demonstrates 24 hours a day.  Business ecosystems offer participants effectively a discount as a result of spreading the cost of a wide range of integrated services across all ecosystem participants.

Buyers also reap the benefits of an effective ecosystem in the form of improved user experiences, efficiency, standardization, convenience, speed and lower costs, all of which makes an ecosystem increasingly attractive to businesses.  This in turn attracts even more new buyers and sellers which sustains the health and growth of the ecosystem.

If we stopped our discussion here it's already clear why today’s online business environment, filled with emerging ecosystems, threatens businesses accustomed to cowboy thinking.  Today is not the time for going it alone – it takes an ecosystem of participants all contributing and cooperating to maximize business opportunities, reduce costs and maximize margins.

Ecosystems are forming everywhere, offering many advantages and benefits, but there is a cost.  The cost is cooperating with others.  Doing it alone is just too expensive.  No investor wants to spend money creating platforms, services and infrastructure that are already offered inexpensively by effective ecosystems.  

Today innovators are looking at every vertical industry, product category and market segment looking for opportunities to improve profit margins by joining or forming ecosystems.  For each department, business function or product line of a business there may be different ecosystems that offer value.  Many businesses may end up participating in dozens of different ecosystems that have formed around platforms that support industry verticals, or business functions.

One of the key players in ecosystem business strategies are aggregation platforms. These platforms take advantage of the network effect to attract demand and supply.  In fact, this is one of the most sought-after roles in business today.  The ability to aggregate, connecting the right producers with the right consumers, and then facilitating an environment where they can create a mutually beneficial business relationship offers the most value and growth potential.  Once a thriving ecosystem is established by the aggregator there is effectively zero marginal costs incurred by connecting additional users to producers – a dream position to be in.

The traditional requirement to pay for and build all aspects of a business oneself (such a cowboy thing to do), is a huge obstacle for startups and SMBs, but it can be reduced today as ecosystem business strategies can give smaller producers the opportunity to connect with larger “pools of demand” and to take advantage of ever-increasing numbers of shared services and expanding infrastructure within the ecosystem.

If an ecosystem does not already exist in a market, organizers, can step up with a goal of forming their own.  It involves at least three things: transforming the rules of the market around ecosystem business strategies, enabling better experiences for all participants and creating an attraction.

Another rule to understand is ecosystems attract the creative efforts of ecosystem participants.  The more participants you have the more innovations and improvements they will bring to the ecosystem.  These innovation streams will ultimately provide improved experiences and enhanced value chains for all ecosystem participants, thus demonstrating again the value of the network effect.

The narrative of the lonely, strong, self-sufficient and independent cowboy was always a myth.  Even cowboys in the dusty past were part of an ecosystem consisting of ranch owners, cowboys, water management systems, stockyards, logistics, farmers, feedlots, auctions, butchers, packaging companies, refrigeration equipment manufacturers, rail cars and retailers.  All working together to lower costs and grow profit margins.  It’s just recognized and better understood today.  In the dust filled days of the roundups and cattle drives the ecosystems were less visible and participants were often separated by hundreds if not thousands of miles.  Connections were made via mail, telegraph, word of mouth, horseback and train travel.  Today computers, networks, search engines and other platforms, plus a better understanding of opportunities and possibilities around ecosystems, have opened our eyes and made the need for ecosystem strategies obvious, but many businesses have still not developed a comprehensive ecosystem business strategy.  That's a problem.

As glorious as sitting all day on a horse in the baking sun, while riding behind hundreds of cows creating clouds of choking dust may seem to you, it's not a useful business strategy for the future.

I want to give a shout out to the team at www.platformdesigntoolkit.com, as they have dedicated an immense amount of talent and effort to developing many of these concepts and strategies.

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Kevin Benedict
Partner | Futurist | Leadership Strategies at TCS
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***Full Disclosure: These are my personal opinions. No company is silly enough to claim them. I work with and have worked with many of the companies mentioned in my articles.