The concept of ecosystems has permeated the business lexicon of late.
Whilst many have invested in the strategy behind one, people are quickly realising bringing them to life is complex and often expensive. Having worked at the coalface of bringing these strategic ideas to life we have some thoughts to share about our experience.
What is an ecosystem?
Before we get started, we thought it best to define an ecosystem in the context of organisations.
According to McKinsey, an ecosystem is an interconnected set of services enabling users to fulfil a variety of needs in one experience. Ecosystems act as gateways, they leverage network effects – whilst leveraging data as both a creative material and common language within and outside the service.
When commercialised - or at least operationalised - they typically present themselves as platforms. These platforms can take the forms of multi-sided marketplaces (eBay or Etsy), infrastructure (AWS or Google Club) or decentralised purpose-driven communities (Wikipedia or Open Source).
Understand the jobs to be done to unpick user needs
The lure of an ecosystem for a business is that it can allow them to orchestrate an entire market. They can make money, not just in the traditional exchange of product for cash, but as a ‘middle-man’ in exchanges happening between entities outside of their own. For example, Amazon’s marketplace sees them take a cut from transactions that they don’t directly service themselves. The same applies to Deliveroo when you list and sell food via the platform.
However, smashing together a set of services or trying to dominate a market is unlikely to work on its own. It’s crucial to understand the interconnected set of wants and needs shared by a group of people that any given platform aims to serve.
What you need to do before you even consider the solution is get to grips with these needs. This will help you focus on what’s important ¾ in a space which can quickly become too big to handle.
Focussing on shared needs helps you establish the most common jobs or problems that your ecosystem needs to solve, and the core dependencies connected to them. It allows you to think three-dimensionally about a problem space, rather than two-dimensionally. It also gives you some boundaries to something which could quickly get too big to handle, design and pay for.
“There are no cases where a platform emerged that was highly successful before it had a use case that solved a new problem that was important” - Eric Schmidt, Google
Look for opportunities where lots of tools and processes are being used to solve a series of connected problems
What you’re looking for as you begin to talk and observe customers in areas where they are using multiple tools or manual processes to get to their end goal. The options here are two-fold:
- What can you replace and make part of the core of your ecosystem?
- How can you make it easier for 3rd parties to solve these problems by giving them a channel to the customer within your ecosystem?
In a recent project we noticed customers have a solution that is giving them analytics about a particular aspect of their business, yet they are exporting that data and pasting it into excel files to extract their own meaning; uploading it to other platforms to contextualise the data and spending hours a day processing some of it in an attempt to get on top of the problem.
The opportunity here is to automate some of this – allow the data to be usable across the entire customer journey and where appropriate, allow people to solve existing and niche parts of the problem via a 3rd party marketplace.
Consider how you can drop the price of entry to trade
When thinking about how 3rd parties might play a role in solving problems in your ecosystem, it’s worth considering how you can drop the price of entry for the market.
Consider Apple’s app store ecosystem. Previously, the cost of reaching customers with your software or game was expensive – it required heavy investment in distribution, production and marketing. This often kept smaller, independent developers out of the market.
On launch, Apple’s app store provided a direct channel to millions of customers for practically nothing, meaning the entry-level dropped – allowing many more developers into the market. Yes, ~99% of these apps never get downloaded but it costs Apple a negligible amount to support and they continue to earn off of the long tail successes.
You can see similar patterns in almost all ecosystems – for example Airbnb (you no longer have to be a hotel), eBay (you no longer have to be a bricks and mortar shop) and Wikipedia (you no longer need to be a professional editor or publisher). 3rd parties can also play a role in expanding the functionality and value of the ecosystem further.
Consider where you have brand permission to play
If you’re going to get an ecosystem off the ground it’s going to take trust from the other entities you want to take part. It’s difficult to gain that trust if you don’t have permission, either because you don’t belong there (why is this drinks company trying to create a music platform?) or because it requires competitors to participate to succeed.
If you have dominant access to the customer, you may be able to get competitors to the table, but you need scale before that happens (think eBay having major brands sell through it).
Engineer solutions that make all boats rise - not just your own
The business has to be comfortable and actually engineer a way for others in the ecosystem to be successful. It will be tempting to want to add take a bigger cut or to try to develop your own solutions – but understand, you can scale faster and leverage network effects if you allow others to solve problems and let the market decide what’s important. Whilst you won’t earn 100% of the profits from successful solutions you won’t own any of the failures either.
Create a core transaction engine
Whilst you want other entities to be solving problems in your space, you do need some kind of core service that provides consistency to the customer and removes barriers to progress for the customer and 3rd parties. This might be the ability to take payments or a way to be discovered. It may also be a way of solving the core job. For example, consider Salesforce. At the centre it is a relatively simple CRM but if allows affordances for thousands of other businesses to build products on top of.
It’s all about the data
Having worked to validate and create ecosystems we’ve come to appreciate just how important data is. Your ecosystem needs to capture (from your platform and others), share and serve data in real-time to meet customer needs.
That’s why mapping the sharing and flow of data from customer needs > customer journey > tech > APIs > delivery is crucial to success.
If the data you have isn’t interoperable you will not be able to get your ecosystem off the ground. Ecosystems are all about harnessing shared dependencies to meet needs and your ability to use data to develop and scale your offering over time.
Developing an ecosystem means your customers can do more, in one place, with less friction. But, all of this starts with the core customer needs.
We’re likely to see a future where ecosystems become the new norm, and if Google, Apple and Facebook are anything to learn by, owners of these ecosystems will enjoy dominance over that market that can last unchallenged for decades.
Businesses need to ask if they want to be actors in other people’s ecosystems or define their own, before they get beat to the punch.