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Why You Must Love The Business Ecosystem

Why platforms become economic engines


In the platform space, the idea of the ecosystem is crucial to how you build a strategy. Strange then that this term is so ill-defined.

Management globally is bringing to recognise the importance of business ecosystems and ecosystems are becoming the new buzzword in economic development - the literature on entrepreneurial ecosystems has soared in the past 24 months.

The idea of the ecosystem is a metaphor. In the natural world, plug here for my book The Elastic Enterprise where we made this point quite strongly, the key benefit of ecosystems is that they require less energy than environments where there is no ecosystem. Ecosystems are mutually supportive environments that make resources go further. Looked at like that, they are a public good. However, business ecosystems are much misunderstood.

What they've come to mean in the entrepreneurial world is a geographic concentration of startup activity. Given that 95% of startups fail in one way or another, then it is necessary to have a strong and vibrant ecosystem to generate durable employment and wealth creation.

Nobody has done the calculations around how much waste these types of ecosystems generate. They are in vogue and in a world where we have eschewed industrial policies, the free-for-all of a startup ecosystems is the way to go. Without it you risk stasis. I think there are better palter policies that cities could develop by the way. But there is a more important potion to grasp here.

Business platforms generate new economic activity in a way that is more highly targeted than the idea of entrepreneurial innovation ecosystems every will.

The business ecosystem

The idea of the business ecosystem took root in the early 1990s. Microsoft and Intel fashioned a powerful way of controlling the desktop PC industry from silicon through to business solutions and two academic works recorded the effects.

In The Keystone Advantage Marco Iansiti and consultant Roy Levien argued that firms now compete as networks, and in an earlier work James Moore argued that competition is dead, the future lies with collaborative firms in ecosystems.

Today’s business ecosystems are different though. They are part of the wider societal innovation around social communications and business start-up activity.

The Economist, back in mid-January, 2014, called it a Cambrian moment, almost like the start of life on earth! What we're seeing with successful platforms is that they engender new economic activity often by startup businesses or by people in gig-roles that have an immediate application and a short run to revenues.

They are perhaps, arguably, a smarter way to do entrepreneurial ecosystems than thinking of them as a geographical or city-employment strategy.In Europe, the Apple App Store and Google Play are though to be creating in the region of 3 million jobs.

Business ecosystems are not just about startups though. Most companies have a supplier ecosystem. But increasingly in a platform economy they need a co-creation ecosystem around their platforms and they need to manage or encourage innovation among upstream and downstream partners.

What does this mean in practice? An example will help. The industrial giant GE has tried three platform plays over the past few years. Ecomagination, Healthymagination, and Predix.

They were focused on, in turn, ecological products, health diagnostics and industrial data. There's a case for saying GE succeeded well with these initiatives, but there is a case for saying that it also failed miserably. There seems to be no legacy of startup creation or employment creation in any of them. In fact if you look at its initiatives in health, GE's biggest failure came in not generating an ecosystem around its objectives. Something similar could be said of Predix.

I am arguing that platforms are, often unwittingly, economic development tools. Look at SAP-Ariba and you see an organisation that is increasing the capacity of firms everywhere to sell into large buyers. In doing so it generates data on firm performance. With that data it can help furnish working capital loans to help the supplier company expand. The Chinese platform Alibaba does exactly the same.

Now I am not saying that your platform strategy needs to take into account what it will do for the economy. But I am saying that by being a platform you will know a huge amount about an ecosystem and if you understand that your potential lies in economies of scope - ie. broadening your activities - then you should be looking at your data and your ecosystem as the primary route to expanding your revenues.

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