Thoughts about ecosystems and platforms
For those of you following our posts about ecosystems and platforms and their importance to innovation, this is the 30th post offering some thoughts and recaps. We thought it made sense to take a breather before pushing on to other ideas, stop and recap what we’ve been writing about, and perhaps place some of these ideas in context.
Paul Hobcraft and I first began talking about ecosystems and platforms several years ago. It became more evident that innovation is often focused too narrowly, considering only a discrete product or service as its result.
Increasingly, we believe, innovators must become first more aware of the platforms and ecosystems that exist in their markets or segments. Secondly, they must become more willing to innovate about the platform or ecosystem and eventually innovate to change or disrupt the platforms and ecosystems.
Platforms
Just as no man is an island, also, no product or service stands completely alone. Almost everything that exists and is valuable depends on or relies on a “platform” of conventions, standards, or a backplane that facilitates commerce. Every solution in every industry relies on existing platforms, whether those platforms are as simple as the electrical current running through the walls of a building or negotiated data and information exchange protocols in high finance. depnsesSome of these platforms are so pervasive and persistent that we become blind to them – they vanish into the woodwork. But they are always there, and we become more and more reliant on them each day until they are eventually overwhelmed by new offerings and platforms.
This unwitting reliance on platforms means that we can forget or overlook the coercive power of a platform. Platforms can dictate specific capabilities or features of new products or limit the creativity of a new solution. As platforms become more pervasive and more powerful, innovators must become aware of the opportunities to build on or with a platform and the limitations they accept when they rely on a platform.
As Paul and I have pointed out in our writings, there are several types of platforms: conventions, standards, data and negotiated exchanges, all of which reduce friction and create improved conditions for commerce. Big companies are working diligently to create industrial platforms that establish standards for generating and tracking data (Bosch and GE as examples). Other ERP vendors like SAP have created platforms that form the backplane of a business, becoming in some regards an operating system. Other corporate behemoths are doing the same things in the consumer world. Amazon, Facebook and others seek to create a business to consumer and consumer platform where much of the underlying architecture and infrastructure already exists, and new entrants build on top.
We see exploration in different models of platforms to fit with geographical needs. In China, Alibaba continues to push the boundaries of a platform and build out into a broader community. Alibaba is equally taking different investment approaches to India and different parts of Asia to exploit the trends associated with platforms but adapting the front ends to meet cultural differences or market needs.
What is clear today, we are still exploring and exploiting the value and positioning of platforms in all their forms.
These platforms will differ based on the maturity of the market or industry and the scope or capability of the platform, but they share several things in common. Most important is the desire to lock in an industry to a common data, exchange or financial standard owned or governed by a small handful of companies and the setting about attracting in the necessary ecosystem of collaborators and customers to create this dominating position.
Ecosystems
Ecosystems are the companies that sprout up on top of the fertile soil of the platform. A common platform allows several companies to thrive; in the same way, good soil allows a lot of plants to grow, they ‘feed’ the platform. Since the platforms create shared standards, the companies that connect to these platforms can focus on delivering important skills or capabilities that augment the platform and eventually offer a complete, seamless experience to a customer. The companies that make up an ecosystem can provide data, services, ancillary products, support, insurance, financing and a host of other services. In fact, a good platform should become the basis for a complete set of offerings that becomes the substrate for the ecosystem to thrive.
There really are very few “stand-alone” opportunities when entering most markets. Innovators must understand the distribution of companies in an ecosystem and supplant an existing ecosystem provider by providing better services or capabilities or spotting an unfilled gap in an ecosystem. If the gaps are large, then it’s likely the market is exceptionally new, and the platforms aren’t yet decided. That’s when an innovator must make some key bets: deciding which of several potential platforms to back.
‘Lock-in’ still is a real worry as you invest intellectual capital, even in ‘experimental’ initiatives, due to many potentially constraining, as equally liberating conditions, for protocols, governance, and languages used within that ecosystem community. The question is, how open and common will this platform allow? What are the constraints? Think back to VHS versus Betamax for a second. Betamax was a Sony standard that Sony didn’t license, so no one else could make the tapes. VHS was a standard from JVC that JVC willingly licensed so that anyone could make the tapes and equipment. Although Betamax was somewhat superior to technology, the platform was too narrow, and no one could join the ecosystem.
Good platforms will spawn and sustain vibrant ecosystems. This is what most innovators will face: the need to find space within an ecosystem, recognize its potential for your specific business, or create a new platform and encourage an ecosystem to grow. Innovators must become more conscious of the platforms and ecosystems that exist and how their thinking about customer needs jives with what exists. Because what customers ultimately care about isn’t the platform or the ecosystem, but a continuous, seamless experience that’s provided by the sum total of both.
Entering into different ecosystems to advance your business has to be thought through extremely well. On the surface, one might be more attractive than another. Still, it is only as ‘vibrant’ as the others participating and ‘seeing’ value from their participation. Often the chosen environment might suddenly change, as more participate or attempt to dominate and influence outcomes or collaborations, or simply technology makes a shift that leaves you caught in a design that becomes dated.
The evaluation has to be finding the right balance between risk and reward. One answer, the wrong one in our opinion, is not to invest, explore, and exploit what is emerging. It is evident what value you want to extract from participation and who, working alongside you, can help contribute to your needs and solve theirs. Governance, a sense of purpose and mission and the level of investment and participation are critical decisions, alongside early identification that has a real potential for you, as it can be a long ‘investing’ road to travel.
What’s the ultimate goal
Ultimately, platform providers want to control access to a market by minimizing the cost of doing business in the market or industry. However, their real goal is to capture or manage the relationships with the customers, the financial flows, and/or the data that crosses the platform. Data will eventually become even more important than the taxes they charge for living and working on the platform.
Ecosystem providers are trying to gain as much real estate on the platform as possible. They sink as deeply into the platform as possible to not be dislodged and accelerate their business. They are searching for places and conditions to gain a significant competitive advantage over others ‘ locked-out.
As I’ve noted before, customers care about platforms and ecosystems to the extent that those platforms and ecosystems solve important, relevant challenges and do so in a way that reduces or limits the work that the customer must produce to make it all work. The more seamless and continuous the platform and the ecosystem, the more valuable to the customer. Customers are highly fickle, and if their needs are not meet or expectations resolved, they “walk”, so it is beholden on the providers of service or solutions to constantly evolve and listen to the ever-changing needs of the customers the platform has been set up to attract and hold. In any ecosystem, it constantly evolves; nothing can afford to stand still.
As we advance
As we continue to outline our thinking, we’ll be working on the more practical implications of innovating in a platform and ecosystem world, moving from theoretical to operational and practical. I hope you’ll continue the journey with us.