Competition in the Fourth Industrial Revolution
One of the most significant trends in recent years has been the spectacular growth of digital ecosystems: new arrangements for businesses to collaborate and combine in order to create and capture value.
The internet’s rapid rise has fueled a shift in how we think about ecosystems, with companies like Google, Apple, Facebook, Microsoft, Amazon, Tencent, and Alibaba leading the charge.
The main drivers behind these changes are twofold. First, digitization is allowing us to restructure tasks for the first time in history.
Second, we have a more accurate picture of customers and consumers than ever before thanks to big data analytics and better insights into how people use apps on their phones.
Today, businesses have a chance to reconsider how to add value to the end customer in innovative ways by developing more comprehensive and all-encompassing answers.
The three forces of variety, unpredictability, and disruption have resulted in the birth of a plethora of ecosystems made up of interdependent yet autonomous elements that challenge accepted notions about organizational structure.
Standalone companies are surrendering their thrones to ecosystems made up of networks of organizations working together to provide new and unanticipated product and service bundles.
Big changes in the ways we consume and produce have both enabled and been fueled by ecosystems.
How can executives make the best judgments in a climate of ecosystems?
Platforms and Ecosystems
Simply stated, platforms are built on technology, while ecosystems are based on products, people, and organizations.
However, the term “ecosystem” causes perplexity. In casual conversation, it usually implies a collection of linked goods and services that we use.
When we think of Google’s ecosystem, we consider services like Search, Maps, YouTube, and Gmail, as well as hardware such as Android’s mobile operating system and cloud storage.
However, the term has a different meaning in business. An ecosystem is an alternative to the traditional make-or-buy choice in the commercial world.
Consider Android, for example, from Google. Android is an example of Google’s mission to give smartphone users access to apps that take advantage of the system’s technological possibilities.
Google does not create its own apps and it does not act as a traditional system integrator bundling solutions from various vendors and providing the customer with an integrated package.
It aims to do things differently. Rather than combining products/services in a standard, linear way, it is interested in developing something entirely new and unique (the phone and its operating system), letting others stakeholders build on top.
It manages an ecosystem within this vertical: a collection of actors that are co-specialized (able to collaborate) and generate a collective (usually innovative) product or service.
Ecosystems are divided into two categories: multi-product and multi-actor. This hitherto neglected distinction has caused considerable misunderstanding.
Multi-product ecosystems create new sorts of integrated or packaged items or services to meet consumer demands.
Multi-actor ecosystems, on the other hand, indicate a unique organizational structure. They are an alternative to open market trading, captive supply chains, and vertically integrated manufacturing for their orchestrators.
This is due to the fact that Tech players’ ecosystem orchestrators employ both strategies at the same time.
Furthermore, the two types of ecosystems are causally linked. It becomes more difficult for a company to satisfy all of its offerings as its services and goods expand, and the more it has to collaborate with complementors.
A multi-product ecosystem will almost certainly require a multi-actor ecosystem to deliver it.
The question of being part of a multi-actor ecosystem, on the other hand, is where to draw the firm’s limits: what should it do for itself, where should it collaborate with partners, and how should this relationship be structured?
The first thing to remember about multi-product ecosystems is that they’re all about “Where should we play?” Traditional multi-actor ecosystems, on the other hand, are focused on governance and partnerships.
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#1: From Scratch
An approach from scratch is suitable when you are the first mover. This is what Apple did with the creation of the App Store.
Post the first iPhone launch in mid-2007, in July 10, 2008, Apple launched the App Store with 500 applications. It sparked a cultural, social, and economic phenomenon that revolutionized how people worked, played, met, traveled, and so much more.
Over the last decade, the App Store has evolved into a safe harbor for people of all ages to discover and use the greatest apps while simultaneously fostering a vibrant app economy for individuals of all sizes from all around the world.
The software market was formerly dominated by a few big firms. The App Store allowed any developer, from one-person businesses to huge studios, to develop a fantastic concept, construct a high-quality application, and deliver it seamlessly to an ever-expanding number of customers across the world.
Users’ privacy is a top priority in the Apple ecosystem, therefore Apple has taken careful measures to provide clear instructions to developers and carefully manage a safe, trusted app marketplace to offer the best user experience possible.
Apple introduced the in-app purchase (IAP) in 2009, Customers would be able to download an app and then pay to unlock additional levels and features, allowing more people to try new apps before deciding whether or not to purchase them.
By June 2010, IAP and paid applications would pay out $1 billion to developers. In 2018, app creators have taken home over $100 billion from the App Store.
#2: Face-Off Competition
No, I’m not talking about Nicholas Cage and John Travolta.
In October 2008 Google announced the Android Market, which today is known as Google Play Store, few months after Apple’s App Store.
Developers must decide whether to code an iOS or Android version of their app when creating a mobile application.
It’s tough for developers to make this decision without taking into account app stores.
The Apple App Store and Google Play Store are separate marketplaces where software developers promote and sell their apps.
Despite the fact that Apple’s App Store has a lengthy, drawn-out approval procedure and fierce competition, it is a fantastic investment for developers since they get paid promptly and have a high percentage of earnings. Developers on the Google Play Store may enjoy a more simplified approval process and apps are inexpensive to submit.
Both app stores have a large user base, allowing your software to be seen by a lot of people.
However, with a Google Play Store app, you may have to work a little harder to profit since Android users are more likely to download free apps.
Getting an app into the Google Play Store is simpler than ever. On the Android app platform, applications have a low chance of being rejected. This allows app store developers to try new things without the worry of being shot down.
The only drawback to such a wide berth is that it raises the likelihood of buggy applications landing on users’ phones, causing aggravation for both sides.
It’s difficult to stand out in a crowd of so many programs, and since apps don’t receive the level of feedback the App Store provides, apps with a lower probability of success go live and don’t always succeed.
Despite this, the Google Play Store gets more than twice as many downloads as the Apple App Store, but the App Store makes almost twice as much money.
The app industry is dominated by Apple’s App Store and Google Play. Both have a large user base and popular platforms, as well as excellent developer resources and user bases.
Google accounts for a greater proportion of the mobile device market than Apple, but the App Store generates more revenue and provides developers with additional monetization options. Most developers would rather publish an app on the App Store first, and if it is successful, make an Android version.
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#3: Unbundling Services and Product
Prior to explaining this approach, I need to tell you a story.
Once upon a time, a little website named Craiglist came alive…
Craig Newmark was a modest guy who grew up in New Jersey and went to college. He had a typical job at IBM and was rather ordinary in every way.
He quit his job after 17 years when he realized that it was time to move on. He decided to look for another, more difficult position.
In 1995, he relocated to San Francisco, where he worked for Charles Schwab and founded Craigslist.
He was feeling lonely since only a few friends living in the area, so he decided to start a local event mailing list and eventually meet new people online.
He began blogging about local activities in the field of web and software development initiatives. By the end of the year, he had a group of people who liked what they were learning through the mailing list. They informed their friends, and so on.
This is how Craigslist’s early days helped it become a sensation. People were even permitted to submit their own remarks, which were immediately published.
Starting in January 2011, many businesses launched job opportunities based on the mailing list, believing it to be a good place to discover IT professionals.
The amount of these postings has increased at an exponential rate, and this is how the first category “Jobs” came to be. This is how Craigslist’s fast expansion began…
More and more individuals started demanding a web interface that would allow users to find what they were looking for easily.
Craig launched craigslist.org as a means to organize his friends and family’s classified advertisements, which had been previously published in various newspapers and magazines. In 1996, he registered the domain name craigslist.org and began developing the site that same year.
By the time he began working on it full-time, he was already a part-time entrepreneur. He established the company in 2000 and had been running his website as a side project for several years.
In 1999, he already employed several personnel, who were based in his San Francisco apartment, when the company was launched.
Craig began the expansion of the site into additional cities in The United States after he had found a good business model. Craigslist.org was up and running in numerous significant cities throughout the country after a few years.
Now let’s take a look at what an Unbuilding strategy did to Craiglist, by first having a look at what Craiglist looks like for a given city:
And this is when you start Unbuilding Craiglist into different services / product:
Tons of internet companies started to break down a category or sub-category of craiglist and make it a lot better and focus only on this. It became their core product.
| Craiglist Category | Internet Companies |
|---|---|
| Gigs | TaskRabbit |
| Housing Rent | AirBnB |
| Housing Sales | Zillow |
| Tickets | EventBrite |
| CV / Jobs | Indeed / Linkedin |
| Discussions | |
| Dating | Tinder |
| Etc… |
#4: Encompassing Customers or Envelopment.
AliBaba is a Chinese internet company that focuses on providing solutions for businesses to digitize and participate in, or create their own ecosystems, which benefits both AliBaba and the smaller companies that collaborate with it.
There is significant potential for value-add in DIY stores offering one-stop shops for everything from plumbers to electricians and installers, as well as healthcare players building ecosystems to link their patients, doctors, insurance providers, and wellness organizations at the local or national level.
Small businesses might also construct their own ecosystems. It’s becoming increasingly important for businesses of all sizes, with ecosystem goals, to leverage social incentives.
Even enormous ecosystems are motivated by the desire to give, as demonstrated by AliBaba’s gamified social purpose ecosystems, such as Antforest, which is utilized by 200 million Chinese to not only assist in day-to-day activities but also decrease carbon emissions.
Ecosystems such as these have the ability to galvanize stakeholders by, above and beyond a product that is convenient for end customers and revenue for partners, offering a compelling context for companies and consumers who share the same social goals.
In addition, companies require a clear ecosystem game plan, especially in terms of where to play, its scope, market position, and likely complementors.
One of the most difficult tasks in putting together a strategy like this is to figure out why potential clients or complementors would want to interact with the new entity.
I said new entity, because most of the time, trying to build upon the core business itself tend to make the project self-centered rather than a viable ecosystem.
Let’s assume that the client’s value proposition has been completely articulated. The next key question is how an ecosystem should be formed.
Consider General Electric’s extravagant Internet of Things Predix platform, which was designed to integrate cutting-edge analytics with technical solutions.
In 2016, GE predicted that Predix would generate more than $8 billion in annual sales. However, it was unceremoniously divided off by 2018 after failing to meet early results.
Why was Predix such a failure? First, there was the assumption at GE that complementors would flock to the platform due to the combination of the company’s reputation, reach, and financial power with significant investment in the new unit.
Unfortunately, a high profile isn’t enough to guarantee the success of a multi-actor ecosystem. Second, GE’s strategy was unfocused. It attempted to be everything to everyone, forgetting that ecosystems must have a distinct value proposition for both the end user and complementors.
Third, complementors’ incentives and engagement were mishandled, resulting in sluggish and sub-par products.
Fourth, there was a lack of expertise about the changing competitive environment; GE’s emphasis on its own in-house cloud solution was a mistake, as well as the increasing importance of hyper-scalers such as Google, Amazon Web Services (
Finally, there was poor management of the ecosystem’s governance and structure, resulting in a vicious circle of low-quality imitation that deterred potential complementors.
Finally, the company was too product-centric, and it had a hard time connecting with ecosystem-generated services.
To keep in mind:
However, it’s crucial to note that engaging in platforms and developing ecosystems is not the same as “business as usual.”
New business, new mindset, new governance.
It demands dedication, concentration, and willpower in both thought and action. It also necessitates flexibility and adaptability to meet such new standards.
Another result is that complementors must now be co-creators of innovation, requiring new methods for identifying, recruiting, managing, and inspiring them.
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