Most of us can easily answer the question ‘what industry are you in?’ But how about ‘what ecosystem?’
Thinking about your business in terms of industry can be misleading in this age of digital disruption and disintermediation. Looking through the industry lens can foster a myopic understanding of your business, leave you susceptible to disruption and blind to opportunity. Ecosystem thinking broadens your view and allows you to think more strategically about where your business is going.
From industry to ecosystem
The ecosystem analogy has been around at least since the early 1990s, when business analyst James Moore borrowed the term from biology and transposed in onto commerce to describe some of what he had observed in the market interplay between the pioneering computer companies of the 1970s and 1980s such as IBM, Apple and Microsoft.
Moore suggested that a “company be viewed not as a member of a single industry but as part of a business ecosystem that crosses a variety of industries. In a business ecosystem, companies coevolve capabilities around a new innovation: they work cooperatively and competitively to support new products, satisfy customer needs, and eventually incorporate the next round of innovations.”
In his seminal article from 1993 on the topic for the Harvard Business Review, Moore used the example of how Apple managed to build partnerships and alliances that opened its personal computer ecosystem up in a way that allowed for value creation across the chain, and ultimately a better product for customers. One of Apple’s early rivals at the time, Tandy, took a far more restrictive approach to building its ecosystem, with the result being that it was unable to offer the access its partners needed to both innovate and market the benefits of the nascent Tandy ecosystem.
“Tandy’s approach got the company out front fast; in 1979, it had sales of $95 million compared with Apple’s $47.9 million. However, Tandy’s tight control of its ecosystem ultimately led to slower growth at a time when establishing market share and a large user base was essential to success. By 1982, Apple’s $583.1 million in sales had decisively passed Tandy’s $466.4 million,” writes Moore.
Apple has evolved its ecosystem to become the most valuable company in the world, while Tandy is now better known as the online and retail chain Radio Shack, which has had a checkered time of it over the past few years, filing for bankruptcy late last year — the second time it has done so in the past two years. Of course there has been a lot of water under the bridge for both companies in the past 40 years, but the basic lesson is that how you build and manage your ecosystem, especially in the early stages of development, is of crucial importance.
The dominance of tech ecosystems
The other tech titans of our time have also achieved their successes because they have understood the need to build open and flexible ecosystems that look beyond the strict boundaries of industry definition. Instead, what they all have in common is the desire to lead and cajole their respective ecosystems (which sometimes overlap in collaborative and competitive ways) towards optimising the customer experience.
Not all of their forays into ecosystem building have been successful: Apple Maps has never really caught on; Google’s attempts at making a smartphone have been patchy at best; likewise with Amazon’s underwhelming excursion into smartphones; and Facebook seems both beguiled and bedevilled by its engagement with VR via its Oculus Rift project. The point though is that all of these companies know that to win big you often have to take risks.
Ecosystems, just like jungles, are not always conducive to survival, especially for the slow or the weak. Skirmishes within and between ecosystems happen daily. A recent example was Apple’s acquisition of the app building tool maker BuddyBuild, which has left BuddyBuild’s Android app developing users in the lurch as they scramble to find another toolmaker for their DevOps work.
The development of tech ecosystems — built on the back of the internet, open source protocols and massive advances in hardware technologies — have been coupled to other developments, like the globalisation of trade and the democratisation of information. The tech giants might be headquartered in Silicon Valley, but their ecosystems are global: they sell into markets worldwide, source material and ideas from every corner of the world, and draw upon the ingenuity and labour of ecosystem participants across the globe. Digital technology and global reach have resulted in rapid and massive scale for these ecosystems.
Ecosystems in development
And now we’re in the middle of watching the big tech companies and a host of others attempting to shift their ecosystems and build new ones around technologies that promise to be as far-reaching and profound as the internet has proved to be. Blockchain and cryptocurrencies, autonomous vehicles, and artificial intelligence are all on the cusp of truly mainstream adoption and acceptance. These technologies have passed through the proof-of-concept stage through to frenzied media hype, but are still just short of that truly breakthrough moment, when a killer app comes along and takes something like bitcoin from an oddity used by about 3 million fintech geeks and investors to something we use in our daily lives.
Ecosystem thinking is why Mark Zuckerberg has signalled blockchain will play some part in Facebook’s development plans; it explains why home appliance maker Dyson is very serious about electric and self-driving vehicles; and it also gives us insight into why Google’s parent company Alphabet is piling into AI through companies like DeepMind. These big companies recognise that ecosystems evolve, and they want to guide that evolution so that they retain their primary roles.
Smaller businesses that rely upon these ecosystems will have to shift their thinking too. It’s no longer good enough to just know what industry you’re in; you also need to know your place in the ecosystem.