Open Business Ecosystems and Closed Technology Platforms Business Enabler, or Business Market Disrupter?
Open Business Ecosystems and Closed Technology Platforms Business Enabler, or Business Market Disrupter?
Andy Mulholland is Vice President and Principal Analyst focusing on cloud business models. Formerly the Global Chief Technology Officer for the Capgemini Group from 2001 to 2011, Mulholland successfully led the organization through a period of mass disruption. Mulholland brings this experience to Constellation’s clients seeking to understand how Digital Business models will be built and deployed in conjunction with existing IT systems. Coverage Areas Consumerization of IT & The New C-Suite: BYOD, Internet of Things, IoT, technology and business use Previous experience: Mulholland co authored four major books that chronicled the change and its impact on Enterprises starting in 2006 with the well-recognised book ‘Mashup Corporations’ with Chris Thomas of Intel. This was followed in…...
Read moreWARNING; If you work for an Industry Sector leading Enterprise this piece may serious disturb your piece of mind in respect of your Digital Business strategy. Shifting from Products, to Services, to Outcomes to gain increased revenues at higher margins will be at the heart of your Enterprise Digital Business strategy. To maximizing Business opportunities through interactions almost certainly requires participation in an industry sector Business Ecosystem, and, that requires functionality to be provided by a Technology Platform. Enterprise IT department view Technology Platforms as a mixed blessing trading internal functionality ease against the restrictions of a closed proprietary environment. Will it any different externally when the Platform provider is supporting a Business ecosystem?
The next big business word is; Ecosystem? This is a direct quote from a Forbes article that tracks the amazing rise in the frequency that the term is used, and makes an important statement about the what it should mean. Like a lot of terms with complex meanings all too often it is a short hand to avoid having to really understand the true definition. However, underlying the whole concept of ‘Ecosystems’ is a really big question, and like so many it arises from the collision of business and technology into increasingly becoming an interchangeable and ubiquitous environment.
Using the example of App Shops; How much alignment is there between a Business definition of the value to be found in the Apple, or Google, App shop Business Ecosystems versus the technology controls imposed by the proprietary Apple, or Google, Technology Platform? Extend the example to Amazon Books and ask who has control of the resulting Ecosystem; Amazon or the Publishing houses that controlled the market for more than one hundred years?
Does it matter? Are the technology platforms and business ecosystems just two sides of the same coin and nothing to consider? Arguably it does matter as its difficult, perhaps impossible, to have a business ecosystem without some form of common shared technology to support the interactions within it, but does that have to be a vendor provided technology ‘platform’ in the format above?
From a business point of view, the value in App Shops for Mobile Devices lies in opening up, or expanding, the available marketplace resulting in the creation of economic value through bringing sellers and buyers together. Thus, the business definition of an Ecosystem, first and foremost, lies in the creation of increased trading opportunities. The statistics for Apple and Google App Shops support this by showing the numbers of participants and the value of their activities together as rising at a remarkable fast level since their introduction.
Both App Shop ecosystems exist because Apple and Google have each developed a proprietary technology Platform to enable their respective market places to form and grow. The business value in the trade that each company has created is unquestionable, it’s the nature of the underlying, and necessary, Technology Platforms that warrant some thought. To enable the business functions each is a proprietary set of software that forces a choice to support one or other, or increasingly both, in a closed environment. Its arguably a good trade off in App shops case, but is the same true in other industry sectors.
Will the outcome of the creation of Industry sector Digital Business Ecosystems be the result of Darwinian competition in each industry sector ending with the establishment of one, or two, competitive Platforms? And will the resulting Platforms, and their controlling influence, belong to new entrants, or will the existing industry sector leaders be able to maintain their position?
Amazon is a perfect example; seen first and foremost as a market place created by a massive ecosystem of sellers and buyers, with the recognition of its enabling role as a Technology platform decidedly in second place. The function of what can, and cannot, be achieved is much more closely aligned to the commercial operation of the marketplace ecosystem then to the technology functionality. In fact, the sheer usefulness of the Amazon technology and the adoption across the market into a wide variety of reading devices has left the question of technology lock-in as largely irrelevant, unless you are a competitor!
The combination of the Amazon Kindle innovation as a reading device plus the Amazon Technology Platform quickly defined the emerging online Digital market for books. Industry sector leaders such as Barnes and Noble in the USA, were relegated to selling via Amazon to reach their ecosystem of buyers as their positioning and business model slowly failed in the face of this shift.
It is an interesting shift in perspective from the internally orientated Enterprise IT adoption case for a particular product suite to gain simpler, more reliable and less costly technical integration by using a Platform, to the high profile external business strategy requiring access to an Ecosystem. However, the principle of ‘lock-in’ is still present, and in time could become a strategic threat to a market sector leader.
The danger is that in enabling your Enterprise’s new high growth Digital Business market strategy by using a leading Platform to reach the market place ecosystem may well work short term, but in the longer term you may in actuality be helping to establish a new market sector leader. How many of the 90% of C Level Executives stating their Enterprise has a Digital Strategy have recognized this? In fact, unwittingly some Digital Business strategies will actively help to build their Industry ecosystem disrupter by channeling their business via the ubiquitous Technology Platform vendor![PD1]
The Market Mogul identified the importance of Technology Platforms in building and controlling Digital Business in an article entitled; Startup Unicorns and the power of the Digital Economy. The entire article is well worth reading and the following are isolated extracts;
Uber, Airbnb, Alibaba, eBay, Facebook – everyone will have heard of these companies and how they disrupted entire industries. ….. But if one takes a closer look, it is not necessarily their products or services that enabled these companies to change the game. It is the platforms through which they sell the products and services that drive the change in the most traditional and well-established industries… Today, the top 15 public companies which have adopted a platform business model, have a cumulated $2.6trn in market capitalization. At the same time, an increasing number of start-ups are entering well-established industries with a platform strategy…. Clearly, the platform business model has great potential, and increasingly more companies in every industry become aware of this potential.
The frustrations, and constraints, caused by a past generation of internally deployed Enterprise IT Technology Platforms seem to have been forgotten as the new generation of Technology Platforms arrive as external Business Ecosystems. Introducing Digital Business innovative within entrepreneurial ecosystems and opening up a wealth of business opportunities to bring new revenue and proprietary limitations are seen as insignificant. Dynamic interactive Digital Business must have new forms of shared distributed revenue creating activities, and that in turn means there has to be a shared Technology platform. From a Business management perspective, there is no case to consider as this is the ‘entry fee’ to gain access to the market the ecosystem provides.
With the advent of Cloud based Service model the ‘entry fee’ is minimal and the lock in risk from investment and pay back obsolesce minimal, as the saying goes ‘What’s not to like’! A read through the following which is from the Wikipedia entry on Ecosystems and their development introduces a note of caution based on past commercial experience. The definition also aligns with the examples of Digital Business ecosystems used above
An economic community supported by a foundation of interacting organizations and individuals—the organisms of the business world. The economic community produces goods and services of value to customers, who are themselves members of the ecosystem. The member organisms also include suppliers, lead producers, competitors, and other stakeholders. Over time, they coevolve their capabilities and roles, and tend to align themselves with the directions set by one or more central companies. Those companies holding leadership roles may change over time, but the function of ecosystem leader is valued by the community because it enables members to move toward shared visions to align their investments, and to find mutually supportive roles. https://en.wikipedia.org/wiki/Business_ecosystem - cite_note-3
Are there alternatives that place your brand and sector leading Enterprise at the center of an Industry sector ecosystem? More importantly, what would this Business Ecosystem look like and how would it function? A few industry sector leaders have seen the opportunity and, by moving fast, have created their Industry sector Business Ecosystem - with their brand and positioning at the center. Later Business entrants, unless directly competitive, now join as the de facto ecosystem.
John Deere, an established World leader in agricultural machinery has maintained, even strengthen its position by moving early and fast. A great deal has been written about John Deere and Precision Farming, the Digital revolution of Agriculture, but little makes the point quite so starkly as Digital Social Strategy in their article ‘How John Deere turned Technology into Business Transformation’.
This ecosystem helps farmers to gain insight into their current operations and manage their farms more proactively. Not only do farmers reap benefits from this approach, John Deere does so too. By creating an entire ecosystem, John Deere extends their offering beyond products into delivering services. Moreover, only allowing John Deere products access to the ecosystem creates a buyer lock-in for the farmers. Once they own John Deere equipment and make use of their services, it will be very expensive to switch to another supplier, thus strengthening John Deere’s strategic position.
At the heart of the John Deere approach is the need to be Open to allow the Ecosystem to grow by supporting wide spread active participation through Data sharing. The open source programming language R in combination with Open DataBase Connectivity, ODBC, underpins the John Deere ability to maximize Ecosystem value to participants through data, and proves that Open Source can be deployed successfully by Industry Leaders to build their own Ecosystems.
The power of open source levels the playing field for companies both big and small. It lowers barriers and offers a neutral environment that fuels and allows companies to innovate and evolve. This open collaboration helps companies like John Deere work with the ecosystem to create the best solutions for its customers. In return, John Deere offers insight and experience and works with other companies make the ecosystem stronger.
EdgeX Foundry is a prime example of a community approach to open source value. Hosted by The Linux Foundation, EdgeX is an open source project building software that enables and facilitates an ecosystem for Internet of Things (IoT) edge computing by enabling interoperability across tools and solutions. More than 60 vendors have come together in an open forum to create this ecosystem in a way that delivers shared value across the participants rather than large rents to a single company. The underlying hope is that this will accelerate the entry of participants into the ecosystem through equal access, and increase the market size by assuring customers that solutions built with EdgeX a safe, performant, and vendor neutral choice in a confusing and emergent marketplace.
Summary; The imperative for gaining competitive advantage via (these) ecosystems is for firms to create sustainable ecosystems and for the lead firm how to capture the value created by the ecosystem. Quote https://www.jbs.cam.ac.uk/fileadmin/user_upload/research/workingpapers/wp1006.pdf
The question is whether your Enterprise will seize the lead or through a failure to realize the implications by taking the obvious route via a vendor / provider help them to become the market disruptor and new industry sector leader.
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