Integration: the secret to digital ecosystem success
Digital ecosystems do not exist in isolation. Rather they are an amalgam of tools and services that combine to provide ease, convenience and cost saving to the customer. Yet the key to success in digital ecosystems is the integration of these elements into a tightly unified product.
Boston Consultancy Group (BCG) of the management of this integration in terms of ‘orchestrators’ and ‘complementors’. The orchestrators are the architects of the digital ecosystem; the complementors are the partner services.
BCG has established a four step programme for orchestrators to optimise for integration: grow, improve, control, monetise.
The four-step programme to digital ecosystem integration success
Step one: grow the platform
Growth comes in two forms. One is the expansion in the number of complementors. The other is growth in the user base, or adding customers.
Using network effects – an amplification caused by adding new members, improving content and product offering from new complementors – leads to a virtuous circle with theoretically exponential growth. That growth is compounded once the critical mass acts as an effective barrier to new market entrants.
Orchestrators can deploy pricing strategies based on discounting or subsidisation and adopt ‘smart’ marketing to attract hyper relevant customers and complementors. They can also expand into adjacent complementary markets.
Step two: improve the platform
While a digital ecosystem must be technologically sound, it should also use technology to respond to the needs of its users and complementors.
Benchmarking platform quality for functionality and services can act as a platform for adding features and functions.
It’s important to settle on an open or closed structure. Closed structures favour highly specialised, uniquely reliable complementors. Cisco runs a smart mining platform for which complementors are tightly vetted owing to the inherent dangers associated with poor quality data.
An open approach relies on scaling up customers and complementors in order to maximise benefit to either or both. A food delivery platform has in its best interest a wide customer base and large selection of restaurants. This approach is more likely to drive rapid innovation, and maximises opportunities to use machine learning to enhance recommendation engines and drive future innovation strategy.
Step three: control the platform
Customers and complementors are fickle and BCG recommends minimising ‘multihoming’, whereby customers and complementors are faced with platform choice. An example is ride hailing apps, where the customer can choose based on price and proximity, and the driver can also inhabit multiple platforms to maximise profitability. The result of this phenomenon is a race to the bottom against competitors in the same market. To reduce multihoming, orchestrators can enter exclusivity arrangements or incentivise loyalty.
Orchestrators should also own the value chain, and dissuade customers and complementors from entering private arrangements after the introductions have been made. BCG cites Airbnb as an example: it offers insurance and other protections to hosts that would be unprotected in a direct transaction.
Step four: maximise ecosystem monetisation
The orchestrator has the most to gain from a successful digital ecosystem, but also the most to lose. It is crucial that they maximise ecosystem monetisation.
BCG recommends increasing fees when complementors would incur costs by going elsewhere (Apple’s App Store has been able to drive rates up faster than rival Android because developers see better returns from its loyal, high spending users).
It also suggests encouraging competition among competing complementors to drive quality and render the platform more attractive to consumers, or to compete directly with them, adding their share of the revenue to the bottom line.
Cross-selling and upselling to existing users – deployed with care – can also be effective. Historically, as much as 35 percent of Amazon sales are generated via highly relevant recommendations.
Integration is crucial to the success of digital ecosystems. The orchestrator who can master the four steps above should be able to develop a magnetic proposition.