Digitalization drastically changed the global business environment, and if they want to survive in a heavily competitive market, enterprise leaders need to appeal to today’s hyper-connected consumers. At first glance, it may appear that consolidating your presence over multiple digital channels is enough to keep up with consumer demands. However, upon further analysis, it is clear the only way to thrive in today’s competitive market is consolidating an omnichannel strategy to keep up with everything.
But how can you do so? Through a digital ecosystem, which represents a dynamic, ever-evolving integration of all your digital channels.
This ensures an omnichannel experience for both business-to-business and business-to-consumer interactions, as well as real-time data collection. Digital ecosystems have been a sizzling topic in the business environment over the past few years. Still, recent events spawned by the global COVID-19 crisis heightened the importance or digital interactions, as shown by many consumer sentiment surveys. This will undoubtedly prompt companies to change their business model towards a digital ecosystem approach.
This type of approach has the potential to add tremendous value to a company, talking some vital aspects that drive a successful business: growing the core business, expanding the company’s portfolio and network, as well as generating revenue from new products or services.
What exactly is a digital ecosystem?
A digital ecosystem is much more than new IT jargon. It represents a dynamic, interconnected network that integrates all your internal departments, tools, systems, suppliers, trade partners and customers, to create a seamless data flow throughout the organization. This way, companies can leverage both new and legacy technologies, building automated processes around them to fuel growth.
Not only do digital ecosystems add value to customer relationships and adapt to the needs of modern consumers, but they also transform the way companies do business with trading partners, facilitating faster trading partner onboarding.
Leading companies, such as Google and Amazon, have picked up on the digital ecosystem trend and are constantly providing consumers and partners with interconnected sets of services. However, many aspiring companies have tried but floundered to replicate these successful ecosystems set in place by tech giants. This happens because digital ecosystems are very complex, making it challenging to leverage their true potential value. To successfully develop a digital ecosystem strategy, companies need to assess market trends and characteristics and determine which specific ecosystems fit well with their business processes. At the same time, companies need to establish what they want to achieve with their newly-built digital ecosystem. It can be anything from core business growth and developing new products and services, to building end-to-end solutions for new segments or simply improving operational efficiency.
How digital ecosystems drive value
As we mentioned before, digital ecosystem strategies are very complex and can be used to tackle a variety of situations. Based on a company’s value-creation agenda, we can observe three prominent occasions where a digital ecosystem can be beneficial for a business:
Leveraging partnerships to grow the core business
The primary goal for companies that fit in this segment is to improve revenue from core products and services, or from merchant-funded platform usage. Initially, the ecosystem will enable businesses to sell more of their existing services or products to customers. After the ecosystem is established and achieved the desired scale, companies can go ahead and extend their service offerings.
Merchant-funded platforms can also be used to draw more value, following a model that many important companies have chosen: the platform is free for all customers to use and fees are collected only from merchants. This creates a strong relationship with trading partners, which is beneficial for both parties.
Expanding the network and portfolio to generate revenue
Businesses in this segment are looking to develop new products and generate revenue, attempting to obtain higher customer lifetime value. Businesses can draw value from many sources, such as merchant-funded platforms, customer-funded products and services, as well as third-party-funded data monetization.
Building end-to-end solutions to benefit customers and improve business efficiency
To create new revenue streams and cut down on operational costs, businesses can optimize their technologies or create new ones, which can then be sold to other companies for profit. One good example of this model is Amazon, with their Amazon Web Service subsidiary, which develops and provides on-demand and pay-as-you-go cloud computing platforms and APIs. Amazon was already dedicating significant resources to develop these platforms, so why not monetize them to lower their investment? The result? AWS is now Amazon’s biggest source of revenue, accounting for 73% of Amazon’s 2018 operating profit.
Digital ecosystem success factors
Those who are interested in developing a digital ecosystem strategy need to learn what defines a successful digital ecosystem. We narrowed it down to four key factors, and here they are:
Speculating the right moment to jump in
When innovations emerge, many businesses are tempted to be there first and take advantage of the momentum that has been created. However, insight data shows this may not be enough to assess dominance of the market. Firstly, because new ecosystems may not always be suited to fit certain consumer needs. Secondly, because consumer needs and technologies are continuously evolving, meaning those later entrants can sit back, watch, learn, then jump in and take advantage by using fewer resources.
Having a robust user base
The most successful ecosystems are those built by established market leaders, but not only because they have the financial opportunity to do it, but also because they have a strong customer base to exploit.
To build a successful ecosystem, chances are you need to bring in expertise from other domains as well. Research shows that 83% of successful digital ecosystems involve partners from more than three industries and suggests that the more industries the partners come from, the higher the chances of success.
Strong collaboration capabilities
To coordinate a successful ecosystem, companies need to manage multiple partners across multiple industries and perhaps even countries. The variety of relationships that are created need a solid collaboration platform in order to effectively pass on information and ensure a streamlined flow.