Platform

Ecosystems


Digital platform businesses are challenging traditional organizational structures. A deceptively simple concept, the platform is radically transforming the global economy, and business and society at large. Platforms connect people and organizations in vibrant ecosystems in which goods, services, and information are exchanged at unprecedented scale. The platform business model is key to the most succesful and valuable companies on the planet. These businesses are driving an economic shift as profound as the Industrial Revolution. Join the journey of understanding what it means to live and prosper in this new era.

scroll down and continue reading photo credits: Denise Hoffmeister

”Software is eating the world”.

This is the message from former Netscape founder and venture capitalist Marc Andreessen in a 2011 Wall Street Journal op-ed. In it, Andreessen stated the case that software companies were to become a cornerstone of the world economy:

We are in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy (..) Six decades into the computer revolution, four decades since the invention of the microprocessor, and two decades into the rise of the modern Internet, all of the technology required to transform industries through software finally works and can be widely delivered at global scale. WSJ, August 20, 2011

Almost one year to the day after Andreessen’s op-ed appeared, Apple became the most valuable company in history. And just four years later on, the five biggest companies in the world by market value were all tech companies, according to Bloomberg data.

Software Ate the World: S&P500 Top 5

This is testament to the transformative power of software technology so vividly expressed by Andreessen. Its impact reaches beyond just ”tech” and market caps, and far into society. The ways that people interact with companies, services, and each other are changing. And it’s this new way of conducting business that is challenging traditional organisations.

That new business model is the platform ecosystem: a business that leverages today’s unprecedented levels of connectedness to create a global ecosystem of producers and consumers. In this ecosystem, participants connect with each other to create and exchange goods, services and information to their mutual benefit. This is how new markets of astonishing value get created. This is how businesses grow to size and dominance unimaginable before.

”May we live in exciting times”.

Today, Platform Ecosystems Win

Already a dominant part of the global economy, platform businesses will continue to grow in importance for the years ahead. In today’s world, platform ecosystems win.

Understanding Ecosystems

Confusingly, the Internet today is awash with the terms ‘platform’ and ‘ecosystem’. Startups especially seem to be keen to market their offering as such, undoubtedly spurred on by the success of true ecosystem unicorns like Uber and Airbnb. Also, many Software-as-a-Service companies claim to be a platform but lack the ecosystem (and in the end, the associated level of success).

Then what exactly is a platform ecosystem?

A Platform Ecosystem /ˈplætfɔɹm/ /ˈikoʊˌsɪstəm/ is a business model that connects two or more user groups and facilitates the efficient creation and exchange of value between these groups.

Critically, this definition is all about business and not about technology, tools or services. In this context, a business model describes how an organisation creates, delivers and captures value. The transformative aspect of the ecosystems model compared to other forms of business is in the changing nature of creation and delivery. It’s the platform’s users that produce the bulk of the value in the ecosystem for other users to consume. Without the services provided by producers, consumers who adopt these services and the participation of any intermediaries such as service provides, retailers and carriers there is little or no value in in the ecosystem.

The role of the platform is the creation of these connections. To this end, the platform facilitates an accessible, scalable and efficient network of users, services, devices and intermediaries to make the value exchanges happen. It is over this network that value is created, distributed, discovered and consumed. The complementary aspects of platform and network are key to any platform ecosystem business model.

The Platform Ecosystem Stack

Users of the platform may be consumers, producers or a combination of both at times. Whatever their role, they connect and interact with each other over the network using the facilities provided by the platform. Depending on the nature of the business model, participants may or may not be required to connect explicitly. Social networks often require explicit connections, whereas market places do not but match buyers and sellers on case by case basis. Users of a personal finances platform may not connect at all but still benefit by being benchmarked against comparable users.

The platform consists of core technologies, shared tools and services, and rules and standards that enable producers to create and share at scale with sufficiently low costs of distribution and transaction. It provides a set of interfaces for the participants of the network to communicate, interact and interoperate within the ecosystem. This definition sits well with the generally accepted notion of “platform” as a product or technology that allows complementary, modular components be built on top of it. Well-known cases are product platforms (like VW’s MQB), industry platforms (like Intel’s x86 architecture) and cloud computing platforms (like Amazon Web Services). Platform ecosystems often use the latter kind of platform. The platform’s job is to support the network comparably efficiently. This is not an unimportant task, but it just does not differentiate ecosystems in their evolutionary battles to the same degree as the networks does.

The attractiveness of ecosystem critically relies on the diversity and vibrancy of its network. The jousting for platform ecosystems’ competitive advantage and survival takes place at the network level, where formidable barriers for rival ecosystems can be created. At the same time, large-scale value creation leads to a problem of abundance. With an abundance of production, search costs increase dramatically for consumers. All succesful platform ecosystems rely on data to help match supply with demand. Data powers relevance in matching the most relevant content/goods/services with the right end-users.

The Platform Ecosystem Stack

Without scalable data, a platform will not be able to connect producers and consumers effectively. Next describing key characteristics that matter to each respective use group, this capability also includes systems that capture and use this data to connect the platform’s participants as efficiently as possible. Platforms that offer commoditised services (like Uber, for example) focus on matching consumers with available produces as seamlessly and automated as possible. In contrast, a platform that offers noncommoditised services (like Airbnb) focuses on facilitating easy search and discovery.

What all ecosystems do have in common is a business model predicated on connecting producers and consumers to each other and allowing them to exchange value over these connections. Of course, individual platforms can operate in vastly different ways. Android and iOS differ in this respect from Medium or Github, even though they all provide tools and infrastructure for producers to create and share. Uber and Airbnb are both facilitating and optimising a direct exchange of services, but Uber’s core offering is a largely commoditised service, whereas the one offered by Airbnb certainly is not. The above ecosystem stack provides a taxonomy for understanding individual platforms and families of platforms as different configurations of one stack.

Living Design is about people

One of the most fundamental human needs is to share and build emotional relationships. Living design embraces that humans are the ecosystem and adopts a digimodern mindset.

Designing Ecosystems

Platform based Ecosystems transform the way we live, work, shop, and connect.

It forms an economy where networked societies form ecosystems in which participants — producers, peers and consumers — undertake a range of activities to co-create value. An economy where the quality and desirability of a product or service enters a positive feedback loop as the number of collaborators increases. And one that brings potential for fluent role switching, and entrepreneurial opportunities to improve and shape our world.

This is a world where the rules of branding and conventional business structures are fundamentally changed and disrupted – where value propositions appear intuitively to offer themselves to consumers according to the time, place or situation where they find themselves.

How can companies stay relevant in this new economy? What does it mean to operate the infrastructure of a platform where markets and networks can flourish? What strategic facets need to be considered to populate, grow and sustain a healthy ecosystem over a longer period of time? And what does a truly digital age imply for the ethics and social structures of ecosystem citizens?

Age of Design

Ecosystems are about people, their activities and the fundamental human need to share and build emotional relationships.

They should be shaped and formed in a way to offer meaningful conversations, memorable experiences and relevant changes in the lives of its residents. There is need for a way of working that is closest to these principles; one that helps understanding self and builds empathy for others.

The field of design can help illuminate this path. Inquiry and the desire to understand and learn are key components of the design process. It adds a fluid dimension to the exploration of new opportunities and encourages non-linear thoughts when working on non-linear questions.

Furthermore we can adapt design to include a set of thinking tools directed toward making interactions with technologies and other complex systems simple, intuitive, and pleasurable by creating solutions that reduce cognitive load and stress. In this sense, design shifts from just ‘look-n-feel’ to ‘how it works’.

“Act as if what you do makes a difference. It does.” - William James

Historically, design has been associated with aesthetics and crafts. When designers worked for a company they typically did so by job-title and in departments carrying similar name. Modern design is analogous to how it works.

“Design is not just what it looks and feels like. Design is how it works.” - Steve Jobs

This shift in paradigm implies that design transcends as a role to a mindset for all those who help bring ideas to life: modern design is a team sport, where everyone is a designer!

A culture of design is one where the cost of failure is low and gain of learning is high. Where there is safety to try out just that crazy thought. One that is open to sharing ideas.

Expanding the definition of value

The definition of what is perceived as value has been shifting over the past decades. Starting with an economy based on the ownership of products, to an economy focussed on access to services towards the collaborating opportunities offered by a networked society. This shift has been the breeding ground for the rise of Platform based Ecosystems.

In the past economic systems, design focussed on creating products and services. The design practices catered mostly to the look-n-feel of the product or the service. The value of design was measured in the output of a production process and in this economic system customers were served by service providers.

Service providers were fully in-charge of the service quality and execution. They assumed a certain level of control and could use prescriptive strategies to lead customers through the service journey.

The responsibility for design and the value creation process of such service was mostly, if not entirely in the hands of the service provider.

Value in a Platform based Economy

In a Platform based Economy, the value is in the use of the platform and is co-created along the way by the different participants in the network.

This implies that service providers do not have the same amount of control when designing products or services. Service providers can now only propose the interface and the environmental conditions for the interaction to happen.

They can design the infrastructure and the processes supporting the relations, but cannot exactly predict the outcome of the interaction happening through the service. Thus, a service provider cannot deliver value, but only offer value propositions.

One cannot design an ecosystem, one can only design for an ecosystem.

In this new setting, design also finds itself in a new space. One where relations between various participants are as important as the features of products and services. Instead of providing specific outcomes, it provides collaborative opportunities and time becomes an important factor.

Design, now also includes how people meet and connect.

In Platform based Ecosystems, a designer embraces time and different forms of control.

Groups of people

Thriving and prosperous ecosystems consist of multiple producers and multiple consumers. It’s a multi-sided market! These groups of people form a micro-culture, one where the network amplifies the influence of an individual on creation and innovation, and where social conventions and the definition of normal drifts.

This takes time to form. Ecosystems don’t magically happen overnight with all the right players in place. A large group of consumers without any producers is an equal waste of effort as collecting a large group of vendors where no one turns up to purchase anything.

So, what knowledge and understanding is needed to shape this future?

Design Stack

The Design Stack attempts to answer Ecosystem Design questions by identifying three aspects of design activity, one for each ecosystem aspect.

An ecosystem has three aspects: Infrastructure, Network and Data. Together they describe the shared tools, services, participants, their relationships and allow the platform to match supply with demand.

Design can be put to use in all three aspects of the Ecosystem.

Figure 1: Three Design Aspects

Strategic Design

Strategic Design is about bootstrapping, scaling up and governing nascent solutions from an initial context to a larger size, both demographic and geographic.

The attractiveness of an ecosystem is the result of carefully shaping the order in which different participants are introduced.

Bootstrapping an ecosystem requires a strategy that entices and engages a subset of desired participants. Perhaps by offering a different set of functionality or solutions than the ecosystem is intended to solve or by merging two existing networks so they form a new ecosystem.

“They come for the tools and stay for the network.” - a16z

And then there’s scaling. The Internet, with its zero distribution costs and zero transaction costs has made global scale possible. Though, this may not be the scale every solution needs to achieve. Therefore the challenge in Strategic Design is to achieve a scale fit for specific ecosystems. The scale that attracts more users, which in turn attracts more suppliers, which enhances the ecosystem in a virtuous cycle. With the goal of creating a community that can fuel itself.

By extension, this means that the most important factor determining success is the user experience: the best distributors/aggregators/market-makers win by providing the best environment. Strategic Design contributes to user experience by designing the kinds of information collected, how it is protected and how it’s monetized. It governs the definition of structures, roles and competencies required.

In addition, the design effort lies in creating the surroundings and conditions that enable experimentation in the marketplace to refine ideas and use the market data and customer feedback to generate the internal support necessary for radical change.

Toolbox

Strategic Design requires a toolbox to bootstrap a network, sense and report out on solutions.

For bootstrapping, the Growth Hacking Toolbox from Marketing and a Jugaad Innovation mindset may have a role to play. Sensing Tools like the Three horizons of growth, Value Chain Mapping, and reporting tools like Quarterly Business Review are a great start.

Expert Design

Expert Design is about the design of digital platforms, client applications, APIs, logistics, information, physical spaces and other tools necessary as infrastructure capabilities. It results in interfaces for ecosystem participants to plug into.

Furthermore, it delivers expert knowledge for writing and evolving the terms of service (TOS), privacy statements, ownership and other policies.

The design activity in Expert Design is more prescriptive and traditional. The service provider is in charge of the service quality and the participants have little say in the interaction. In other words: customers are served. The responsibility of design and the value creation process of such services is mostly in the hands of the service provider, who functions as an expert.

Toolbox

The disciplines of User Experience (UX), Customer Experience (CX), Development + Operations (DevOps) and Service Design (SD) along with their existing practices and tools are a great fit. These practices, tools and principles already know how to balance human, commercial and technical realities in solving problems.

Living Design

Living Design is about people. It embraces the people in the ecosystem and seeks to harness the collaborative opportunities. It involves understanding the interactions among the network participants.

Living Design represents the non-traditional, counter-intuitive design practices for multi-sided markets, for
 matchmaking and multi-faceted network effects. It embraces the digimodern construct.

“A digimodern construct fully acknowledges its computer-derived textuality of haphazardness, evanescence and anonymous, social authorship.” - Andrea Resmini, Bertil Lindenfalk

Toolbox

Living Design as a diffused innovation processes based on a participatory approach does
 not represent a real discontinuity in the use of methods and tools that were previously used.
 Some existing methods, such as prototyping or narrative techniques become more relevant,
 because they support interaction, and support value co-creation in use. Other methods,
 such as service blueprinting or customer journeys, that were possibly used with a more prescriptive aim
 are still adequate to support the phases of creation of the infrastructure for the interaction.

New methods that incorporate the passage of time in an interaction and those that unify emergent interactions would need to be added to the Living Design toolbox.

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