Ecosystem Strategy: A teardown of Ecosystem business models

Digital business ecosystems have become increasingly important over the past decade, yet they remain poorly understood. Business ecosystems are systems of interacting actors which coordinate their activities towards solving an end user problem.

To develop an ecosystem strategy, you need to map out the ecosystem, understand where value lies/concentrates within that map, and strategize future positions based on your legacy assets and your future ambitions.

Over the past decade, I’ve advised many firms in mapping their ecosystem and identifying business models where value concentrates. Academics and consultants use a wide range of mapping techniques to map value flows and model ecosystem activity.

Often, the greater the complexity of this mapping, the more it discourages eventual action on the part of the firm in question.

Instead, using a simple framework to demystify ecosystems is more effective in helping firms strategize and act, and also offers a starting point to unpack further nuance from.

In this article, and our deep-dive report on business model ecosystems, I lay out this simple ecosystem strategy framework, which has served as a great starting point for mapping out ecosystem business models.

Let’s dive right in!

The rise of ecosystem businesses

So how do we think about platforms?

There is, however, further nuance here.

These horizontal business models perform different roles depending on where they emerge across the value chain.

In an ecosystem business, we typically see three types of horizontal business models emerge – Aggregators, Integrators, and Infrastructures – which may be distinguished based on their position in the value chain. Additionally, firms may specialise and act as capability providers.

Let’s unpack each of these in turn.

Aggregators – Ecosystem Business Model #1

Aggregators are consumer-facing business models, which

(1) aggregate consumer demand by

(2) building engagement and capturing data at scale through

(3) provisioning consumer-facing services.

The largest technology companies of the past decade – Facebook, Amazon, Netflix, Apple, Google – span multiple business model families but almost all of them established their dominance first as aggregators.

Facebook’s social network created a high engagement consumer service to aggregate demand.

Amazon’s Prime membership as well as its voice assistant Alexa are examples of aggregators that aggregate demand towards its commerce and media services.

Aggregators leverage their control over consumer relationships (and data) to mediate interactions between consumers and third party producers.

As ownership of consumer engagement becomes more scarce in a digital world, aggregators act as gatekeepers of market access for producers looking to interact with consumers.

Aggregators perform three key functions in a business ecosystem:

Provisioning of consumer services: Aggregators provision services to end consumers and engage consumers through data-driven personalization and habit design. For instance: Google’s search engine, Facebook’s news feed or Amazon Echo.

Managing consumer data insights: Aggregators capture consumer data at scale and provision this back as analytics to consumers (e.g. fitness applications) or as insights for producers (e.g. market insights provided to sellers by ecommerce platforms) or as targeting and advertising products (e.g. advertising products on Google and Facebook).

Matchmaking between producers and consumers: Aggregators match third party producers and their products/services to consumers, using data about both sides to facilitate the match. In doing so, they aggregate market-wide transactions at scale.

Integrators – Ecosystem Business Model #2

Next, let’s look at integrators.

Integrators manage B2B ecosystem interactions between supply-side players (typically producers/manufacturers) and demand-side players (typically distributors) through the use of APIs.

Integrators act as switchboards integrating

(1) product provisioning APIs on the supply/production side with

(2) distribution environments (websites, apps, and other digital services) on the demand/consumption side.

In the travel distribution ecosystem, Amadeus and Sabre act as integrators, integrating across inventory providers (hotels, airlines etc) and distribution points (online travel agents).

In the financial services ecosystem, BAAS (banking as a service providers), like Galileo or Plaid, integrate across multiple financial services providing one-stop access to Fintechs and Ecommerce players looking for specific financial services.

Integrators provide an opportunity to bundle multiple services from diverse ecosystem producers and drive efficiencies by acting as a one-stop’ distribution point’ across an increasingly modular and diverse ecosystem.

Integrators perform three key functions in a business ecosystem:

Production side services integration: Integrators integrate services on the production side to deliver a one-stop storefront for distribution partners. Think of Banking-as-a-service platforms,

Data exchange: Integrators facilitate matchmaking and exchange of data between the production and consumption sides of the ecosystem, specifically between manufacturers/producers and distributors.

Consumer Analytics: Integrators may aggregate data across distributors in the consumption side of the ecosystem and provides analytics to production partners.