How do we ensure fair governance in managing ecosystem relationships?

This article is part of the Digital Platforms hub

Digital platform firms need to establish fair governance, particularly in managing their relationships with partners in the ecosystem. Towards this, the platform firm should

adequately convey the rules of play – the factors that lead to partner success on the platform. It should also invest in educating partners on ecosystem governance, both through incorporating feedback into the workflow as well as through off-platform partner management initiatives.

Platform firms must also ensure that they avoid conflicts of interest with ecosystem partners. In particular, when the platform firm also acts as a producer on the platform partners may fear (1) the possibility of a bait and switch, where the platform firm may change governance and policies to favor its own business, (2) and the possibility of channel control, where the platform may limit exposure (and, hence, business upside) for partners in the ecosystem. Since the platform has superior data insight into partner use cases that perform well, partners may fear that the platform could absorb or capture those use cases itself to capture higher margin and remove the respective partner from the platform.

For instance, Amazon is both a retailer and runs a marketplace for third-party sellers. Through the marketplace, Amazon gathers data on product sales. Research published in Strategic Management Review in 2018 studied 164 000 products sold by merchants on Amazon’s platform. As of June 2013, Amazon didn’t sell these products. However, a study of the same set 10 months later revealed that Amazon had started directly selling more than 5 000 of these products. In a statement to Congress, Amazon has also publicly acknowledged that it uses aggregated third-party data to inform its private label brands.

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When platforms operate with such conflict of interest, partners are hesitant to commit resources. To allay fears of such conflict of interest, a platform firm should contractualy

commit to not competing with the ecosystem for a minimum period. SAP, for instance, has often made such commitments to attract partners to its platform efforts.

The platform firm may also institute a core partner program. Core partners – those who meet minimum success requirements on the platform – would then be offered a reseller relationship. Instead of competing with them, the platform would act as a reseller by holding inventory from them and reselling inventory on the platform. This allows the platform to enjoy higher margins from core sellers, while also guaranteeing them greater exposure on the platform, creating a win-win scenario.

To establish fair governance, a platform firm must:

• Manage relationships with ecosystem partners
• Educate partners on ecosystem governance
• Avoid conflict of interest
• Institute a partner program

 

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Frequently Asked Questions

 

How do platform firms balance the need for transparency in governance with the inherent challenges of managing complex ecosystem relationships, particularly regarding data sharing and decision-making processes?

Platform firms can balance the need for transparency in governance with managing complex ecosystem relationships by implementing clear and accessible communication channels for partners. This includes providing detailed guidelines, hosting regular forums for feedback and discussion, and ensuring transparency in decision-making processes. Additionally, employing technologies like blockchain can enhance transparency by recording transactions and interactions in an immutable ledger, thereby fostering trust among ecosystem participants.

What mechanisms can platform firms implement to ensure accountability and fairness in their governance structures, especially when they simultaneously operate as both facilitators and participants within the ecosystem, potentially leading to conflicts of interest?

To ensure accountability and fairness in governance structures, platform firms can establish robust governance frameworks that outline clear rules, procedures, and responsibilities for all ecosystem participants. This may involve appointing independent oversight bodies or committees to monitor compliance and resolve disputes impartially. Moreover, implementing mechanisms for transparent data sharing and usage can mitigate conflicts of interest, while fostering a culture of openness and collaboration among partners.

In the context of evolving regulatory landscapes and heightened scrutiny over data privacy and antitrust concerns, how can platform firms adapt their governance practices to maintain trust and foster collaboration with ecosystem partners while also addressing external regulatory expectations and compliance requirements?

In response to evolving regulatory landscapes, platform firms can adapt their governance practices by staying informed about relevant regulations and proactively implementing compliance measures. This may involve conducting regular audits, implementing data protection measures, and establishing mechanisms for reporting and addressing regulatory concerns. Collaborating with regulators and industry associations can also help platform firms navigate regulatory challenges while demonstrating a commitment to compliance and ethical business practices.