Many markets today are built as digital ecosystems, also known as platform ecosystems. But what are they? And how exactly do they work? This is the right guide where you can find the answers to these (and many other) questions.
What is a platform ecosystem
To understand what a platform ecosystem is, it is best to start with its definition in relation to the digital context.
Definition and digital context
In literature, a business platform is a set of products, services, or technologies developed by one or more companies that form a technological basis on which other companies can develop complementary services, products, and technologies, generating potential network effects.
A platform ecosystem is therefore a complex system within which different actors interact with each other through a platform in order to create value.
The word ecosystem, which is used here in the modern digital context, derives from biology and refers to a system in which entities have a certain degree of interdependence. In a platform ecosystem, the various parties create and exchange value to strengthen the ecosystem and make it more attractive to customers. After all, as Geoffrey G. Parker’s famous quote explains:
“An ecosystem thrives only when each player contributes value to the others.”
On a practical level, this creation of value within a platform ecosystem is linked both to the innovations that each element brings and to the ability to establish a faster connection between supply and demand.
Main players: sponsors, providers, users, and consumers
The main players in a platform ecosystem are:
- the sponsor (or owner), i.e., the entity that holds the intellectual property rights to the platform, establishes membership requirements and internal rules and intervenes to facilitate the exchange of value between the parties;
- the provider (or supplier), i.e., the entity that acts as a point of contact for platform users by providing the main technologies (usually coinciding with the sponsor);
- users (demand side), i.e., consumers, those who use the services offered by the platform;
- the complementors (supply side), i.e., the developers of content and apps complementary to the platform, who can exploit its interfaces to create products or services.
Digital platform ecosystem: key features
The algorithms that regulate the functioning of digital ecosystems are based on certain specific principles.
Network effects and shared standards
The network effects that characterize a platform ecosystem can be direct or indirect. They are linked both to an increase in the volume of users and to an increase in the content offered. We will return to this topic in a few lines, when we analyze the advantages of these ecosystems.
For now, you should know that platform ecosystems also need shared standards, which are useful for clarifying to the various players involved how they can interact with each other.
Degree of openness and governance
The boundaries of the system can be well defined, i.e., members can be entirely dedicated to the platform, or they can be more fluid and changeable, with members freely entering and leaving and participating in several platforms at the same time.
Each ecosystem therefore establishes its own degree of openness (i.e., in practical terms, how many and which entities can participate in the platform) and the rules of participation that govern the rights and duties of the various entities that are part of it. One aspect in particular that must be regulated is the level of basic technology to be shared with complementators.
Types of platform-based ecosystems
There are different types of platform-based ecosystems, which differ in their ultimate objectives.
Transactional ecosystems
The main function of transactional ecosystems is to act as simple intermediaries between supply and demand, facilitating interactions between them.
Innovative ecosystems
Innovative ecosystems aim to provide the technological basis for designing and developing new products and processes.
Hybrid ecosystems
As is often the case, the distinction mentioned above is not a hard and fast rule: there are also hybrid ecosystems, which combine the characteristics and functions of both types (transactional and innovative).
Concrete examples of platform ecosystems
As mentioned at the beginning of this guide, there are several concrete examples of platform ecosystems today. We have selected three of them.
Video game consoles
Video game consoles, such as Xbox and PlayStation, not only provide gamers with a platform for games, but also produce their own video games or license them to third parties. In this way, they create an ecosystem in which not only gamers, but also developers and producers are involved.
Digital marketplaces
Digital marketplaces, such as Amazon, are a type of e-commerce business model that involves the creation of a platform that connects sellers and buyers and offers a wide range of products.
Service platforms
Another example of a platform ecosystem is service platforms. AirBnb is one such example: it connects homeowners with travelers through a platform where apartments or rooms can be rented on a short-term basis.
Platform ecosystem: advantages and critical issues
Examining the advantages and critical issues will help you better understand what a platform ecosystem is and how it could be useful to you.
Advantages: growth, innovation, network effects
There are several advantages that ecosystems of this type can offer to those who use them. First of all, they allow companies to reach new markets, customers, and partners, offering the possibility of benefiting from accelerated growth.
The collaborative innovation that characterizes platform ecosystems is another advantage, as it allows new products to be created and problems to be solved more easily and quickly.
The third advantage is linked to the aforementioned network effects: the more people use the platform, the more its value and attractiveness increase, thus creating a virtuous circle.
Critical issues: lock-in, exclusivity practices, regulation
One critical issue that characterizes platform ecosystems is the so-called lock-in, which occurs when a user or company becomes so dependent on a specific technology platform that switching to an alternative becomes too difficult (or expensive).
Other critical issues concern aspects that we have already addressed, such as internal regulation and the degree of openness of the platform, which may be too restrictive for the players involved (and those not involved).
How to create an ecosystem platform
In this section, you will discover how to create a solid and effective ecosystem platform. There are essentially four steps.
The four steps to building an ecosystem platform
To create an ecosystem platform, you must first identify the sides of the market to be connected and the entities that will take part in the ecosystem. It is up to the sponsor to identify the ways in which to connect the various elements: to do this, they use algorithms which, based on the sponsor’s clear and basic instructions, can find the solution to the problem.
The second step concerns the so-called “chicken and egg problem” and, specifically, its resolution: a platform cannot acquire sellers if there are no customers on it and, similarly, it is unlikely that a buyer will use it if there is not a sufficient variety of offers. To solve this problem, it is necessary to encourage buyers or sellers (or both) to access the platform. There are various techniques for attracting users to the web, but you need to be aware that, at the heart of it all, you will need truly innovative technology.
Designing a business model that revolves around a collaborative governance model between all parties involved is the third step in our process.
The fourth and final step is to establish (and, above all, apply) the rules of participation for all actors.
The future of the power platform ecosystem
The strength of a platform ecosystem lies in its ability to integrate (and enable communication between, through algorithmic language) seemingly distant and different technologies, such as so-called “green technologies” (related to emerging environmental issues) and “blue technologies” (the latest digital innovations).
It is no coincidence that the future is moving in this direction, i.e., towards the creation of increasingly open and hybrid ecosystems capable of connecting seemingly distant players.
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