What Platform Innovators Underestimate (Part 1)

On June 11, as part of the regenerative platforms sensemaking event, Danielle Stanko and I will explore patterns emerging at the intersection of platform and regenerative thinking. In our session, we will share insights from our research of regenerative principles and over 100 projects and platforms. In conjunction with the event and our session, I’m launching this series for those considering attending and exploring regenerative platforms with us.

Part 1 — The True Power of Ecosystems

“Whenever we look at life, we look at networks.” — Fritjof Capra

A colleague once asked me how an entrepreneur interested in platform ecosystems should think about them. It was a difficult question to answer because I think he was expecting to hear how they generate competitive advantage, accelerate exponential growth, and/or enable a product/service provider to orchestrate a platform marketplace. And while platform ecosystems can certainly do those things, that’s not their true power. So, I thought I’d share how I think about them — from where most innovators focus and the foundational skills that must be mastered to the sources of ecosystem longevity that most innovators underestimate.

In part 1 of this series, I will cover where most innovators focus when working with platforms and ecosystems and introduce a way of thinking about them that’s less prevalent among innovators. In the remainder of the series, I will explore three emerging areas that platform innovators underestimate when embarking on their ecosystem journey and offer my preliminary thoughts on how innovators can incorporate them into their efforts.

Where most innovators focus

When it comes to platform ecosystems, most innovators focus on platformizing value chains, — that is, transforming traditional value chains into value networks that underpin and enable ecosystems. This area is foundational and important to understand, not only because of its dominance in the emergence of platform and ecosystem thinking but also because of its limitations in facilitating the longevity of ecosystems. As I hope to show, platformizing a value chain by no means guarantees a successful ecosystem and it can actually work against the long-term viability of the entire system.

Platformizing Value Chains

To platformize a value chain, innovators apply common platform patterns (i.e., strategies) and platform plays that aggregate supply and demand, create trust, personalize experiences, elevate producers, standardize transactions, and/or make complex processes more accessible. By mapping participants’ needs, values, and motivations, innovators can enable value exchanges, learning, and create new opportunities for participants on a platform. As they get traction, innovators need to saturate the market with the platform to come together in the same ecosystem.¹ They must solve the chicken or egg problem as they attract participants, develop a pricing strategy, create flywheels that generate network effects and defend their marketplace as they strive for critical mass. If the ecosystem reaches critical mass, founders must avoid being disintermediated by participants connecting off-platform and deal with one or both sides of the market multi-homing. Oh, and it doesn’t hurt to have a solid understanding of game theory.

And that’s not all. Innovators also have to keep pace with the rapidly changing dynamics of platforms and marketplace strategy. In their latest white paper on the future of platforms and ecosystems, Boundaryless SRL covers a wide range of trends and insights emerging from the world of platforms and ecosystems, including:

• Marketplace Pervasiveness — how vertical niches and managed marketplaces are emerging and the dynamics of when to employ each strategy.
• Risk & Governance — how taking a complexity science approach to network governance enables ecosystems to cope with escalating existential threats to business and society.
• The Unbundled Organization — how firms themselves are unbundling and re-bundling around problems to be solved, enabled by an emerging common protocol for organizing.
• Technology Revolutions and Narrative Shifts — how AI is powering prescriptive outcomes in vertical/niche managed marketplaces focused on efficiency and convenience while agent-centric crypto-technologies simultaneously enable new distributed forms of entrepreneurship that address diversity and local resilience.
• 21st Century strategy — how strategy is evolving with multi-scale variety, in a post-competitive way while being driven by the environment within which an organization is embedded.

There’s a lot to learn and it’s not for the faint of heart. And while most innovators focus on platformizing value chains and marketplace strategy, it is network governance, the unbundling of organizations, agent-centric technology, and entangled strategy that point toward a very different way of approaching platforms and ecosystems. That’s because platform strategy alone won’t ensure a long-lived ecosystem. Once one has mastered the art of platformization, chances of success are still less than 2 in 10. That’s right. The success rate for platform ecosystem initiatives is around 15%.² And most that have succeeded in orchestrating marketplaces are technology giants with embedded network effects, strong defensibility, and deep pockets. That means if you approach platforms and ecosystems the way that the 15% that have succeeded to date, you’re competing in a red ocean.

So, what can platform innovators do to increase their chances of long-term success? In the remainder of this essay, I introduce a way of thinking that complements a mastery of platform strategy, promotes longevity, and ultimately accesses the true power of ecosystems.

The true power of ecosystems

To access the true power of ecosystems, it helps to review how our understanding of them has evolved — from a biological concept to a business metaphor to a literal understanding of how complex systems endure over vast timescales.

The term ecosystem was coined in 1935 by Arthur Tansley, a botanist who sought to recognize the relationship between living things and their physical environment as an inseparable, fundamental unit of ecology.³ The concept emerged as a metaphor in business in the early 1990s in James F. Moore’s Harvard Business Review article, “Predators and Prey: A New Ecology of Competition.” Moore defined a business ecosystem as [bold emphasis mine]

“an economic community supported by a foundation of interacting organizations and individuals [that] coevolve their capabilities and roles, and tend to align themselves with the directions set by one or more central companies.”

Moore’s view asserted interdependence as a competitive advantage and it diverged from the predominant view of “business as machine” that dated back to the enlightenment, Newtonian physics, and the industrial revolution. Author Kathleen Allen elaborates.

“During the twentieth century, we fell in love with the power of the machine. We saw how inventions like the automobile, airplane, computer, robot and smartphone extended the reach of human beings in profound ways. Modern organizations came into being during the industrial revolution. We took the engineering designs we developed to create machines as models for organizational structures and functions.”

For Moore, the ecosystem metaphor recognized that business was less like a machine and more like a complex, adaptive system that enabled new sources of value to rapidly emerge out of collective learning and co-creation. Authors Arnoud De Meyer and Peter J. Williamson summarize succinctly how ecosystems have excelled at this [bold emphasis mine]:

“Discovering new sources of value requires the three key capabilities at which ecosystems excel: a huge potential for rapid, joint learning and innovation; the ability to harness the capabilities of diverse players and channel them toward a common goal through the leadership of an enlightened company; and the flexibility for continuous reconfiguration in the face of an uncertain, fast-changing environment.? ”

Although Moore and the others that have followed have drawn upon several ecological metaphors in applying the term ecosystem to business, most have stopped short of implying a literal relationship between business and nature’s ecosystems. Two concepts from Moore’s original definition of business ecosystems deviate from the complex adaptive ecosystems that exist in nature.

Ecosystems and orchestration

First, the concept that an ecosystem can be directed or orchestrated by an enlightened company or “ecosystem architect” contradicts the fact that ecosystems in nature have persisted for millennia without orchestration. Founder and Chief Scientist of Applied Complexity Science, Joe Norman explains.

“I think [ecosystem] architecture is actually a really fertile place to think about the intersection of what we usually consider as kind of top-down design processes and more living, bottom-up, evolutionary processes. So when we design things, we tend to have an intention about [ ] what we want to achieve, how it might look. And when we think about nature, how it evolves, the general idea is there’s no one deciding those things. [ ] So, what does it mean to grow a system intentionally? How do I structure the environment [and] constraints, set conditions such that a living or [ ] organic system can [ ] develop in a direction that [ ] people [ ] deem as useful. So, the challenge [ ] is to [ ] see [the role of] human agents or even architects [as facilitating] the organic unfolding of the system and not to impose too many directives on it.?

Ecosystems as regenerative, living systems

The other concept that differs from Moore’s original definition of business ecosystems is that they are somehow separate from, or a metaphor for, what occurs in nature. This metaphorical view conflicts with an awareness of how Earth’s natural ecosystems enable human activities. The Earth’s carbon, water, and nitrogen cycles are regenerative processes that produce useful biological materials, absorb waste, and are the means by which the Earth supports all life. We humans are embedded and entangled within these processes and our “business” activities are subject to the same regenerative processes that govern Earth’s natural, living systems. Our lives and our work are part of that living system. Herein lies the true power of ecosystems: the epiphany that WE ARE NATURE and that ecosystems (which have existed for all time) are not just a means to create new, innovative ways of working, they are the means by which every complex system in history has sustained itself. And within the regenerative principles of living systems lie the secrets to longevity in any ecosystem. By embodying regenerative principles in our platforms and ecosystems, we not only enhance their longevity, we also bring human activities into balance with the Earth’s living system, create a pathway for solving our most wicked, existential problems and enable all living things, now and in the future, to thrive. The ability to interact within this context as an embedded participant of Earth’s living system is where the power of platforms and ecosystems becomes profound.

Beyond the machine

And yet, as the internet and digital technologies have proliferated, the Newtonian, machine-oriented language has persisted in how we view business ecosystems. Note the words we use to describe them today: Internet of things, machine learning, artificial intelligence, automation, machine-first mindset, algorithms, platform economy, application programming interfaces, networks. These are all remnants of an industrial mindset that’s increasingly unable to cope with rapidly escalating existential crises.

While the machine view persists, regenerative thinking is rapidly emerging. In her book Doughnut Economics, author Kate Raworth offers an alternative to the machine narrative that has dominated our economic systems. Her doughnut economics framework presents a way to provide for our social foundations (food, energy, water, housing, etc.) within the limits of the Earth’s ecological boundaries. She wonders how our Newtonian view of economic systems (that dictate the dominant view of ecosystems) might have differed had Isaac Newton been curious about complex living systems rather than gravity.

“[Newton] marveled at how an apple fell [and it] prompted his famous insight into gravity [ ] which went on to revolutionise science. [ ] If only — just before that apple fell — young Isaac had also marveled at how it grew: in a fascinating, ever-evolving interplay of trees and bees, sun and leaves, roots and rain, blossom and seeds. It might have led him to equally revolutionary insights into the nature of complex systems, thus transforming the history of science. It would have changed the course of economics too, inspiring his economic admirers with a far more fruitful metaphor.”

And Kate is not alone. Many voices — those of Michelle Holiday and Jean Russell; (thrivability) Joe Brewer and Daniel Christian Wahl (Earth regeneration); Janine Benyus (biomimicry); John Fullerton (regenerative economics); Kathleen Allen (nature-inspired leadership); and Jenny Andersson (economy of place) offer an alternative to the predominant machine view of ecosystems with a new narrative of ecosystems as regenerative organisms. This regenerative view offers new opportunities for platform innovators to incorporate regenerative principles into their initiatives.

Regenerative ecosystems emphasize community health

The living systems and machine views of ecosystems differ primarily by their orientation toward value within a system. Whereas the machine-view of ecosystems tends to focus on the value of the platform as a matchmaking, friction-removing source of efficiency, the regenerative approach emphasizes the health of the ecosystem’s participants as the value-generating life-blood of the system. Although the approaches are not mutually exclusive, as the saying “come for the tool, stay for the network” implies, emphasizing community health offers a compelling means to ecosystem longevity.

And yet, most innovators underestimate the importance of a healthy community to the long-term viability of their platform ecosystems. Over the remainder of this series, I’ll share three areas that embolden community health and enable innovators to make their platforms more regenerative.

In part 2, I’ll share the first of the three areas platform innovators underestimate in their initiatives — the concept of ecosystem intent.