One of the first great books about platform business models was The Keystone Advantage by Marco Iansiti and Roy Leven. The book was published in 2004, so it pre-dated the success of SaaS platforms such as Uber, Google, AirBnB, Facebook, and many others. As a result, The Keystone Advantage was a little more about business networks and supply chains than digital ecosystems. But, boy does it ever apply to SaaS Platforms!
The Biological Analogy to Business Ecosystems
A central tenet of the Keystone Advantage is that biological ecosystems are good models for business ecosystems:
… more than any other type of network, a biological ecosystem provides a powerful analogy for understanding a business network. Like business networks, biological ecosystems are characterized by a large number of loosely interconnected participants who depend on each other for their mutual effectiveness and survival. And like business network participants, biological species in ecosystems share their fate with each other. If the ecosystem is healthy individual species thrive. If the ecosystem is unhealthy, individual species suffer deeply. And as with business ecosystems, reversals in overall ecosystem health can happen very quickly.
The Role of the Keystone in Digital Ecoystems
The term “keystone”, is also drawn from biology. The authors say the term describes “a pattern of behavior that improves the performance of the ecosystem and, in doing so, improves individual performance”. Keystones are either special members of an ecosystem or “encoded in universally agreed-to protocols, rules, and goals–that enhance stability, predictability, and other measures of system health by regulating connections and creating stable and predictable platforms on which other network members can rely.”
In 2004, the authors used the terms “keystone” and “ecosystem” to refer to businesses like WalMart and its supply chain, Microsoft and its various ecosystems, eBay as a platform, and payment card networks. Now, we can think of any digital platform operator who, by definition, brings together multiple sides of a market, as a keystone.
Managing The Health of Digital Ecosystems
The notion of a fragile ecosystem is a very useful tool for evaluating digital and non-digital ecosystems. Using this “ecosystem” lens, I have watched over the past 12 years how:
- Walmart and Microsoft managed their ecosystems, while Amazon, Facebook, Apple and Google built their own new, and formidable ones.
- The auto industry struggled with the health of its ecosystem in the form of its tier 1-3 suppliers.
- Digital ecosystem providers have harmed or healed their ecosystems through action or inaction. Examples include:
- MySpace, and to a lesser extent, Twitter failing to police their platforms. (Trolls can ruin an ecosystem fast, just as invasive species can ruin a biological ecosystem.)
- Pricing model changes by Ariba, Angie’s List, HomeAway, and others have risked harming the delicate balance of their ecosystems and created opportunities for competitors.
In summary, whether you are managing a digital platform, or investing in one, consider your platform’s:
- on-boarding process
- product design
- partner relationships
in terns of how they will impact the delicate ecosystem you are creating. Management teams that are not sensitive to these issues will find their platforms short-lived.
Next up: another post about biological analogies for digital ecosystems, the “bowtie”.
Fascinating. What companies are currently building new ecosystems?
All of the major B2C platforms like Uber, AirBnB, Houzz, Thumbtack, Care.com, Upwork etc. are building ecosystems. I see lots of small, private companies trying to do the same in fasteners, CNC machining, apparel and footwear, the list goes on and on. The folks at maketime.io (CNC machining) also clued me into the fact that big companies like Autodesk are also trying to make the transition. I would almost ask, only half in jest, if you are not building an ecosystem, how will you compete? 😉