Ecosystem vs Egosystem – Quo Vadis?

In this expert view, you will learn

  • how to avoid an egosystem and how to build a real ecosystem,
  •  what you should look for when choosing partners for an ecosystem and
  • whether you should build your own ecosystem or participate in an existing system.

Definition of an ecosystem

The term ecosystem originates from ecology. James F. Moore was first to use this term in an economic context in 1993 in the article “Predators and Prey: A New Ecology of Competition“, published in the Harvard Business Review. Already in his initial statement, Moore makes it clear that for companies, it is impossible to grow in a vacuum. For their growth, they need cooperative networks – ecosystems.

A commercial ecosystem is an association of companies / players who are geared towards a joint creation of values by an orchestrator. The customer benefit of an ecosystem is higher than the overall performance of the individual players.

Digital ecosystems consist of companies, people, data, processes and things that are connected through the shared use of digital platforms. The importance of digital ecosystems can no longer be denied and offers enormous potential for growth. The Platform Index, which combines 15 of the largest digital platforms, provides a great visualization of this idea.

Egosystem

“To offer an enormous customer benefit” doesn’t that sound great and shouldn’t that be the goal of every company? However, if you talk to industry representatives and corporate decision-makers, it quickly becomes clear that many companies are not at all interested in building a “real” ecosystem. There is great fear that their own customers might cooperate with competitors if they are acting as one common ecosystem.

Nevertheless, there is a natural interest to participate in the hype of digital ecosystems. Thus, a concept is developed and launched, however, the prevailing anxiety creates a “pseudo-ecosystem”. There are no providers from the same segment, and even partners who supplement their own services participate in the network at a rudimentary basis. An “egosystem” is created instead. This may be good for your own ego and your own PR, however, it usually only plays a subordinate role for the customers, as no real added value is generated. Additional sales and new customers, therefore, fail to materialize.

The complexity of such a project is another reason for many companies to be so reluctant to set up their own ecosystem. On the one hand, new organizational and technical structures must be created that are not available in the parent organization. On the other hand, establishing an ecosystem is quite difficult. Starting with the acquisition of the individual players – keyword “multi-sided-market” – up to the development of fundamentally new offers, a lot of know-how, time and capital must be invested in the beginning. This is another aspect where the approach is usually half-hearted, and an egosystem is created, which is only about the own existing structures and products. There is no trace of co-creation, cooperation and the creation of common values.

Should you build your own ecosystem, or should you participate in an existing one?

Digital ecosystems have enormous potential for the development of new digital products and business models. According to the study “Successful business models with IoT platforms and ecosystems” we conducted last year, these two points are the main factors for establishing or participating in digital ecosystems.

Eco-System-vs-Ego-System_Eco-System-Goals

However, it is not always necessary to create a separate ecosystem in order to achieve these potential goals. Often, the first ecosystems in which a company can and should participate already exist. 

In fact, this is probably the easier step, and it is one reason why almost half of the companies surveyed in the study participate in other companies’ ecosystems. After all, one third of the companies are building their own ecosystem, which hopefully is a real ecosystem and not an egosystem.

Eco-System-vs-Ego-System_Eco-System-Strategy

The advantage of connecting to an existing ecosystem is that you save the initial setup work and still have the possibility to benefit from the network effects.

If you can build, establish and profitably monetize your own eco-system, you can expect a higher ROI in the long term. By providing new products and business models, the ecosystem earns money with each transaction, regardless of whether it is the parent company or a competitor.

Concerning this, Amazon can be taken as an example: Having started a virtual bookselling platform, they have built up the online marketplace to such an extent that they are no longer just traders. They have opened their marketplace to any seller. After the initial setup, they are involved in every transaction and every sale on a percentage basis and thus generate a significantly higher turnover than if their web shop had not been converted into an ecosystem.

How to select the right partners so that my system does not become an egosystem?

No matter whether you want to set up your own ecosystem or whether you want to participate in one – its success depends on the participating partners. They should have the same mindset and always have the added value for the customer’s mind. This is the only way to avoid an egosystem. When choosing your partners, you should consider the following:

  • Each participant in the ecosystem should be very strong on his own. If unsuccessful companies are taken up, this will have a negative impact on the entire ecosystem.
  • There is a considerable added value for the customers creating something that cannot be achieved in the same way if individual offers are purchased separately.
  • All partners are willing to share their information and knowledge and to make it available to the ecosystem.
  • All partners are willing to experiment together to develop new digital products and business models.

If you observe and follow these points, you don’t risk developing an egosystem. It will bring you a great deal closer to a functioning ecosystem.

Other factors for the success of a digital ecosystem

You need more than just the right partners and their management to successfully build a digital ecosystem. Further things that need to be considered:

  • Creation and structuring of the database, a data lake
  • Processing of the data by Machine Learning & Analytics
  • APIs for the access of the respective partners
  • Business logics & payment models depending on the use cases
  • A new way of thinking in your organization and management

To sum it up, it can be said that ecosystems should be like Lego blocks: compatible, expandable and very flexible.

Can I build my own ecosystem, and do I want to?

Now you only have to answer the following question: “Can build my own ecosystem and do I want to do so, or do I join an existing one? Or do I want to do both?”

You should think about this very carefully. For many companies it is not worth the effort to have their own ecosystem: In addition to the very complex structure mentioned above, it is also necessary that you maintain and expand the system, as well as to communicate with existing partners and attract new ones. It is inevitable to invest a considerable amount of resources. It is necessary to be careful.

If you don’t want to deal with this question alone, feel free to contact us.

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Would you like to discuss your options regarding digital ecosystems? We are happy to help you.

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