Image Courtesy of Harry Campbell/theispot.com
High-growth companies don’t go it alone. Increasingly, they are achieving results by creating and orchestrating digitally connected ecosystems — coordinated networks of enterprises, devices, and customers — that create value for all of their participants.1
Companies whose dominant business model is ecosystem driver — in both B2B and B2C domains, such as energy management, home ownership, and financial services — experienced revenue growth approximately 27 percentage points higher than the average for their industries, and had profit margins 20 percentage points above the average for their industries, according to our research.2 That 2019 global survey of 1,311 executives also found that successful drivers achieve outsized results by attracting the partners needed to provide complementary — and competing — products and services that make their ecosystems seamless “one-stop shopping” destinations for customers.
Complementary offerings make it easier for customers to obtain comprehensive solutions to their problems. For example, when China’s largest insurer, Ping An, realized that its customers wanted not only insurance but also a means of addressing their medical and well-being needs, it created Good Doctor. The Good Doctor platform offers 24-7 one-stop health care services that are provided by pharmacies, hospitals, and about 10,000 doctors. In September 2019, Good Doctor reported serving more than 62 million customers monthly. Moreover, nearly 37% of Ping An customers used more than one of its services in 2019 — an important measure of ecosystem success.3
Successful ecosystem drivers also offer their customers greater choice, even when that entails featuring competing offers. In Australia, real estate platform driver Domain partners with about 35 mortgage lenders to offer homebuyers more loan choices. In the second half of 2019, the company’s Consumer Solutions segment, which consists of its loans, insurance, and utilities connections businesses, grew revenue by 72%.4
As all of this suggests, a strong partnering capability is required to successfully grow digital ecosystems. This capability must be designed to support digital partnering, which is not the same as the traditional handshake and bespoke partnering of the physical world. Traditional partnering often includes exclusive relationships, long-term contracts, and deep integrations, all of which take time to establish and require strategic commitment. Digital partnering creates growth by adding more products and customers via digital connections with other companies that enable fast response to customer needs. It requires the ability to determine and agree with partners about who will create value, how revenue will be apportioned, and what data will be shared; it also requires the capacity to quickly add partners’ products and services via plug-and-play connections that offer immediate order and payment processing, and sometimes delivery as well.
This ability varies widely across sectors (see “Industries Vary in Their Development of Digital Partnering Capabilities”), but in several industries in our survey, the average market share of ecosystems increased with digital partnering capabilities. In manufacturing, average market share rose from 50% to 62%. In services, it rose from 21% to 35%, and in retail, travel, and hospitality, it rose from 10% to 75%. Moreover, we found that companies with above-average reach (new customers) and range (new products and services) thanks to digital partnering enjoyed revenue growth at 9.8 percentage points above their industry average, while companies that did not partner grew at 7.7 percentage points below their industry average.5
To better understand digital partnering in ecosystems, we studied the practices and results of ecosystem drivers. We found that the more successful drivers attended to two principal partnering capabilities: digital readiness and curation.6 Digital ecosystems in the top quartile on digital readiness had an average market share that was 110% higher than the average market share of the bottom quartile. Ecosystems in the top quartile on curation had an average market share that was 128% higher than the average market share of the bottom quartile.
Digital Readiness
Partnering in digital ecosystems requires drivers and their partners to be fully prepared to create and extract value. Financial services giant Fidelity Investments began to focus on capabilities required for digital partnerships in 2017 and now offers a marketplace in its personal investments business; a wellness platform in its workplace services business; and Wealthscape Integration Xchange, a storefront in its institutional business.7 Its experience illustrates how successful digital partnering requires digital readiness that consists of three key characteristics: being distinctive, being digitally organized, and being open.8
Distinctive. To attract partners, a digital ecosystem needs to provide differentiated value that enables it to stand out from its competitors. This value may come in various forms, such as a trusted brand, compelling offerings, low prices, or a superlative customer experience.
As a well-established incumbent, Fidelity was able to leverage its market-leading offerings, its scale, and the trust of tens of millions of existing customers to its new ecosystem. It used these differentiating factors to attract ecosystem partners that could provide additional services and unique value to Fidelity’s customers. For example, as personal investors navigate life events, they can easily access a variety of offerings, such as student loan refinancing and mediation and legal services, through the company’s digital partners. Wealth management companies can access Fidelity solutions and more than 175 third-party technologies, including customer relationship management, financial planning, and portfolio management, in the Wealthscape Integration Xchange.9
Digitally organized. Drivers and their partners need operating models that are optimized for digital ecosystems. This usually requires them to revamp processes used in traditional partnerships, such as procurement, quality control, and legal, and making them more digital and connected. High-performing drivers also eliminate internal silos, use agile methodologies, and leverage data analytics — all of which help them to design for speed and agility when working with digital partners.
At Fidelity, senior executives led cross-business teams to execute 11 fast-track initiatives to bolster its enterprise capabilities, including digital marketplaces and a strategy to API-enable enterprise core capabilities. The company is also undertaking a broad-based cultural shift to encourage partnering, agile teams, and the democratization of data.10
Open. It is easy to connect with good ecosystem drivers and partners. They are able to share their distinctive core capabilities and quickly scale digital partnerships via APIs. We found that digital connections between companies via APIs have significantly increased in the past two years. In 2017, companies shared, on average, 24% of their core capabilities externally via APIs; in 2019, the average had risen to 37% — a 54% increase.11
As Fidelity’s brokerage business transformed from a mainframe environment to a cloud environment, the company built enterprisewide capabilities that promote openness by launching an API store and establishing companywide standards designed to make the APIs easily consumable both internally and externally. In the Wealthscape Integration Xchange storefront, for example, B2B customers can create a custom platform that includes Fidelity’s core services and single sign-on, account opening, and transfer-of-assets functionality with many of the company’s digital partners.12
Curation
To grow through partnering, ecosystem drivers must be thoughtful curators of the products and services they offer. Curation enables drivers to coordinate effectively with their digital partners while creating and growing an ecosystem. Our study found that ecosystems with larger market shares had more open designs (that is, a broader set of companies was invited to partner, offering a wide selection of products to customers). They also spanned multiple ecosystem domains. For instance, Amazon’s ecosystem includes shopping, selling, purchasing, and operations domains, and Siemens Healthineers spans health, finance, daily life, and education domains. In China, WeChat is the go-to ecosystem for a variety of daily activities in the lives of its users.
Bayer subsidiary The Climate Corp. has grown its digital agriculture platform, FieldView, from 5 million paid subscription acres in 2015 to more than 95 million acres in 2019.13 To do so it has curated offerings from about 65 partners, with services such as satellite imaging, soil assessment, and drone mapping, that it integrates into reports, recommendations, and planting programs that help farmers optimize their crop yields. FieldView demonstrates that good curation is composed of three key characteristics: joint goals, sharing benefits, and sharing information.14
Joint goals. The drivers of successful ecosystems establish a shared vision that serves as the foundation for value creation and governance in the ecosystem.
The Climate Corp. curates a diverse ecosystem of services such as analytics, planting prescriptions that can be downloaded to farm equipment, and crop insurance, among others, provided by partners that are complementors and competitors. The company seeks partners that share its vision: “A digital agriculture ecosystem where farmers, globally, can easily access a broad and interconnected set of tools, services, and data to optimize all of their decisions on the farm.”15 Farmers can select from multiple partner offerings on the platform and choose which partners can access their data. Climate ensures a consistent experience for farmers and provides data in one place, leveraging the ecosystem data to improve agronomic recommendations.16
Sharing benefits. Successful ecosystem drivers clarify who captures what value and develop mutually beneficial relationships with their partners. In addition to revenue, these benefits often include customer stickiness, engagement, and visibility. Many of the companies we studied experimented with digital partnering to complement their core offering by curating products of interest to their customers. These offerings were important for meeting customer expectations for more choice, according to executives we interviewed, but they also pointed out that improving customer experience has not necessarily translated into big revenue gains. Instead, it has produced higher levels of customer engagement and stickiness. Similarly, ecosystem partners can benefit from associating with a driver and gaining visibility with their customer base and within their industry.
Climate created an open ecosystem to bring more value to customers and drive innovation in the agriculture industry. The company makes it easy for partners to join the platform through APIs on its developer platform, but there is a rigorous vetting process. A shared incentive for potential partners that may compete with one another to join the FieldView platform is the opportunity for more revenue through visibility and access to Climate’s global base of farmer customers. In other cases, businesses join the platform because their retail partners and farmer customers request integration.17
Sharing information. In digital ecosystems, data is a valuable currency that gives rise to potentially contentious issues, such as access to the identity of customers and their activities. Successful ecosystem drivers define who gets what information and establish guidelines for how it will be shared — both digitally and ethically.
In the FieldView ecosystem, all partners, whether a startup or major company, must agree that farmers will control their own data and choose the partners with whom they will share data. Climate recently terminated a partnership with Tillable, a farmland lease and rental management platform, over concerns that the company may have used FieldView data without the farmers’ consent. In doing so, Climate emphasized data privacy and its guiding principle to make it easy and safe for farmers to share their own data with the digital partners they choose.18
Digital Partnering for Competitive Advantage
None of the six characteristics of digital readiness and curation are easy to attain and sustain, which may explain much of the variation in the performance of ecosystems. Our research found that the top quartile of ecosystems won an average market share of 72%, while the bottom quartile had only a 3% average market share.
Today, at least, digital ecosystems are a winner-takes-most proposition. Effective partnering helps drive that proposition. Both drivers and participants in digital ecosystems stand to gain the most benefits by putting their digital houses in order so that their distinctive value propositions can be easily integrated with complementary offerings, and by choosing partners with shared goals in ecosystems set up to share benefits and information among participants.
Driving Growth in Digital Ecosystems
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