August 2009

"It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change."

Charles Darwin

To paraphrase John Donne, "no business is an island". Any business is part of a complex ecosystem that includes suppliers, customers, partners, and competitors. A successful business is able to leverage its connections within the ecosystem to its advantage.

This article provides an overview of business ecosystems and how they provide opportunities for creative entrepreneurs to foster economic development and wealth creation.

Business Ecosystems

The concept of business ecosystems was introduced by James F. Moore in 1993. Moore defines a business ecosystem as: "An economic community supported by a foundation of interacting organizations and individuals--the organisms of the business world. This economic community produces goods and services of value to customers, who are themselves members of the ecosystem. The member organizations also include suppliers, lead producers, competitors, and other stakeholders. Over time, they co-evolve their capabilities and roles, and tend to align themselves with the directions set by one or more central companies. Those companies holding leadership roles may change over time, but the function of ecosystem leader is valued by the community because it enables members to move toward shared visions to align their investments and to find mutually supportive roles."

In Business Ecosystems and the View from the Firm, The Antitrust Bulletin, Moore provides a summary of his current thinking on business ecosystems.

Today, "ecosystem leaders" are generally referred to as "keystone organizations". Keystone organizations can be large or small, complex or simple, and include not-for-profit or commercial for-profit organizations. Commercially oriented keystone organizations are the most dominant and most successful in terms of economic value created as a whole and for ecosystem members. Examples of commercial keystone organizations include large companies such as eBay, Google and Apple. Not-for-profit keystone organizations are less common and are emergent. Examples of not-for-profit keystone organizations include the Eclipse Foundation, Joomla, Drupal, the Mozilla Foundation, the Apache Software Foundation, and the Open Group.

A keystone organization may evolve organically from a social entrepreneurship activity as did Apache. It may emerge as a spin-off from a commercial entity such as Eclipse. Or, it may be developed explicitly by a commercial operation such as Google.

Successful keystone organizations flourish because they:

  • lead the development, operation and distribution of assets that ecosystem members use to build or deliver products and services

  • link customers to suppliers through branding and community

  • establish trust relationships among ecosystem members through endorsement, certification, and references

  • provide a trusted financial transaction channel, such as a sales channel, between ecosystem consumers and members

  • do not compete with ecosystem members

  • provide a vendor-neutral, equal footing environment for ecosystem members which use the keystone organization's assets

It is important to note that the scope of "vendor-neutral" varies widely in terms of the areas of the ecosystem that are vendor-neutral, and the ability of the ecosystem members to influence the keystone. In general, not-for-profit keystone organizations offer the highest levels of influence to ecosystem members.

Different types of keystone organizations include:

Large Commercial: such as Microsoft, eBay, and Google. The ability for ecosystem members to influence the keystone is low.

Small Commercial: such as 99 Designs, oDesk, and Just Parts. The ability for ecosystem members to influence the keystone is low to medium.

Not-for-Profit Voluntary Donations: such as Joomla, Drupal, and Apache. The ability for ecosystem members to influence the keystone is low to high.

Not-for-Profit Supplier Memberships: such as Eclipse. The ability for ecosystem members to influence the keystone is medium for non-strategic members and high for strategic members.

Not-for-Profit Customer Memberships: such as Lead to Win. The ability for ecosystem members to influence the keystone is high.

The increasing adoption of business ecosystems as a viable business model presents new opportunities for entrepreneurs. Specific examples of how money is made and examples of some business ecosystem keystone organizations are provided below. Advantages and opportunities for the entrepreneur are also provided.

How Is Money Made in a Business Ecosystem?

Ecosystem members make money in the traditional manner: they sell products or services to customers. The business operational model is non-traditional in regard to how the ecosystem member engages with other members of the ecosystem. In an ecosystem, a member competes and collaborates at the same time. The ecosystem member may compete with other ecosystem members and with other ecosystems. Significantly, the ecosystem member also must collaborate with the ecosystem keystone organization and other ecosystem members relative to the development and health of the keystone and its assets.

Keystone organizations need money to operate and sustain their functions. The nature of how the keystone organization makes money depends upon whether it is a not-for-profit or a for-profit commercial business. A not-for-profit keystone organization typically makes its money through the following means:

  • selling memberships

  • selling consulting services

  • selling documentation and books related to the keystone's assets

  • accelerating feature developments on the keystone's assets in return for cash

  • selling support for the keystone's assets

  • selling advertising to associated websites and printed publications

  • selling t-shirts and other items with the keystone's logo or tag-line

  • soliciting donations from ecosystem suppliers and consumers

  • running conferences and symposiums

  • selling company/product listing services for ecosystem members

  • selling training services or courses related to the keystone's assets

  • selling certifications for products which use the keystone's assets

  • selling infrastructure services which the ecosystem's assets use, such as web services

  • selling sponsorships to commercial organizations in return for access to ecosystem members through offering of meetings or special offers and discounts from commercial businesses to its members

  • government grants

For-profit keystone organizations may make money from any of the above, but may also include some or all of the following as key sources of revenue:

  • selling products that are complimentary to the assets that the ecosystem is based on and which are not competing directly with the ecosystem members

Example Business Ecosystem Keystone Organizations

Some examples of keystone organizations which an entrepreneur could participate in today include:

1. Apple Apps Store: allows individuals to sell applications to Apple iPhone phone users, handles delivery and payment, payment is via iTunes accounts.

2. Google Android Market: allows individuals to sell applications to Android mobile phone users, handles delivery and payment using Paypal accounts.

3. Amazon Webstore: allows individuals to sell their products online, providing access to Amazon shoppers and Amazon store tools, handles payments using Amazon accounts.

4. 99Designs: connects graphics designers with customers.

5. oDesk: connects professional services teams or individuals with customers and provides an environment to manage the transaction and working relationship between professionals and customers.

6. Shutterstock: connects photographic and graphic designers with customers.

7. Innovation Exchange: companies and individuals can post challenges and cash, suppliers post responses.

8. Mechanical Turk: people post questions and tasks, suppliers post answers or accept tasks.

9. Cafepress: individuals and companies generate graphic content, Cafepress puts the graphics onto physical products such as mugs and shirts, and handles fulfillment.

10. BookSurge: allows individuals to self publish eBooks via Amazon and their Kindle eBook reader.

11. uTest: connects testing professionals with customers.

12. Crowd Spring: similar to 99Designs.

13. Lulu: allows individuals to self publish books.

14. Beta Test: connects testers with software publishers.

15. Eclipse Foundation: links Eclipse software consumers with suppliers who build on top of the Eclipse open source platform.

16. Just Parts: links consumers of auto parts with suppliers.

17. Top Coder: links software designers with companies who respond to contest proposals.

18. Audio Life: similar to Cafepress but oriented towards music artists who can produce artist related graphics, which Audio Life will then manufacture on physical products and ship to customers.

The following sections compare a commercial and a not-for-profit oriented keystone organization by their keystone characteristics.

99 Designs: Commercially Oriented Keystone Organization

99 Designs is an example of a commercially oriented niche ecosystem keystone. 99 Designs links graphics design suppliers to graphics customers on a global basis. The company itself is a startup based in Australia. 99 Designs receives operating revenue from the transaction processing fees of purchases made between customers and graphics designers who participate as ecosystem members.

The keystone characteristics of 99 Designs include:

Assets to build or deliver products and services: the keystone provides an online platform which allows: i) customers to post requirements; ii) suppliers to submit and compete in contests to win the business; and iii) interaction with graphics designers.

Links ecosystem customers to ecosystem suppliers: through marketing to attract customers to the website. It aims to attract and support a large and talented pool of independent professional and aspiring professional graphics artists.

Establishes trust relationships among ecosystem members: the keystone provides terms of use for both customers and suppliers and provides a single-point of contact for customer service. It develops the platform and offers to match feedback from customers and suppliers.

Provides a trusted financial transaction channel between ecosystem consumers and members: through trusted financial transactions between customer and supplier. The keystone offers arbitration and escrow services.

Do not compete with ecosystem suppliers: by not offering competitive graphics design services. The keystone makes money on the transaction fees and only if the ecosystem participants make money.

Provides a vendor-neutral environment for ecosystem suppliers which use the keystone organization assets: this keystone is graphics-designer neutral.

99 Designs changes the whole cost structure for consumers of graphic art. Traditionally, the preparation of a few logo proposals can take weeks to be prepared and cost thousands of dollars. Using 99 Designs, a corporate logo can cost as little as $200, with multiple high-quality proposals to choose from in less than a week.

Eclipse Foundation: Not-for-Profit Keystone Organization

Eclipse is an example of a not-for-profit keystone organization. Eclipse was a spin-out from IBM and is funded by membership fees, sponsorships and conference fees. Eclipse is headquartered in Canada. Eclipse is currently one of the few examples of a non-for-profit paid-membership supported keystone organization. Its keystone characteristics include:

Assets to build or deliver products and services: this keystone provides a packaged software product which allows: i) suppliers to build commercial applications on top of software development tools; ii) manages the software repository; and iii) controls the content and release cycle as a service to its members.

Links ecosystem customers to ecosystem suppliers: the keystone advertises to attract customers to the website and provides regular speaker engagements in the industry. Eclipse facilitates members interacting to support the development and roadmap of the base platform.

Establishes trust relationships among ecosystem members: Eclipse has a trust relationship with ecosystem members due to its strong backing from IBM and other commercial interests. Over 40% of the organization's budget is provided by IBM.

Provides a trusted financial transaction channel between ecosystem consumers and members: Eclipse does not provide any financial transaction services. All transactions between customers and suppliers are handled independently by the customer and supplier.

Do not compete with ecosystem suppliers: Eclipse manages the roadmap of the product platform and features are contributed by Eclipse and ecosystem members. Eclipse manages the product release cycle and testing. Eclipse does not sell any software products.

Provides a vendor-neutral environment for ecosystem suppliers which use the keystone organization assets: anyone can develop and sell products based on the Eclipse software platform.

Practical Advantages for an Entrepreneur

For an entrepreneur who chooses to build a business in an existing business ecosystem, participating as a member of an ecosystem may offer the following advantages:

1. Market entry barrier reduction: joining an existing ecosystem can significantly reduce the technology barriers to enter a market, which in turn reduces the time to money, startup costs and ongoing operations costs.

2. Access to customers: ecosystems provide ready access to a well-defined, often international, base of customers. Access to customers is often one of the most difficult challenges for a startup to overcome and achieving access to customers can be one of the most expensive operational costs at the early stage of development as the revenue is just starting to ramp.

3. Operations cost reduction: ecosystems provide infrastructure services that reduce operations and startup costs, allowing the entrepreneur to avoid spending time on non-value activities such as information technology, process and technology.

4. Elimination of regional limitations: or local barriers related to access to talent, which no longer restricts a particular business operation to a large population center. The forming and operating of the business can now be location-independent.

For an entrepreneur who chooses to create a new business ecosystem and associated keystone organization, the business ecosystem model offers the following advantages:

1. Makes niche markets viable: keystone organizations can leverage niches by allowing members to make more money than they might as independents due to lack of reach or lack of community.

2. Leverages international disparities: a business ecosystem can allow widely differing costs of labour around the world to be harnessed, which can undermine the economics of incumbent providers.

3. Makes scarce skills abundant: ecosystems can harness under-employed experts and aspiring professionals for a wide variety of products and services.

4. Collaborative communities: help redefine the keystone organization assets to widen its value to member companies; communities can also help develop and sustain the assets to reduce operations costs.

All of these factors make the business ecosystem model well suited to entrepreneurial businesses.

Recommended Resources

Business Ecosystems: A New Form of Organizing Creative Individuals Worldwide

A Practitioners Guide to Ecosystem Development

Leveraging the Eclipse Web Properties



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