Ecosystems

Within a decade, companies will define their business models not by how they play against traditional industry peers but by how effective they are in competing within rapidly emerging “ecosystems,” comprising a variety of businesses from dimensionally different sectors.

Digitisation is causing a radical reordering of traditional industry boundaries.

What will it take to play offense and defense in tomorrow’s ecosystems?

A world of digital ecosystems

As the approaching contest plays out, we believe an increasing number of industries will converge under newer, broader, and more dynamic alignments: digital ecosystems. A world of ecosystems will be a highly customer-centric model, where users can enjoy an end-to-end experience for a wide range of products and services through a single access gateway, without leaving the ecosystem. Ecosystems will comprise diverse players who provide digitally accessed, multi-industry solutions. The relationship among these participants will be commercial and contractual, and the contracts (whether written, digital, or both) will formally regulate the payments or other considerations trading hands, the services provided, and the rules governing the provision of and access to ecosystem data.

Beyond just defining relationships among ecosystem participants, the digitization of many such arrangements is changing the boundaries of the company by reducing frictional costs associated with activities such as trading, measurement, and maintaining trust. More than 80 years ago, Nobel laureate Ronald Coase argued that companies establish their boundaries on the basis of transaction costs like these: when the cost of transacting for a product or service on the open market exceeds the cost of managing and coordinating the incremental activity needed to create that product or service internally, the company will perform the activity in-house. As digitization reduces transaction costs, it becomes economic for companies to contract out more activities, and a richer set of more specialized ecosystem relationships is facilitated.

Rising expectations

Those ecosystem relationships, in turn, are making it possible to better meet rising customer expectations. The mobile Internet, the data-crunching power of advanced analytics, and the maturation of artificial intelligence (AI) have led consumers to expect fully personalized solutions, delivered in milliseconds. Ecosystem orchestrators use data to connect the dots—by, for example, linking all possible producers with all possible customers, and, increasingly, by predicting the needs of customers before they are articulated. The more a company knows about its customers, the better able it is to offer a truly integrated, end-to-end digital experience and the more services in its ecosystem it can connect to those customers, learning ever more in the process. Amazon, among digital natives, and Centrica, the British utility whose Hive offering seeks to become a digital hub for controlling the home from any device, are early examples of how pivotal players can become embedded in the everyday life of customers.

For all of the speed with which sector boundaries will shift and even disappear, courting deep customer relationships is not a one-step dance. Becoming part of an individual’s day-to-day experience takes time and, because digitization lowers switching costs and heightens price transparency, sustaining trust takes even longer. Over that time frame, significant surplus may shift to consumers—a phenomenon already underway, as digital players are destroying billions to create millions. It’s also a process that will require deploying newer tools and technologies, such as using bots in multidevice environments and exploiting AI to build machine-to-machine capabilities. Paradoxically, sustaining customer relationships will depend as well on factors that defy analytical formulae: the power of a brand, the tone of one’s message, and the emotions your products and services can inspire.