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Digitization of Ecosystems and Innovation Processes

The Internet and digitization have made innovation processes a lot more dynamic in recent years. Producers and users became networked and were given the opportunity to exchange information and knowledge.

Thanks to digitization, products and services can be built up from a rich variety of standardized building blocks, which can be endlessly reconfigured, changed and supplemented.

Value chains, the various process steps by which products and services are created, are fragmented as a result. Each process step can be filled in again, chains can be reassembled. As a result, providers can enter each other’s markets, resulting in new power relationships. Markets converge and players are therefore more often faced with a choice: enter new markets independently or seek cooperation based on strengths and further specialization.

Innovation has increasingly become a process of co-creation. In addition to large companies, knowledge institutions and governments, users and small companies can also play a role in the development, production, financing and distribution of new products and services.

Coordination of cooperation

In these ecosystems of co-creating players, platforms such as Innovation consulting play an important role. Platforms enable the different players to coordinate their efforts. Costs, risks and competencies can be shared, supply and demand are brought together, and standardized building blocks create new economies of scale that provide a basis for just as many new applications and services.

The innovations around these platforms are often numerous, fast and disruptive. Platforms for innovation generate innovations, giving access to a greater or lesser extent to third parties to add or contribute.

Platforms are the carriers of innovation in ecosystems, communities of collaborating and competing innovators. The way in which platforms are used determines the rules within which the various parties interact with each other and the degree of freedom of players to contribute their own building blocks or to modify existing ones. The design of the platform, consisting of the technological possibilities and the strategic choices and social agreements that the various players make around the platform determine the collaboration and the dynamics.

Here we see a wide spectrum of platforms that are more open or closed and platforms that are more competitive or where a culture of collaboration and sharing is paramount. Platforms provide a basis and breeding ground for numerous innovations.

Platform characteristics

Technically, a platform can be seen as a modular system that can be modified and expanded. Digitization contributes to the modularization of products and ensures programmability and thus increases the impact on coordination and convergence.

From an economic point of view, a platform is a two-sided or multi-sided market that brings buyers and providers together and is a strategic transaction point for these players.

Platforms can also be described as evolving micro-organizations that can develop from internally large organizations to organizations that operate within a closed ecosystem or can extend across an entire industry or society. The Internet is such a widely shared platform on which providers build their own platforms.

The rules of the game around platforms guide and program the competitive relationships and innovation dynamics. Platforms make use of so-called network effects. User groups are important for platforms. These are not just passive consumers and buyers of products but in certain cases producers and users who generate value for the platform by evaluating products or offering them to other users.

The degree of use and the size of the user group often determine the value of the platform. More use attracts more users, both on the demand side of users and on the supply side of the platform. These network effects make platforms particularly powerful and interesting for many entrepreneurs.

Digitization and the Platform Strategy

A growing number of companies work with platforms and are exploring various platform strategies. Most notable are young start-ups such as Uber and Airbnb, which build on the social internet and the sharing economy, and large established companies such as IBM, Google, Nike, Cisco, Amazon, SAP and Apple.

In their initial phase, platforms suffer from the chicken-egg problem. The biggest challenge for platforms is to initiate use. After that, the network effect can do the rest and the value of the platform can continue to grow through increased use. From these examples, we learn something else about a successful platform strategy: most value is on the user side, at the transaction point where supply and demand meet. Many platform leaders, therefore, position themselves at this transaction point, for example by setting up a marketplace where supply and demand can meet.

Different scaling platforms

Platforms come on a variety of scales: within a single company or group of companies, within supply chains, and as an industry platform. We see more and more companies adopting a strategy of moving from product vendor to platform provider. They open up their products and invite other players to develop applications and innovations based on their products. The so-called Application Programming Interface (API) plays an important role in this. This standardized interface ensures that the developed applications work seamlessly with the hardware and software. In addition, the API simplifies work for developers.

Companies are opening up their products to ensure that their products are more successful against the competition and have more interesting applications for users. At the same time, they give up part of their control over their product or service and become more dependent on third parties. As long as the collective pie grows, all players benefit from it, or so the idea is.

The second part of this platform strategy is to capitalize on the value that users can add to the platform. Consumers become users, which leads to new customers such as advertisers and service providers. A common strategy is to sponsor one side of this marketplace in order to increase the number of users. We also see that companies are building on their strengths and that new specializations are emerging as a result of digitization.

Opportunities for innovation

Platforms offer opportunities for many and fast innovations. In barely five years, the balance of power in the world of the internet and telephony has changed radically due to the arrival of smartphones and app stores. These platforms simultaneously offered companies such as Instagram, Rovio and WhatsApp an opportunity to grow rapidly in a short period of time. They could reach an audience of millions without having an extensive distribution network themselves and without making expensive investments in hardware and customer contacts.

In addition to these apps, a growing number of developers are working on making peripherals that work with smartphones, such as heart rhythm meters, car navigation and thermostats. A whole new ecosystem has emerged in which new applications are being developed that can benefit consumers, businesses and society.

Saaim
Saaim
A computer science graduate. Interested in emerging technological wonders that are making mankind more approachable to explore the universe. I truly believe that blockchain advancements will bring long-lasting revolutions in people’s lives. Being a blogger, I occasionally share my point of views regarding the user experience of digital products.
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