How Healthy Is Your Business Ecosystem?

Paying attention to the right metrics and red flags will help leaders sidestep the most common pitfalls in the four phases of ecosystem development.

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Companies that start or join successful business ecosystems — dynamic groups of largely independent economic players that work together to create and deliver coherent solutions to customers — can reap tremendous benefits. In the startup phase, ecosystems can provide fast access to external capabilities that may be too expensive or time-consuming to build within a single company. Once launched, ecosystems can scale quickly because their modular structure makes it easy to add partners. Moreover, ecosystems are very flexible and resilient — the model enables high variety, as well as a high capacity to evolve. There is, however, a hidden and inconvenient truth about business ecosystems: Our past research found that less than 15% are sustainable in the long run.1

The seeds of ecosystem failure are planted early. Our new analysis of more than 100 failed ecosystems found that strategic blunders in their design accounted for 6 out of 7 failures. But we also found that it can take years before these design failures become apparent — with all the cumulative investment losses in time, effort, and money that failure implies.2

Witness Google, which made several unsuccessful attempts to establish social networks. It invested eight years in Google+ before shutting down the service in 2019. One reason for the Google+ failure was its asymmetric follow model, similar to Twitter’s, in which users can unilaterally follow others. This created strong initial growth but did not build relationships, which might have fostered greater engagement on the platform. The downfall of another Google social network, Orkut, was built into its unusually open design, which let users know when their profiles were accessed by others. It turned out that users were uncomfortable with this lack of privacy, and the network went offline in 2014, 10 years after its launch.

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References

1. M. Reeves, H. Lotan, J. Legrand, et al., “How Business Ecosystems Rise (and Often Fall),” MIT Sloan Management Review, July 30, 2019, https://sloanreview.mit.edu.

2. U. Pidun, M. Reeves, and M. Schüssler, “Why Do Most Business Ecosystems Fail?” Boston Consulting Group, June 22, 2020, www.bcg.com.

3. R. Adner, “The Wide Lens: A New Strategy for Innovation” (New York: Penguin/Portfolio, 2012).

4. B. Popper, “YouTube to the Music Industry: Here’s the Money,” The Verge, July 13, 2016, www.theverge.com.

5. Y. Kageyama, “Toshiba Quits HD DVD Business,” Los Angeles Times, Feb. 19, 2008.

6. D. Kirkpatrick, “The Facebook Effect: The Inside Story of the Company That Is Connecting the World” (New York: Simon & Schuster, 2010).

7. D.S. Evans and R. Schmalensee, “Matchmakers: The New Economics of Multisided Platforms” (Boston: Harvard Business Review Press, 2016).

8. “Covisint Price Tag: $7 Million,” aftermarketNews, June 10, 2004, www.aftermarketnews.com.

9. J. Phillips, “OpenTable Launches New Campaign to Combat Reservation No-Shows,” San Francisco Chronicle, March 21, 2017, www.sfchronicle.com.

10. F. Gillette, “The Rise and Inglorious Fall of MySpace,” Bloomberg Businessweek, June 22, 2011, www.bloomberg.com.

11. G. Press, “Why Yahoo Lost and Google Won,” Forbes, July 26, 2016, www.forbes.com.

12. Kirkpatrick, “The Facebook Effect.”

13. A. Yosilewitz, “State of the Stream 2019: Platform Wars, the New King of Streaming, Most Watched Game and More!” StreamElements Blog, Dec. 19, 2019, https://blog.streamelements.com.

14. A. Khalid, “YouTube Is Now the Biggest Threat to Twitch,” Quartz, Jan. 28, 2020, https://qz.com.

15. L. Debter, “Etsy’s Push to Compete With Amazon Leaves Sellers Squeezed by Rising Costs,” Forbes, Feb. 27, 2020, www.forbes.com.

16. K. Cox, “Antitrust 101: Why Everyone Is Probing Amazon, Apple, Facebook, and Google,” Ars Technica, Nov. 5, 2019, https://arstechnica.com.

17. T.S. Perry, “Drawing the Line Between ‘Peer-to-Peer’ and ‘Jerk’ Technology,” IEEE Spectrum, July 18, 2014, https://spectrum.ieee.org.

18. M. Harris, “The History of Napster: How the Brand Has Changed Over the Years,” Lifewire, Nov. 18, 2019, www.lifewire.com.

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