Saturday, March 25, 2006
Emergent Ecosystems for Next Generation Business Innovations
My colleage Bala Iyer and I have been working on the concept of emergent ecosystems as a central concept to understand the network era. Our ideas are that:
1. Business requirements in the industrial era led companies to form ecosystems through alliances and partnerships through formal mechanisms (minoroty equity investments; joint ventures, joing marketing, joint R&D and so on). These resulted in designed ecosystems as different companies formed their set of linkages over time. Iansiti and Levin's book on the Keystone Advantage is a good reference. Business and academic publications have long focused on such ecosystems as ways to understand how companies create new capabilities and capture new sources of value. Researchers have used ex-ante assessments of how such designed ecosystems could create value through the lens of stock market reactions to the formation of joint ventures (see my work published in 1991 as an example).
2. Web 2.0 (especially mash-ups) creates possibilities that complement those formal relationships. And Web 2.0 is becoming real through creative efforts of many that are creating new and varied functionality. Links are formed as third parties innovate using data and applications from others to create new functionality. Bala Iyer's blog has pictorial representation of such mashups based on data assembled in the programmableweb site. These mashups create not designed ecosystems (through formal agreements between two or more companies) but emergent ecosystems through creative repurposing of data and applications. We need new lenses to understand the formation of such ecosystems as well as assessments of their value and impact. My colleagues and I are working on different ways to represent the dynamics of emergent ecosystems as well as assessing their impacts.
3. It is easy to dismiss many mashups as fun, playful creations devoid of any future business value (see a recent NY Times Article on how different venture capitalists are betting on this trend). More important: we need to understand the potential role of such mashups in creating new business innovations. What do sites such as housingmaps and zillow do to change the business landscape of real-estate? We need to understand their potential roles: Do they eliminate friction and ease commerce on the web as ebay did? Do they create one-stop shopping as Amazon did? and so on. In other words: not all mashups are the same (jus as not all websites are the same!). Richard MacManus offers a classification of Mashup business models; it is a good start. What we are trying to do is to come up with a classification that is based on the rigors of taxonomies reflecting underlying dimensions such that the models are mutually exclusive and collectively exhaustive (at least for now). More important: web 2.0 does not seem to have the frenzy of get-rich-quick through flipping companies through IPOs. Chris Anderson of the Wired Magazine gives his reasons why this boom is different.
Experimentation has just started.
4. It is clear that some companies such as Amazon, eBay, Yahoo, Google and Microsoft have started along the path of trying to understand how mashups enhance (and potentially destroy) their current offerings. Amazon seems to be building up the basic infrastructure to migrate their business model from e-commerce through books to something much broader and deeper. I find Microsoft's moves in this area interesting as they have so much to lose if they do not migrate their business models away from the physical world offerings. Track what these companies are doing to let the innovation community build creative, useful business models.
Mashups are more than creations in technology playpens. They could unleash emergent ecosystems that may shape how we craft successful strategies using the functionality of web 2.0.