Industry lines are blurring and value chains are consolidating into ecosystems

While ecosystem-building has been a red-hot topic in the business world in recent years, the COVID-19 crisis has amplified the importance of digital interactions and will likely further accelerate the adoption of digital-ecosystem business models. Our global consumer sentiment surveys indicate that the spike in online sales will continue to some extent even after the crisis is over, and that 71 percent of consumers are ready for integrated, ecosystem offerings.  Business-to-business interactions are changing too. For example, in April 2020 in the US, 80 percent of business-to-business sales teams had shifted to remote working, and businesses rated digitally-enabled interactions with business-to-business customers as being twice as important as traditional methods, a 30 percent increase compared to the start of the crisis.

Most global companies are now actively considering the ecosystem business model given its value-generation potential: growing the core business, expanding the network and portfolio, and generating revenues from new products and services. The integrated network economy could represent a global revenue pool of $60 trillion in 2025 with a potential increase in total economy share from about 1 to 2 percent today to approximately 30 percent by 2025.  

How can companies define an ecosystem strategy to fit their needs?

Leading companies are increasingly offering an interconnected set of services—from Alibaba offering a broad ecosystem of lifestyle services (including retail, payments, credit scoring), to Apple launching an AppleCard with Goldman Sachs (expanding on ApplePay), and BMW/Daimler creating a shared mobility ecosystem with a number of startups (Car2Go, moovel, Mytaxi) under the Your Now brand.  

However, we still see that many companies that have tried to replicate the ecosystem successes of tech giants like Google and Amazon have struggled. Because ecosystems are complex, defining the right approach to capture maximum value from them is challenging. We recommend that companies determine their ecosystem strategy by assessing market characteristics and trends as well as their “fit” within specific ecosystems. Companies also need to assess their value-creation agenda—whether it is to grow the core business, create new products and services, build an end-to-end solution for a new segment, or improve operational efficiency.  

How can companies capture the value of ecosystem strategies?

Companies can capitalize on five key value levers, in line with their value-creation agenda, and we see three archetypes emerging (See Exhibit 1).

Archetype 1: Growing the core business through partnerships or building an ecosystem from scratch

Companies in this archetype derive value from earning improved revenue from core products and services and merchant-funded platform usage. At first, the ecosystem enables the company to sell more existing products to more customers. Once the ecosystem is established, and reaches the desired scale, the company can provide more extensive service offerings. It can also use its platform to attract merchants, which it can charge for using it, creating more value.

In March 2013, Danske Bank launched its MobilePay app as a P2P payment solution to acquire more customers. The app is free to all consumers, not just the bank’s customers, and collects fees only from merchants for transactions. Today, D&B Hoovers estimates MobilePay A/S revenue at $23.1 million, 80 percent of which comes from transaction fees (improved revenue from core services), and the rest from monthly fees merchants pay for value-added services (merchant-funded platform usage).

Archetype 2: Expanding the network and portfolio on the platform, generating revenues from new products

Companies in this archetype derive value from mining higher customer lifetime value. Companies can capture value from many sources including customer-funded new products and services, merchant-funded platform usage, and third-party-funded data monetization.

Telefonica, a European telco, has been actively leveraging its customer data and insights to develop new IoT (Internet of Things), digital content, and healthcare services. In July 2019, for example, the company partnered with Tunstall Healthcare, an international UK-based provider of digital health and connected care solutions and services, to develop services for remote patient management.  

Tencent has successfully pursued multiple value sources. Its two social networking products, QQ and WeChat, generate revenue from merchant fees for e-commerce, payment, digital content, and advertising services as well as from customers who pay for value-added services. New consumer products and services now constitute over 50 percent of Tencent’s total revenue. The contribution of third-party-funded data monetization to its total revenue is now 20 percent, while merchant-funded platform usage accounts for 25 percent.