The words “platform” and “ecosystem” are often bandied around as though they mean the same thing, but they have distinct meanings in the digital world. This may seem pedantic, but understanding the difference can influence an institution’s strategic outlook. And while this is not a new debate, it is one that is growing in importance.
In a recent blog entitled “Don’t confuse platforms with ecosystems”, INSEAD professor of strategy, Andrew Shipilov, and Arkwright strategy consultant, Francesco Burelli, tease out the distinction between the two approaches.
At the most basic level, a platform is an asset or business that removes friction from a market, while an ecosystem is a group of firms linked through complementary business activities or expertise, according to the authors.
Today, most banks are neither platforms nor ecosystems, though many have ambitions to head in that direction. To become a platform, a bank needs to enables transactions between two parties “with the value being generated by the transactions themselves”, such as Airbnb. Whereas to become an ecosystem, a bank needs to create value through collaboration with other companies.
Today, most banks are neither platforms nor ecosystems, though many have ambitions to head in that direction
However, is it necessary to choose between being either a platform or ecosystem? The authors highlight the value of being both at once, bringing “buyers and sellers together for transactions across different related businesses offering a shared solution, within the context of a defined value proposition”.
In the context of banking, this could be the much lauded financial lifestyle proposition, where the bank acts as an orchestrator of the ecosystem and brings together not just financial services, such as mortgages, but businesses that help a customer insure, renovate and furnish the new home – which are all integrated into the bank’s platform. With such a model, a customer is more likely to stay within the platform ecosystem “because of a higher personalisation of services or loyalty programmes”, say the authors.
But while many banks aspire to be the next WeChat super app, Google or Apple, both platforms and ecosystems are difficult and costly to create. In their second blog entitled “The five essential roles of corporate ecosystems”, Mr Shipilov and Mr Burelli argue that, rather than setting out to build a platform ecosystem, many would be better off joining an existing one.
They outline the five key roles that are necessary for an ecosystem to succeed, emphasising that some firms cover multiple roles. These include: orchestrator, which understands the key value proposition for the customer; core partner, which provides the core customer base; technology enabler, such as a cloud-based infrastructure provider; complementors, whose offerings enrich the customer value proposition; and resellers, which provide the ecosystem’s offerings as part of their own product or service.
The authors also highlight seven critical questions that should be asked when charting an ecosystem strategy, such as:
- What is the unique value proposition of the ecosystem you want to create?
- Do you have the resources and capabilities to be the orchestrator of a new ecosystem?
- If you only have a narrow offering, and there is already an established ecosystem out there, should you join it as a complementor?
To be a platform ecosystem or to sit within another platform ecosystem seems to be the strategic question facing banks today and one that future success hinges on. Many are hedging their bets and doing a little bit of both. However, to win the platform ecosystem game a bank needs new capabilities, new technology, access to new customers and deep pockets.
Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight
Register to receive the Editor’s blog and in-depth coverage from the banking industry through the weekly e-newsletter.
