Many of the companies I work with aspire to build an ecosystem around their product portfolio. The idea of having others complement your offering and increasing its stickiness while taking a cut of the revenue generated by these complementors is, of course, incredibly appealing.
As with most things in life, if something sounds too good to be true, it often is. To be successful in building an ecosystem around your portfolio, several aspects need to be in place. One of these is that the product portfolio has to be platformized around a common set of APIs and a common control point that ensures that the company maintains control of its ecosystem and doesn’t get disrupted.
In my experience, product-centric companies often have difficulty adopting a platform strategy as the product teams need to give up a significant amount of freedom in how they work with their customer base. The interfaces provided to the customers of the various products need to be harmonized to ensure that third-party complementors can address as large a customer population as possible. These interfaces aren’t only some APIs but also UI frameworks, standard workflows and standardized services, like authentication and data storage. Such harmonization across the product portfolio tends to lead to significant tensions.
Companies can be classified as project centric, product centric or platform centric. Each category has its specific processes, culture, norms and values. For example, a project-centric company, as the name suggests, maps all efforts to projects. Software-intensive systems that require a constant flow of maintenance, changes and new functionality often have a hard time in these organizations as the culture is organized around executing a project, finalizing it and being done with it.
Similarly, product-centric companies have great difficulty funding common infrastructure investments, such as basic platform functionality, as the funding, the priorities and the ways of working are centered around products. It’s therefore extremely difficult to get a platform-centric way of working in place as it goes against the way these companies function.
Product-centric companies typically want to build an ecosystem around each product. In the vast majority of cases, this is a complete fallacy as the customer base for individual products is too small to reach the ‘ignition point’ where the number of complementors and the number of customers using these complementors’ extensions is large enough to be self-sustaining. We need the customer base for the entire product portfolio as a basis for the ecosystem to reach the ignition point sooner and with less investment.
Consequently, to be successful in building an ecosystem around the product portfolio, the company should transition from a product-centric to a platform-centric operating model. One of the key enablers is the superset platform approach. This requires organizing all of R&D around a single, common code base, harmonization of feature requests around a common governance mechanism, automated product derivation for all products in the portfolio, automated testing and, over time, deployment and DevOps. A superset platform approach allows for common APIs, UI frameworks and standardized services in ways that are much more difficult to achieve in a product-centric approach.
A key factor in opening up the product portfolio to complementors and customers is to ensure a control point, ie a mechanism that prevents others from disintermediating your platform and engaging in a direct relationship without involving you and your platform. As discussed in an earlier post, complementors will seek to push your platform into commoditization and become the sole providers of differentiation that customers care about. Once they’re successful, the next step will be to separate from the platform altogether. The purpose of the control point is to ensure that this can’t happen. Various mechanisms can be employed including forcing all complementors to use your authentication mechanism, storing all data on your servers so that complementors don’t have their own data access and legal mechanisms that allow you to cut them off.
Although all companies aspire to be the king of their own hill, most are (also, mostly or exclusively) operating as complementors in another company’s ecosystem. Building and growing a valuable business in that context also requires a proper understanding of that business’ ecosystem as the platform provider can decide to move into your space and disrupt you by providing as part of the platform the functionality with which you used to make a living. Understanding the dynamics of the ecosystem can allow you to proactively move and take action before you become a victim of forces that are impossible to control as a complementor.
Every company desires to be a platform company but few understand what this entails in terms of preconditions, changes and practicalities. Especially reaching the ignition point in an ecosystem requires significant investment, a well-defined strategy and exceptional execution of that strategy. The payoff is amazing, but getting there is a hard journey. As former Nokia CEO Stephen Elop said, it’s no longer a battle of devices; it’s a war of ecosystems. And that’s increasingly the case for many industries.