The Ecosystem Economy — How to create Sustainable Digital Business

Companies that want to be successful in the digital age must first overcome classic patterns of thinking. An initial and still widespread belief is that digital transformation is about technology. In truth, the real potential lies in the transformation of the customer experience — away from products to comprehensive service experiences that connect the digital and analog worlds. This is accompanied by a second paradigm shift — competition no longer takes place solely through differentiation. Rather, advantages through collaboration and networking between companies are becoming increasingly important. Particularly considering that the individual product is becoming less important than the associated service, the importance of collaboration and networking is increasing.

Business models based on collaboration and networking can be found in digital ecosystems. Whether Amazon, Apple or Alipay — examples can be seen in almost all areas of our everyday lives. Just as in non-digital ecosystems (e.g. Nestle’s Nespresso system), value is created jointly by the involved partners. And at least in theory, this value creation is also a win-win for all partners involved. In digital ecosystems as we know them today, however, the profit is primarily on the part of the initiator of the ecosystem. With each individual transaction, the initiator’s profit grows and, at the same time, so does his power to shape the rules of the ecosystem in his favor.

There is no doubt that ecosystems have become an integral part of our everyday lives. But there is also no doubt that a concentration of profit and power, as we see in the digital world today, has a negative potential for both the economy and society as a whole (see Surveillance Capitalism).

So can digital ecosystems be created where power and profit is balanced between partners in the ecosystem?

The power in digital ecosystems

In order to find alternative approaches to the concentration of power of ecosystem initiators, it is first necessary to understand where this power actually comes from. In my view, three main factors are decisive here:

The control of users

No doubt, the success of an ecosystem depends on the number of users. Acquiring and retaining these users is the great challenge. Today’s digital ecosystems usually have a product at their core for which users are willing to create an account and disclose (at least) the identity data required for use in the ecosystem. This account and the application-specific identity are usually controlled by the initiator of the ecosystem, who thus secures his position of power.

The control of the core application

The benefit of an ecosystem lies in the core application, which are generally operated by the initiator of the ecosystem. Protecting these core applications, whether through technological or processing hurdles or even through patents, secures the initiator’s supremacy in the ecosystem.

The control of the rules of the game in the ecosystem

Under the rules of the game, I would like to summarize the things that are needed to operate the ecosystem. These include, for example, the requirements for participation, the rules for working in the ecosystem, but also the standards for the exchange of data and values. In a classic digital ecosystem, these rules are defined by the initiator, who thus creates another pillar of his power position.

The open digital ecosystem

So if digital ecosystems should now be created in which there is no such supremacy by the initiator, these three topics must be addressed differently than is usual today.

Digitally empowering the individual

A successful ecosystem needs many users. Building up such a user base is difficult or even impossible, especially for companies that are not among the digital giants. So what if the users were already there before the ecosystem was built? This can work with the Self Sovereign Identity approach. In traditional systems, the digital identity of a user is controlled by the provider of a service. With Self Sovereign Identities, this control lies now in the sovereignty of the user as the identity owner. This means that the user can determine for him or herself which services he or she uses with this identity. This can be compared with a retail store in the real world. If you want to shop there, you don’t have to register beforehand. You simply go in and make a purchase. Under certain circumstances, your identity may have to be verified, for example, if you buy products that are only permitted from a certain age. This verification also takes place in the retail-store using your identity document (ID card), which is in your wallet. Registration or data storage with the owner of the retail store is not required. With self-sovereign digital identities, this obviousness is being transferred to the digital world for the first time. As a result, a provider of a digital service can now interact with all potential users. Self Sovereign Identities are thus a basic prerequisite for digital sovereignty, not only that of the users but also that of the corporate players in an ecosystem. Unfortunately, for most companies today, the demand to control user data is still at the forefront. A dead end for all those who do not have enough power to control the market.

Create data centric architectures

In an open digital ecosystem, there is no core application per se. If possible, all players cooperate at eye level to achieve a common purpose. This can be based on common interests or a regional relationship, for example. Cooperation on an equal footing will only work if the necessary processing of data does not lead to information asymmetry and thus to a one-sided shift in the balance of power between the actors. One approach to solving this problem is to change the architecture paradigm from today’s application-centric to data-centric. Application-centric architectures, as we know them today, collect and store all the data a user provides within the application. The user’s data is therefore permanently linked to the application. Applied to the example already introduced from the non-digital world, this means that every shopkeeper from whom I buy, keeps all my data and checks it for correctness on my next visit. Data collection is driven by the supposed advantage of exploitability of this data (data is the new gold). In contrast, the data-centric approach puts the data at the center and makes it independent of any single application. Users store and control their own data and make it available to the applications that use it. The applications work on the basis of this shared data, make their decisions, and return any existing results to the user. In addition to the fact that information asymmetries can be avoided in this way, there are also numerous other advantages, since all actors always work on current data and can thus make decisions faster and more reliably than is possible today.

Joint creation of semantic standards

Digital ecosystems based on Self Sovereign Identities and data-centric architectures require common business rules just like other ecosystems. Since there is no single initiator to determine these alone, they must be found in the community. In practice, this represents a major hurdle, since very few players have experience in such topics. On the technological level, more and more standards have been emerging for some time for the management, exchange and verification of data according to the aforementioned paradigms. How standards can be set and maintained at the semantic level by actors is the concern of initiatives such as Trust over IP Foundation. In the end, however, it will be of decisive importance whether companies and organizations from the application domains take the step of actively addressing and shaping this part of the digital transformation.

Conclusion:

Success means more than offering alternative products. Successful companies and organizations are forging new paths based on collaboration and shared value creation. They have recognized that in a digital and global world, competitive advantages are not created through differentiation. If supremacy in this digital world shall not lie with a few digital players, companies have to go new ways. Actively building digital ecosystems is one such way. Technology alone will not achieve this. Only those companies who shape their own future will achieve digital independence.