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Speaking of Starfish and Mussels

Role Distribution and Success Strategies in Business Ecosystems

Working painstakingly, the young man scraped the last starfish from the rocks and threw them out in a high arc into the ocean near Washington. For months now, this odd invader had been coming into the small bay, and he would continue to do so for years to come. In the end, his persistence paid off in a new understanding of the distribution of roles in ecosystems and coined a term that would be meaningfully applied to situations far removed from the boundaries of biology.

 

Why predators save lives

This young man was Bob Paine, a recent graduate with a degree in ecology who conducted his experiment between June 1963 and July 1968 (which he describes in detail in the interview linked below).Over many months, he visited Makah Bay and removed all the starfish (Pisaster ochraceus) he could find. The absence of the predator in the ecosystem caused a shift in the distribution of power among the remaining species. The balance of the system was disrupted – its biodiversity was lost and the area turned into a monoculture of mussels who had lost their natural adversary. Despite their small share in the total population, the starfish had had an overproportionately major impact on the health of the ecosystem – they were the cornerstone of its health. Paine gave this role the name “keystone” species.

Paine surmounted boundaries

His findings were groundbreaking and opened a gateway for science to a new approach for the study of role distribution in ecosystems. Keystones were suddenly everywhere; you only had to know what you were looking for. The findings of the starfish experiment revolutionized more than the perspectives of biologists examining coexistence in classic ecosystems; they broadened the understanding of complex relationships even in systems that had nothing to do with biology.

After examining the question of what exactly a business ecosystem is and where it has its limits in our previous article entitled “Business Ecosystems – Yet Another Buzzword?”, we would now like to turn our attention to the events taking place within such a system. What roles can be found in a business ecosystem, and to what factors should players pay attention to ensure their survival?

VIDEO 

How Ecosystems got a keystone (Hakai Magazine 2015)

 

Keystone – one for all

Like the starfish in the ecosystem of Makah Bay in Washington, keystone companies also fulfill a critical function within their ecosystem. The health of the system as a whole is materially dependent on the success of these companies and vice-versa.

The keystone company deliberately emphasizes the benefits to the other companies so that it can achieve its overriding goal: the success of the entire ecosystem. This means either value generation jointly with other players or sharing its own resources to heighten the productivity in the system.

For instance, a keystone company can offer a platform to foster the development and manufacture of new products, thereby directly making value generation in the system possible. Alternatively, it can enhance the productivity of the other players by using its own network to generate synergies among the appropriate companies and to reduce the complexity in procurement and distribution processes. This does not happen out of a sense of blind altruism, but on the basis of a strategic calculation.

All power to the collective

One keystone that grasped its own role in the ecosystem at an early stage and oriented its strategy accordingly is Valve. The company was founded in 1996 by two Microsoft employees of many years’ standing, Gabe Newell and Mike Harrington, and over the course of time since then has developed from a highly successful game developer into an even more successful platform provider.

Valve was quick to understand the interaction between itself and its environment. The developer stood out because of its strong support for the modding community and other activities, and it later even made the source engine it had itself developed freely available to hobby programmers. Results included Counter Strike and Team Fortress – all of them originally free modifications that, under Valve’s leadership, developed into products that defined the genre itself and are sold via Valve’s own distribution platform Steam.

Von Seesternen, Business Ecosystems und Company ReBuilding 1

The birth of a digital business ecosystem

Steam itself also functions as a platform for members of the Valve ecosystem. At the beginning, only the company’s own products were distributed on Steam, but in 2005 the online platform opened its doors to games from third-party providers. This was a decisive beneficial gain in the online distribution world that was at that time fragmented, and even major players like Microsoft gratefully accepted it.

Through this digital distribution, even the smallest developer studios today have access to over 125 million customersand more than 33 million of them are active daily. Using services such as Steam Direct, they receive additional support and appreciate the advantages they enjoy in comparison with competing online platforms such as EA’s Origin or Activision-Blizzard’s Battle Net.

Valve’s readiness as a principle to consider the benefits to all users and to focus on the long-lasting success of the ecosystem has led to Steam, since its introduction in 2003, becoming the world’s largest game platform and has made VALVE one of the most profitable companies in the world.

Dominator – all for one

A company with the size and influence of a keystone can, however, decide in favor of a strategy of dominance and against the ecosystem. A dominator, in contrast to a keystone, weakens the ecosystem to its own advantage. A distinction must be made here between the value dominator and the physical dominator.

Value dominator – the parasite among the keystones

Companies that pursue the strategy of the value dominator make only a very small contribution to overall value generation in the ecosystem. They often control a key position in the ecosystem which the other members must be able to use for their own operations. They seek to take advantage of this position to skim off an overproportionally large share of the value generation in the system. This strategy is risky, however, and can quickly become a threat to the entire network.

If the dominating company greedily grabs too great a share of the value generation, the partner companies can no longer operate profitably and over the long term will be forced out of the system. The dominating company in turn loses opportunities to gain benefits from the network. If the company loses too many of its partners in the ecosystem, the entire system suffers harm and its very existence is ultimately at risk.

Physical dominator – the doom of the business ecosystem

While the value dominator aims to exploit the benefits of the ecosystem for itself as passively as possible, the physical dominator takes a more aggressive approach. It strives to obtain complete control over value generation through vertical and horizontal integration.

If it succeeds in this effort, there is no opportunity for a healthy ecosystem to develop. Diversity does not exist, and innovation strength is endangered. The advantages of a healthy ecosystem disappear. In its most extensive form, a physical dominator becomes its own ecosystem that has full absorbed the complex network.

The insatiable hunger

One example of a dominator in action can be seen in the transport network company Uber. The major part of the value of the ecosystem is generated by the drivers, who, as independent entrepreneurs, are Uber’s partners. The share of the fare that Uber retains as commission for relaying the trip, however, is in many cases so large that the drivers have virtually no opportunity to realize any significant profit, as is documented in a study conducted by MIT.

Nor is Uber’s treatment of the other members of the ecosystem particularly sensitive. This strategy of dominance may be profitable in the short term, but in the long term it leads to a weakening of the ecosystem, especially when it is securely anchored at the company’s core. Uber itself may have come to a similar conclusion; it recently initiated appropriate countermeasures to restore vitality to its own ecosystem.

Von Seesternen, Business Ecosystems und Company ReBuilding 2

 

Niche players – the critical mass

Even when companies in the form of keystones and dominators hold tremendous power, it is the many small players in such an interdependent system who secure the stability and health of the community, just as in a biological ecosystem.

Niche players represent the greatest numbers in a business ecosystem. They are the experts specializing in a specific, sharply focused niche market. In comparison with other market segments, a niche market is small and is characterized by high technological entry barriers. An entry quickly becomes unprofitable for large corporations. Compared with other roles in the ecosystem, niche players stand out for the above-average, high level of innovative strength. They concentrate primarily on exploiting complementary resources of other players with the most determined orientation possible for achievement of their goals: the further development and distribution of their own expertise.

While individual niche players have but little impact on the “health” of the ecosystem, their combined effects are all the more important. Their contributions to diversity and innovation capability provide the backbone of a healthy ecosystem.

The decisive advantage

A look at one of the innumerable ecosystems in the automotive industry reveals how a successful niche player can secure a position for itself. The tool manufacturer WEFA specializes in the manufacture of aluminum extrusion molding tools. In itself, it is a market of comparatively small size when viewed in the context of the automotive industry as a whole. It is, on the other hand, the perfect opportunity for a highly specialized member of the ecosystem to stake out a claim.

The specialization of this niche player is so advanced that it has developed its own process for the surface coating of the tool parts, leading to increased throughput speed of the liquid aluminum and consequently to higher efficiency in production. This is an advantage that no other specialist in its own ecosystem can offer.

A matter of perspective

The analogy of the ecosystems – marked by the concept of the “keystone” species – opens our eyes to new ways of looking at familiar structures. Role distributions, relationships, and motivating factors become clearer and strategic steps become tangible.

At the same time, we see dynamic systems, the boundaries of the ecosystems are not always clearly defined, and members can function simultaneously in various systems while performing a different role in each. Pisaster ochraceus may be the keystone of the ecosystem found in the waves of Makah Bay, but in the larger context it is also a food source for sea otters and sea gulls – a completely different role in a completely different system. It is important to understand the role of one’s own ecosystem and not only one’s own role.

But what is your place in the expanses of your own ecosystem? What role do you take, and who are the key players in your surroundings? Or do other examples of the described strategies occur to you? Let us hear about them!

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