The word ecosystem was first introduced by a British botanist Arthur Tansley in 1930’s. He used it to explain how community of organisms interact with each other and their environment. The business ecosystem was first used in the Harvard Business Review article “Predators and Prey: A New Ecology of Competition” in year 1993, in which business strategist James Moore explains in which he paralleled companies operating in interconnected world of e-commerce to a community of organisms which are adapting and evolving to survive.
So, what is ecosystem? According to authors Jacobides et. al in their article “Towards a theory of ecosystems” it generally refers to a group of interacting firms that depend on each other’s activities. For an ecosystem to emerge there should be certain conditions, that is modularity and complementarities that allows specimen to co-exist. They key concepts in ecosystem which I am considering innovation, value creation and division of labor.
Emergence of Ecosystem: To understand about ecosystem first we need to know how it emerged. The two-prime aspect of ecosystems are modularity and coordination.
Modularity: “It refers to the ability of a system to organize discrete, individual units that can overall increase the efficiency of network activity and, in a biological sense, facilitates selective forces upon the network.” (Definition in Wikipedia). It creates the conditions for emergence of an ecosystem.
Coordination: It is an important thing in an ecosystem, for the ecosystem to be practical there must be coordination inside the ecosystem. For ecosystems to be useful, there must exist a significant need for coordination that cannot be dealt with in markets, but which also does not require the fiat and authority structure of a central actor (Jacobides et. al, 2018). This leads to different types of complementarities.
Complementarity is the interaction of two or more agents or forces so that their combined effect is greater than the sum of their individual effects” (American Heritage dictionary). There are different types of complementarities, namely
1. Unique Complementarity:
It can be described in simple terms “Complement A doesn’t function without Complement B”. We can say that value of A is maximized with B. There can be of two types, one-way where A requires a particular activity or particular component of B but not vice versa. Two-way where A and B require each other to work.
Example: Lighting cable that Apple products use. The Apple products require lighting cable for its functionality, and lighting cable only functions with Apple products.
2. Generic complementarity:
It is type of complementarity where while a particular goods or service may be needed for the production of a complex value proposition or innovation, that good or service may be generic (i.e., standardized) enough for firms to draw on it with little concern for governance structure or risks of misappropriation. (Jacobides et. al, 2018). Example: Electricity is needed for almost everything, but the fact that it can be purchased in generic terms means that this complementarity.
3. Super-modular complementarity:
It can be defined as “more of A makes B more valuable” where A and B are two different types of products or activities.
Example: OS platform/app ecosystem, the app and the platform have a unique complementarity in the sense that the app does not function without the OS and super modular complementarity, as the presence of apps increases the value of the OS, and the breadth of the OS installation increases the value of the app (Jacobides et. al, 2018).