Construction of Platform-based Business Ecosystem

Guanghe HAN, Siqi LI, Jiayu ZHOU

College of Economics and Management of Heilongjiang Bayi Agricultural University, Daqing 163319, China

Abstract As the core and foundation of the business ecosystem, the platform determines its structure and operation mode. The research on platform strategy and business ecosystem is receiving more and more attention from all walks of life. This paper first provided the concept of a platform-based business ecosystem. Then, on the basis of the platform’s "control mode" and "position on the industry chain, it designed four types of construction modes of business ecosystem: open participation, open technology, close symbiosis and channel control. In addition, combined with typical cases, it discussed the structure and operating characteristics of each type of business ecosystem. Finally, it analyzed weak points of this study and made some prospects for future study.

Key words Platform, Business ecosystem, Position on industry chain, Control mode

1 Introduction

In recent years, research on platform strategy and business ecosystem has attracted more and more attention from all walks of life. Especially, the listing of such platform companies as Alibaba and JD.com has further promoted the development of platform strategy and business ecosystem. According to the ranking of market value, at least 60% of the 100 largest companies in the world obtain more than half of their revenue from the platform market (Eisenmann, 2007)[1].

Competition between enterprises has evolved into competition between business ecosystems. How to establish a sustainable ecosystem in a scientific manner is a subject that needs to be studied. The most important thing is to grasp the structure and operation mode of ecosystems. The platform is core and foundation of the business ecosystem. Therefore, grasping the nature of the platform can grasp the essence of the ecosystem and provide ideas and basis for scientific construction. Some studies have already involved the relationship between the two (Marko, 2006), but there is no in-depth theoretical exploration and analytical framework. Therefore, we first introduced the concept of platform into the theoretical system of business ecosystem, and put forward the concept of business ecosystem based on platform. Then, according to the platform characteristics, we came up with four different ideas and basis, we proposed establishing four different types of business ecosystems.

2 Business ecosystem definition and platform

2.1 Definition of business ecosystemSince Moor introduced the concept of business ecosystem inHarvardBusinessReviewin 1993, it has been attracting wider and wider attention. Moor (1993) applied biological principles to organizational strategy research and formed the strategic thinking of business ecosystem enterprises. The business ecosystem is an economic association based on the interaction of organizations and individuals (organisms in the business world). It is composed of customers, suppliers, major manufacturers, and other relevant parties who work together to produce goods and provide services. Besides, it includes fund providers and related industry associations, organizations in charge of standards, trade unions, government and semi-governmental organizations, and other relevant parties. To a certain extent, these groups were established unconsciously and were largely self-organized, or even formed accidentally for some reason. As a result, the contributions made by their members could be improved and complement each other[2].

From the perspective of ecological niche, Lewin (1992) believed that the business ecosystem consists of companies that occupy different "niche" and are closely related to each other, and changes in the enterprise’s niche will bring about changes in all related enterprises[3]. This concept is helpful for strengthening the understanding of the enterprise in the system. From the perspective of system dynamics, Mirva Peltoniemi (2006) believed that the characteristics of biological ecosystems, economic systems, and complex adaptive systems are manifested in the concept of business ecosystems, and believed that business ecosystems are a dynamic structural system composed of organizations with certain associations. These organizations may be: enterprises, universities, research institutions, social public service organizations[4]. Lansiti and Levien (2004) further deepened the concept of the business ecosystem, and contended that interdependence in the business field is becoming more and more important, competition is no longer a competition between individual enterprises, but systematic confrontation between a business ecosystem and another business ecosystem. They advocate the consideration of a competitive strategy with a "community" of business ecosystems to cope with the increasingly dynamic and infinitely competitive environment. They introduced three criteria for measuring the relative health of the business ecosystem, and the contingency strategy selection model of organizations in different positions in the business ecosystem, which further enriched this theory[5].

Gao Li[6]summarized and divided the concept of business ecosystem into broad and narrow senses (Table 1). The members of the ecosystem in a narrow sense are mainly composed of commercial stakeholders (biological components), while members of the ecosystem in a broad sense mainly include non-commercial stakeholders (non-biological components)[6]. We mainly study economic activities among system members in this paper, so we limit the boundaries of the business ecosystem to commercial stakeholders.

Table 1 Business ecosystem in a broad and narrow sense

2.2 Platform and business ecosystemSince its introduction in the late 1990s, the concept of platform strategy has received constant attention from all walks of life. Finally, based on the type and development stage of the business ecosystem, the construction of platform and weak points of development strategies have been brought forward. With the rise of the new Internet economy, the research boom has reached a new height. It is generally believed that, as an intermediary linking multilateral markets (also called populations), platform has the functions of allocating resources, coordinating interests, and promoting information exchange. The fundamental purpose of the business ecosystem is to promote the connection between members through the flow of material, energy and information between the members of the system, thereby creating a complex new value complex, ultimately to realize the symbiosis and co-evolution of system members. However, this requires the platform to play a core coordination role in the system to allocate resources, coordinate system members, and promote value and information flow. As previously mentioned, the boundaries of the business ecosystem in this study are mainly defined between commercial stakeholders (biological components), while ignoring non-biological components such as government and environment. As shown in Fig.1, the platform lies at the center of the ecosystem and is the basis for the formation and operation of the entire business ecosystem. However, depending on the nature of the platform, the entire ecosystem will also exhibit different structures and operators, so it must be possible to establish a business ecosystem according to the nature of the platform.

3 Control mode and position of platform

In terms of the study of the nature of the platform, Schiff (2003) believed that the platform has two functions: active matching and passive intermediation; Eisenmann (2007) divided the platform into a monopoly platform and a shared platform; Bllon (2009) divided the platform into four types: environment provision, system integration, neutrality, and intermediary according to different control modes; some scholars divided the platform into product development platform, supply chain platform, industrial platform and multilateral market platform according to the functions of the platform.

Fig.1 Basic structure of a platform-based business ecosystem

The control mode of the platform and the position of the platform on the industry chain are two important indicators to measure the nature of the platform. The control mode of the platform can be divided into an open mode and a closed mode. In a closed platform, the core enterprise restricts the connection and utilization of the platform by other system members, and an enterprise can not enter the business ecosystem without obtaining permission from the core company or meeting the standards. Such control mode directly determines the application mode of the entire ecosystem. In an open platform, the core enterprise does not deliberately take control, other system members can freely enjoy the right to connect and use the platform, and independently assume responsibility.

The position of the platform on the industry chain can determine the type of members participating in the system, that is, it can limit the boundaries of the system. When the platform remains at downstream of the industry chain, the members of the system connected to the platform are generally the manufacturers and consumers of final products/services; when the platform remains at upstream of the industry chain, the system members connected to the platform are generally suppliers and finished product producers that produce semi-finished products or provide services (such as raw materials, spare parts manufacturers, production technology service providers,etc.)[7].

4 Construction of platform-based business ecosystem

The platform is core and foundation of the business ecosystem. It determines the scope and operation mode of the business ecosystem. Therefore, the construction of the business ecosystem first needs to determine the control mode of the platform and its position on the industry chain. Different control modes and position of the platform also determine the difference of the ecosystem. Taking the position of the platform on the industry chain as the horizontal axis and the control method as the vertical axis, the platform and the business ecosystem can be divided into four construction modes. The first type is the multilateral market type, the second type is the technology open type, the third type is the close symbiosis type, and the fourth type is the channel control type (Fig.2).

Fig.2 Type of business ecosystem

4.1 Multilateral market type business ecosystemWhen establishing such an ecosystem, core enterprises need to fully open the platform, so that other enterprises can freely connect and use the platform, and at the same time set the platform downstream of the industry chain and have direct contact with final consumption. The members connected to the platform are mainly final product manufacturers and final consumers, and they conduct transactions through the platform. Goods flow to consumers, and funds flow from final consumers to product manufacturers. The platform is the basis of the entire transaction. Generally, core enterprises obtain economic or competitive advantages by providing platforms (transaction commissions and platform usage fees can be collected; some don’t directly charge transaction-related fees, but attract advertisers and other third parties to pay by expanding the platform scale and influence). Open Market is a typical multilateral market ecosystem, such as E-buy, Taobao, Tmall, JD.com, Vipshop,etc. These platforms remain at the most downstream of the industry chain, connecting two main groups: merchants and consumers, and promoting the transactions between these two populations. Some platforms charge platform usage fees to one or both parties of the transaction, while some core enterprises open the platform for free, but charge users who need to provide additional services such as advertising.

4.2 Technology open type business ecosystemWhen establishing such an ecosystem, it is necessary to set the platform upstream of the industry chain without direct contact with consumers; and open the platform so that other enterprises can independently connect and use the platform while assuming corresponding responsibilities. The system members are mainly composed of semi-finished product manufacturers and finished product manufacturers. These members exchange complex materials, energy and information around the platform and create new value. Platform enterprises obtain economic or competitive advantages by providing platforms (transaction service charges and technology use fee); some don’t directly charge transaction-related fees, but attract advertisers and other third parties to pay by expanding the platform scale and influence.

The most typical of such platforms are technologies and standards, and the business ecosystem built around these technologies and standards is a technology-open ecosystem. Google’s Android system and Intel’s CPU technology standards fall into this category. Through opening the Android smart phone system, Google has established a business ecosystem consisting of a large number of mobile phone parts manufacturers, application software developers, and mobile phone assemblers. These system members work together to create new value. Google does not directly charge system members, but attracts third parties such as advertisers to join the ecosystem through increasing the impact of the Android system, thereby achieving revenue. Intel opens CPU technology standards to motherboard manufacturers, graphics card manufacturers, and computer manufacturers to attract these system members to develop products based on Intel technology standards, thereby firmly fixing the members of the entire ecosystem in Intel’s ecosystem. A large number of spare parts are developed based on Intel’s technical standards, so this greatly improves Intel’s ability to negotiate with computer manufacturers.

4.3 Close symbiosis type business ecosystemWhen establishing such an ecosystem, the platform needs to be placed upstream of the industry chain, without contact with the final consumer. The platform is closed, and only open to licensed companies, and system members have no right to decide whether or not to join the platform. The entire ecosystem is under the control of the core enterprise, and the core enterprise will strictly select the ecosystem members suitable for the platform. The members are mainly composed of finished product manufacturers and their raw material/parts suppliers (for example: Toyota and many parts suppliers). These core enterprises and their suppliers can establish a close relationship through the platform, thereby building a trust relationship with each other, and even establish a common strategic goal, forming a collaborative symbiotic relationship. The most typical platform of such ecosystem is the design plan and product drawings. For example, large-scale assembly enterprises such as automobiles, electronic products, ships, and machinery, as well as a large number of licensed supporting enterprises surrounding them. Take Hyundai Motor Company as an example, the company has more than 20 000 qualified suppliers including three levels of suppliers. These suppliers will develop and produce spare parts according to the design drawings of a certain style of car proposed by Hyundai, and then supply them to Hyundai. These companies and Hyundai Motor Company form an extremely closely related business ecosystem, they rely on each other, co-exist and co-evolve. Hyundai Motor Company strictly controls the entire ecosystem through automotive design drawings (namely, platforms).

4.4 Channel control type business ecosystemWhen establishing such an ecosystem, it is necessary to set the platform downstream of the industry chain, connecting the finished product manufacturers and final consumers. The core enterprise only opens the platform to specific objects. Only licensed members can connect and use the platform. The core enterprise strictly selects the ecosystem members suitable for the platform. Although the two sides have formed a high level of interdependence through information sharing and other means, the control of the entire ecosystem is still taken by the core enterprises. Circulation channels are the most typical of this type, such as the ecosystem of Wal-Mart, Carrefour, department stores and other large circulation enterprises and their suppliers. Taking Wal-Mart as an example, suppliers must be carefully selected to meet Wal-Mart’s requirements in order to become a licensed supplier in order to be eligible to connect and use Wal-Mart’s circulation channels (platforms) to contact consumers. Wal-Mart uses the circulation channels (platform) to strictly control the entire ecosystem.

5 Conclusions and prospects

The platform is core and foundation of the business ecosystem. It determines the structure and operation mode of the business ecosystem. On the basis of the platform’s "control mode" and "position on the industry chain, we designed four types of construction modes of business ecosystem: open participation, open technology, close symbiosis and channel control. In addition, combined with typical cases, we discussed the structure and operating characteristics of each type of business ecosystem. In this study, although we proposed four models for building a business ecosystem based on the nature of the platform, it has certain theoretical significance and strong practical guidance significance, but there are still deficiencies. For example, we made no in-depth analysis of the internal and external environment and resources of each construction model, therefore, it is difficult to propose a competitive strategy applicable to each model. Besides, we did not consider the dynamics of the business ecosystem and did not conduct strategic analysis based on different stages of development. Therefore, in the future, it is necessary to strengthen the research on strategic analysis according to the types of construction models and development stages, and propose corresponding more specific construction strategies and competition strategies.