This is part 10 of our 10-part blog series on Ecosystems. You can find the other blogs in the series here.
Irrespective of the monetization strategy that the orchestrator and the ecosystem stakeholders decide upon, the success of any monetization strategy will lie in measuring each transaction as accurately as possible, monitoring each of these transactions to ensure there is no value imbalance and creating the right monetization strategy across the ecosystem.
Ecosystem orchestrators will have to take a leading role in ensuring that each of the three conditions are met optimally by ensuring that there is a balance between three discrete yet connected elements:
- Overall value delivered
- Value gained by each ecosystem participant
- Value gained by the orchestrators themselves
To ensure that the monetization strategies are justified, the orchestrator will also have to take a leading role in not just creating innovation across the products and the services of the ecosystem, but also innovating the monetization strategies followed across the ecosystem. The surge pricing, although unpopular across a group of users, followed by Uber; or the faster delivery for Amazon Prime customers; or the promotions run by gaming companies to sell value-added services on their game ecosystems are all examples of monetization innovations.
The orchestrator will also have to ensure that the tollgates that are part of the ecosystem are consistently reviewed and upgraded or downgraded based on the goals of the ecosystem. For example, orchestrators may add more tollgates if their goal is quality over quantity or reduce the tollgates or remove them altogether if the goal shifts from quality to quantity.
The orchestrator will also have to ensure that the value they deliver is unique and cannot be substituted by any of the ecosystem partners or cannot be overridden.
The orchestrator will also have to realize that the monetization strategies that work in a geography will not necessarily work in another geography. For example, the strategy of charging users for listing their products backfired for eBay whereas Taobao, the Chinese equivalent of eBay, was able to capture the market because it allowed the users to list their products for free and charged a small fee for each successful transaction.1
Ecosystem participants, including the customers, partners, and the orchestrators will also have to realize that the subsidization that each of these stakeholders encounter in the ecosystem is not really subsidization, but a price that the ecosystem participants pay indirectly to ensure better services, but at the cost of greater competition. Resources are finite – that is a global maxim. When the prices for entry in the supply side or the demand side are subsidized or free, the number of participants in the same side increase and these participants compete for the existing resources on the other side. For example, because there is no entry fee for Uber users, the number of users who compete for the finite set of resources on the other side (in this case, the fleet on the road) increasing, may cause some users to miss out on getting the necessary product or services at the required time.
What are the Two Factors That Will Drive the Success of the Right Monetization Strategy?
Apart from choosing the right monetization strategy, the key to success for any monetization strategy will depend on two factors:
- Designing a compelling value proposition
- Ensuring the right data is available for the right stakeholder at the right time
Designing the value proposition is not just arriving at a set of contracts that will lay down the rules of engagement between the ecosystem orchestrator, but also defining the flow of value between each of the ecosystem participants. For example, the value that an ecosystem participant may leverage by being part of an e-commerce ecosystem will be the user profile – likes and dislikes – that the ecosystem participant can use to create personalized products for the end-user.
This is where the power of data comes into the picture. The orchestrator of the ecosystem, by virtue of the ecosystem architecture, is the ‘pseudo’ owner of tons of data about not just the ecosystem end users, but also the ecosystem participants.
We live in a time where data privacy and data security are national issues and it is increasingly important that the orchestrators of the ecosystem act responsibly while keeping in mind the potential that this data holds not just for the ecosystem providers, but also for the end-users who can benefit from getting the right products or services that are relevant to them rather than being bombarded with offers for products or services that they do not need.
This data is not just the data of the end customers. It also includes the reviews that customers give for each product or service. This could be the reviews on Google, Amazon, or TripAdvisor, or any other data that indicates key trends – like the trend of shopping for groceries across weekdays, etc.
Sharing these insights derived from such data in a transparent yet protected manner will help make the ecosystem providers take the necessary steps to improve their products or services, while also helping the customers in an ecosystem to take the right decision when buying a product or procuring a service.
Hence, the orchestrators will have to take lead in ensuring the right balance between privacy and potential. Orchestrators will also have to take lead in transforming the data into meaningful insights that each of the ecosystem stakeholders can leverage.
What Does the Future Hold?
Ecosystems may soon witness these trends:
- Emergence of a finite set of large ecosystems driven by the need of the customer
McKinsey predicts that world will move towards 12 ecosystems that will arise in place of many existing industries.2 The rise of a demanding tech-savvy young and upwardly mobile population coupled with the vast improvement in technology through trends such as 5G, IoT, automation, and cloud will be the factors that will drive this trend.
- Ecosystems will focus on a more regional level or national level participation
Nations and regions across the world are trying to become self-reliant. They want to reduce the dependence on the outside world. As the focus shifts to making global partners redundant than focusing on reshoring3, nations and organizations are trying to reduce the exposure they have to the ‘outside’ world.
- Ecosystems will be need-driven and mass personalization will be the differentiator
Uber started with solving a simple problem – the need for the customers to move around without having to look for a taxi or without having to bargain with the taxi driver. The solution was simple – a product that connected the drivers with the users. The product tracked the geolocation of a taxi and tagged it to the nearest user who had requested a booking.
The ecosystems of the future will be built on this same concept – addressing a fundamental need while extrapolating the need to multiple industries. The focus on being need-driven coupled with the right set of partners will give rise to the next step in productization – mass personalization. Today, mass personalization is a strategy used primarily by many e-commerce websites to tweak their website to the preferences of the end-user. But with the rise of APIs and modularization coupled with the rise of 3D manufacturing and IoT devices, each customer will get a personalized product or service based on their set of preferences and buying patterns.
1 Taobao VS. eBay China; Professor William Barnett, Xiaoqu Luo and Mi Feng; Case Study – Stanford Graduate School of Business; January 2010
2 Competing in a world of sectors without borders; Venkat Atluri, Miklós Dietz, and Nicolaus Henke; McKinsey Insights; July 2017
3 How to Pandemic-Proof Globalization – Redundancy, Not Reshoring, Is the Key to Supply Chain Security; Shannon K. O’Neil; Foreign Affairs; April 2020