How and Why to Transform Your Business into a Digital Ecosystem

By now, most business leaders know that in today's landscape, all businesses need to be technology businesses. It's the sort of catchy truism that can sound good in a PR statement—but when it comes to actually running a company, what does "be a technology business" really mean?

There's a big leap separating the recognition of a general imperative—like Digital Transformation—and the execution of strategies that successfully fulfill that imperative. Put another way, it's easier to understand that your business needs to operate like a software business than it is do anything about it.

So let's make the abstract digital transformation imperative more tangible by focusing on the mechanics of one of its most hyped and most important elements: the ecosystem.

What is a digital ecosystem?

To a degree, digital ecosystems are easy to visualize because most of us participate in several of them as consumers. If you use mobile apps on your smartphone, you're probably participating in the iOS or Android ecosystem. If you use Google Maps to route your directions when driving yourself and a ridesharing service that uses Google Maps when you need someone else to give you a lift, you're connecting with the Google Maps ecosystem from multiple angles. When you use Facebook or Google to authenticate a subscription with the New York Times or Washington Post, you're engaged with more ecosystems in action. You get the idea.

As technologies advance and use cases become richer and more intricate, interconnections among ecosystems become astronomical in number, variety, and complexity—and that's where it gets hard. Launching mobile apps or leveraging services such as Google Maps are examples of ecosystem plays—but the full scope of ecosystem strategies involve so much more.

So, how can enterprises participate in ecosystems and maybe even form their own?

At its core, ecosystem participation isn't about being on a given Platform or launching a certain type of app—it's about not doing things alone. As demonstrated by the aforementioned examples where ridesharing services use Google Maps and newspapers rely on Facebook or Twitter for Authentication, as digital products become more interconnected and complex, no single company will own all the pieces of the customer experience. Ecosystems represent a future in which companies leverage their core strengths while using other providers' strengths to drive growth.

With mobile apps, universal authentication, and all other other examples listed above, the end User Experience grows richer and more complex because it's composed of services from a variety of providers, often by way of application programming interfaces (APIs). Consumers are attracted not just to single apps or capabilities, but to the continuous connected experiences among them. It's this critical mass of consumers and providers that make ecosystems so powerful, enabling non-linear growth to occur as rapid gains in parts of the networks translate in a Flash to expansion elsewhere.

Value in modern economies, then, is created by interactions among apps and APIs across ecosystems. Participating in these ecosystems requires expressing core business capabilities as APIs, then making those APIs accessible and interoperable— that is, designing and managing the APIs not as Integration technologies, but as products that empower developers to build new digital experiences around your business. The goal is to turn your business into a digital platform that can engage with other platforms to deliver value when, where, and how customers demand it.

Still sound complex? Let's look at some real-world examples.

Ecosystems in Action

All companies have valuable capabilities. Pitney Bowes has a 100-year history rooted in mailing and shipping solutions, for example. During that span, the company has amassed data and technical capabilities around a range of complicated digital logistics and e-commerce areas. These are assets that many other companies cannot easily develop—which makes them potentially valuable in an ecosystem.

Pitney Bowes now manages these valuable digital assets via an API platform with more than 160 public APIs and 400 internal APIs. While the internal APIs have helped accelerate production of Pitney Bowes' own apps by making services easier for developers to repeatedly leverage, the external APIs, delivered via the company's Commerce Cloud, have attracted outside developers who want to build apps and services around Pitney Bowes capabilities, combining them with other APIs. This—along with other initiatives, such as the use of Android in the company's newest SendPro-C devices—creates a series of developer ecosystems around Pitney Bowes services, opening new opportunities that company leaders have credited with tens of millions of dollars in new revenue.

Walgreens is also an excellent example. It also possess a range of unique services that can be expressed through software—prescription fulfillment, photo printing, customer loyalty programs, etc. By managing these assets via its API platform, the company has made it easy not only for its internal developers to more quickly create new products but also for external developers and partners to build Walgreens capabilities into their apps. As a result, the Walgreens customer experience no longer occurs solely within stores; instead, stores are one dimension of a cohesive, rich set of experiences that seamlessly traverse both online and brick-and-mortar spaces. Likewise, the Walgreens value chain is no longer influenced just by traditional players, such as packagers and shippers of physical goods; they're increasingly governed by ecosystems of developers and software that allow the brand's presence to manifest across new interaction models and use cases.

The key takeaway in both of these examples is that the companies are leveraging their particular strengths while engaging with ecosystems to complete the full value chain. Again, in an increasingly connected world, no single company is likely to possess all the pieces necessary to satisfy rapidly changing market dynamics and consumer preferences.

You Won't Be the Center of Every Ecosystem

Even once a company has accepted that it should engage with external ecosystems, the right strategy can be elusive. Part of the problem is this: It's one thing to engage with other ecosystem participants via platform strategies, but it's something else altogether to aspire to be the platform—the dominant, gravitational center of the ecosystem.

The appeal of gravitational platforms is obvious; if your business sits at the center of the ecosystem, with billions of suppliers and consumers interacting with one another through your services, there's a good chance your company is basically printing money.

That sounds great—but needless to say, it isn't easy. Offering the platform that everyone else wants to build on means spending billions in innovation research every year. It also generally means being one of the first platforms in your particular space; because successful platforms facilitate non-linear growth around them, if your company hits the market late, it had better have a superior product—because it may need to convert millions of suppliers and consumers already happily habituated to the competition. Becoming a dominant, gravitational platform is possible, but for many businesses, it won't be the right first step.

Instead, many businesses may be better off leveraging existing platforms to drive more users toward their services and capabilities. Developer ecosystems already exist around platforms such as iOS, Android, Amazon Web Services, Google Cloud Platform, Microsoft Azure, and many others, for example—so if you're not in a position to disrupt the market with a new platform, you should be finding ways to bootstrap from these existing foundations. This means, among other things, focusing on evangelism within these communities and designing APIs as products for developers.

This focus on partnering into ecosystems, rather than attempting to immediately position oneself at the center, can facilitate rapid user growth that over time can give a platform more gravitational qualities. Many sharing economy apps began by bootstrapping off other platforms, for example, but have since become major platforms in their own right. They key to getting there is to remember that ecosystems aren't always about sitting at the center—they're about leveraging other participants' resources to create better, farther-reaching, and more powerful services than most single companies could ever build alone.

Be sure to read the next API Strategy article: How to Prioritize API Integrations