The concept of ecosystem emanates from ecology and subsequently has been broadly used in business studies to describe and investigate complex interrelationships between companies and other organizations. Concepts that are transferred from other disciplines (and used both in research and in practice) can, however, be ambiguous and problematic. For example, the use of the ecosystem concept has been questioned in the literature. To better understand the potential ambiguities between the business ecosystem concept and other related concepts, this study presents a conceptual analysis of business ecosystem. We continue by analytically comparing business ecosystem with other concepts used to describe business relationships, namely industry, population, cluster, and inter-organizational network. The results indicate a need for conceptual clarity when describing business networks. We conclude with a synthesis and discuss under what circumstances using the business ecosystem concept may add value for research and practice. The paper contributes to the business ecosystem literature by positioning the business ecosystem concept in relation to other closely related concepts
The term ecosystem has been widely adopted outside its original domain in biology. In
biology, an ecosystem, or ecological system, typically denotes a unit of biological
organization made up of all the organisms in a given area, thus forming a “community”.
Organisms within a community interact with the physical environment so that the flow
of energy leads to characteristic trophic structure and material cycles within the system
The ecosystem analogy has been adopted in business studies. The literature has
coined concepts such as business ecosystems
The purpose of this paper is to understand (1) what is a business ecosystem and (2) how does the concept of business ecosystem relate to other similar concepts. In the latter, we focus on four widely discussed concepts that have been used to describe a group of inter-connected organizations, namely industry, population, inter-organizational network, and cluster. Hence, we identified one definition for each concept from a seminal or otherwise widely cited article. Our central argument is based on the analysis of definitions. Concepts industry and population emphasize competitive connections between firms, whereas an inter-organizational network and a cluster place more emphasis on collaboration. In this respect, an ecosystem is a more diverse concept, presuming both collaborative and competitive relationships.
This study contributes to the literature by demonstrating that there is an overlap between the business ecosystem concept and other similar concepts. This is particularly so in the use of these concepts by practitioners. For researchers, our study shows a clear need for more fine-grained conceptual and theoretical analyses of the ecosystem concept. Further research is also needed on the value-added of the use of ecosystem analogy, both in theory building and in practical use in management.
The paper proceeds as follows: after the introductory section, we present a discussion of the business ecosystem concept. Thereafter, the present a set of related construct and analyse how they converge with, and diverge from, the business ecosystem construct. The paper concludes with a synthesis of the analysis and suggestion for future research. 2
The business ecosystem concept was first introduced by Moore (1993). According to Moore (1993, 76):
a business ecosystem […] crosses a variety of Industries […], companies coevolve capabilities around a new innovation: they work cooperatively and competitively to support new products, satisfy customer needs, and eventually incorporate the next round of innovations.
Every business ecosystem develops in four distinct stages: birth, expansion, leadership, and self-renewal – or, if not self-renewal, death. […] While the centre may shift over time, the role of the leader is valued by the rest of the community. Such leadership enables all ecosystem members to invest towards a shared future in which they anticipate profiting together.” (p. 76)
Moore (1996, 26) defines ecosystem an economic community supported by a foundation of interacting organizations and individuals --. This economic community produces goods and services of value to customers, who are themselves members of the ecosystem. The business ecosystems are characterized by a large number of loosely interconnected participants who depend on each other for their mutual effectiveness and survival.”
According to Iansiti and Levien (2004, 8-9), ecosystem is essentially as an analogy to describe modern business networks. Iansiti and Levien (2004, 5) also acknowledge the using biological analogies in business literature can be a controversial issue and further argue that “the analogy between evolved biological systems and networks of business entities is too often misunderstood.” Iansiti and Levien further lament that their use of the term ecosystem is probably closer to the biological term community but they use the term ecosystem to highlight that they are discussing a complex system and working with a biological analogy.
Based on subsequent literature on business ecosystems, such systems appear to have
at least three characteristic features:
1. Members of an ecosystem are highly interconnected. Interconnectedness refers to
the fact that the success or failure of a member of an ecosystem affects the other
members.
2. A business ecosystem often includes a keystone that “regulates ecosystem health”
While characteristic features #1 and #3 are somewhat congruent, the second one raises a question: how can a complex, interconnected, system be regulated by one actor? This appears to be one of the internal tensions related to the concept of business ecosystem.
In software business, the ecosystem concept has been used to depict business networks built around a key player such as Apple. The core of Apple’s ecosystem is the App Store. For customers, the App Store is a software marketplace where Apple acts as a gatekeeper and trust provider. For application developers, such as providers of different mobile games, Apple provides the development tools and a distribution channel via its App Store. For Apple, the App Store is a means to generate additional revenue but also a mechanism to significantly extend its value proposition beyond hardware and the core software that is pre-installed in its products. 3
One way to seek a better understanding of the ecosystem is to compare it with other similar concepts used in prior research. In the following, we shall present and compare an ecosystem with four such concepts: industry, population, inter-organizational network and cluster. While the former two assume relationships between firms as primarily competitive, the latter two bring the collaborative relations into the surface. 3.1
Perhaps the most traditional concept used in describing and classifying companies’ environment is industry. Generally speaking, an industry consists of companies or networks of companies that provide similar product or service offerings to same markets. Porter defines the concept industry as follows (Porter, 1980, p. 32:
“Structural analysis, by focusing broadly on competition well beyond existing rivals, should reduce the need for debates on where to draw industry boundaries. Any definition of an industry is essentially a choice of where to draw the line between established competitors and substitute products, between existing firms and potential entrants, and between existing firms and suppliers and buyers.”
The underlying theme in the concept is that competitive relations define borders for
industry. Industries can be treated as entities, having attributes of their own. For
instance, because of structural differences, some industries may be more profitable than
others
The idea of an industry as a competitive marketplace doesn’t exclude collaboration
completely, but it is seen as an exception, labelled with terms such as strategic alliances
or co-opetition
Industries are also complex systems, even if no collaborative relations are taken into
consideration. For example, in hypercompetitive industries, companies need to rely on
complex strategic manoeuvring in order to capitalize on new opportunities in the
marketplace faster than their competitors
A company can belong to industries of different levels, for example game developers belong to game industry but on a more generic level also to software industry. When industry concept is applied to computer and mobile game providers, the emphasis is on competitive relations: game providers compete over same customers’ (players’) time and money. They also compete with other forms of current and future forms of entertainment. In the industry concept, platform providers like Apple are seen as distribution channel firms, whose negotiation power decreases profit margins of game providers. By leaving the collaborative relations behind, industry and industry analysis brings forth the competitive ones – which may be sufficient to explain many complex phenomena in the gaming industry. 3.2
Population is a theoretical concept used in analysing variability of organizations over
time
The purpose of this classification is to explain variance and dynamics between
organizations. Hannan and Freeman describe the approach as follows
“The population ecology perspective concentrates on the sources of variability and homogeneity of organizational forms. It considers the rise of new organizational forms and the demise of transformation of existing ones. In doing so, it pays considerable attention to population dynamics, especially the processes of competition among diverse organizations for limited resources such as membership, capital, and legitimacy.“
A basic assumption underlying the population concept is that competition in markets
will favour those populations of companies that have the characteristics needed in new
situations. Hence, “there are strong parallels between processes of change in
organizational populations and in biotic populations”
Population ecology acknowledges that sometimes organizations form communities, i.e. organizations that collaborate with each other. Hence, survival could take place at the level of communities, rather than at the level of populations of similar companies. This idea is not, however, included in the analysis. The power of population ecology is in explaining, why some populations of independent firms succeed in competition while others vanish.
Overall, population ecological models demonstrate, that complex phenomena behind birth and growth of new types of companies and demise of existing ones can be explained with competitive relationships.
In mobile and computer game business, an example of population is the emergence, growth, and typically also decline of a certain types of game developers. While the companies compete with one another, they also share the destiny of their competitors, in particular the ones which are most similar to them. The population ecology model explains, how new types of companies emerge to markets, thus causing existing companies to suffer from shrinking markets.
For example, the rapid growth and success of freemium games from game
companies such as Supercell’s Clash of Clans or King’s Candy Crush Saga took markets from
established game companies relying on traditional pricing. This may also have
contributed to the birth of a new type of population: small and medium-sized game companies
offering freemium games
Research on business networks or inter-organizational networks takes a completely opposite approach. Research focuses on such entities, where inter-relationships of companies are seen as predominantly collaborative. Because of a wide variety of collaborative forms, giving an exact definition for an inter-organizational network is difficult. Nevertheless, Provan, Fish and Sydow (2007, p. 482) provide the following characterization of an inter-organizational network:
“In this article, we make no effort to try to offer an all-encompassing definition of
an interorganizational network. Rather, we focus instead on one specific type of
network that has been frequently discussed but only infrequently researched, namely, a
whole network consisting of multiple organizations linked through multilateral ties. A
whole network is viewed here as a group of three or more organizations connected in
ways that facilitate achievement of a common goal. That is, the networks we discuss
are often formally established and governed and goal directed rather than occurring
serendipitously”
A characteristic feature of an inter-organizational network is that it comprises several independent organizations. Like all groupings of organizations, also inter-organizational networks evolve, but such evolution can be treated as conscious and goal-directed. For example, Ring and Van de Ven (1994) have proposed a process framework that focuses on formal, legal, and informal socio-psychological processes by which parties jointly negotiate, commit to, and execute their relationship.
The idea of competition within a network is not completely absent. For instance, the governance processes described by Ring and Van de Ven (1994) need to ensure both efficient and equitable outcomes. They will also need to be able to deal with conflicts as they arise. While the concept of inter-organizational network does not deny conflicts of interest, the primary emphasis is on collaborative ties between individual organizations.
It is perhaps surprising, how few are the examples of software companies engaging in genuinely collaborative network relations that would involve three or more organizations. In computer and mobile games, collaboration between game companies and movie producers can, perhaps, be seen as an example of such a collaboration. Collaboration in open-source forums, or digital platforms, can sometimes fulfill some requirements of an inter-organizational network. But traditionally the relationships have been arms-length relations without shared governance or formal contracts. 3.4
The term cluster emanates from the works of Michael Porter (1990) on nations’
competitive advantage. Cluster has a strong conceptual linkage to industry as a cluster is a
part or a representative of an industry
“a geographically proximate group of interconnected companies and associated institution in a particular field, linked by commonalities and complementarities.”
The concept of cluster offers a vehicle to explain why large numbers of companies
operating in a same market are concentrated on certain geographical locations. With
the term cluster Porter (1990) refers to a phenomenon linked to geographic
concentrations of national industries which origin from vertical or horizontal relationships
between companies. Locality is considered a key characteristic of a cluster as companies
in a cluster as companies in a cluster are often located in a single city or region
Porter (1990) sees intense competition within a cluster as its main driving force as competition forces companies to increase the standard of their operations in order to remain competitive. Intense competition can be due to bargaining power of customers who may be interact with several companies within the cluster. These interactions in turn accelerate exchange of information and diffusion of innovations.
In software business, physical proximity of companies operating in a certain field is
almost a norm due to the positive network externalities. Silicon Valley is perhaps the
best known example of a geographical concentration of software companies. But there
are also other countries, like India, China, Russia, Ireland and Israel, who have strong
centres for software development
Table 1 presents a synthesis of our conceptual analysis of business ecosystem, industry, and population. The first three rows (defining borders, nature of ties, and sources of transformation) are all somewhat directly derived from the definitions described above. The last row provides a generic description of the applicability of a concept, which is not directly related to the definition.
The first and perhaps the clearest difference can be found in the ways how the
concept define the group of companies that constitute the environment. Borders for an
industry are defined by established and potential competitors
As to the nature of ties, the concepts are divided into three groups. In industries and
populations, companies are connected primarily through competitive relationships
In terms of sources of transformation, competitive forces are central in the evolution
of industry, population and cluster. Industry evolution is directed by several
competitive forces
Overall, a strength of the business ecosystem concept is that it acknowledges both collaborative and competitive relationships. This brings an advantage that, at least in principle, the concept enables simultaneous analysis of transformation, both within networks but also in the markets where they operate. At the same time, however, the concept itself becomes more complex: Defining borders for an ecosystem is more difficult, because the relationships defining an ecosystem are manifold. Hence, it can also lead to a too complex view of reality, in particular if collaborative (or competitive) ties between companies are insignificant. 5
Compared to prior concepts - industry, population, inter-organizational network, and cluster - the concept of ecosystem appears to provide a concept that enables the analysis of both collaborative and competitive relationships. The need for the concept is often argued on the basis that economy and competition has changed and collaborative arrangements are becoming increasingly significant due to globalization and digitization.
Compared to the other concepts in our analysis, the ecosystem concept appears to fit
particularly well to situations where there is one or a small number of leading firms in
the network. This is the case with companies such as Apple and Amazon where the
network consists of a very large number actors and is being led and coordinated by a
single leading firm
From a research perspective, it is still important to note that all four perspectives can be seen as alternative ways to address phenomena in industries and business networks (Table 1). Researcher should choose a concept and theory that best explains the research problem. For science, complexity is not an end in itself. Rather, research should select a frame of reference that explains the phenomenon with minimal number of concepts. Using a too complex frame can lead to mystification of phenomena.
The same applies also to managers who are making strategic decisions. The key question in selecting a perspective is how significant collaborative arrangements are in a given industry. If collaborative arrangements are business critical, belonging to the right network(s) can make a difference. However, if barriers for leaving and joining ecosystems are small and multi-homing in several ecosystems in parallel is possible, the classical competitive industry perspective can be more valuable in strategic decision-making.
Like any other piece of research, this study suffers from a number of limitations. First, we focused only a limited set of concepts. Future research should thus corporate value network and alliance in the analysis. Second, we have focused on business ecosystems on a general level. Future studies could identify different types of business ecosystems.