Industry Insights

Ecosystems Mean Big Business, So What Are They?

By Ideas @ AppDirect / September 20, 2023

Updated September 2023

Welcome to an era where ecosystems reign supreme. What was once a niche concept has now become the driving force behind long-term value creation. How did we arrive at this pivotal moment?

Many factors contribute to ecosystem growth, and today, this strategy is often referred to as Ecosystem-Led Growth (ELG). Among the most significant drivers are increasing costs, evolving customer expectations, and shifting buyer preferences.

Customers now collaborate with numerous partners throughout project lifecycles, spanning various touchpoints. Successfully executing a project often demands a partner ecosystem, with customers engaging around seven partners on average. Further as buyer behaviors shift, partner sales grow too—a study done by Canalys shows that partner sales represent 70 percent of all technology sales and that overall IT spending via partners will grow by 3.7 percent, outpacing direct spending between customers and vendors.

In this blog, we’ll break down what ecosystems actually are, and whether you should be looking at participating in one or orchestrating one.

What is an ecosystem?

While definitions vary, one simplified definition from Gartner provides some clarification. Gartner defines ecosystems as: “Communities of interdependent organizations forming to leverage shared digital capabilities, assets and relationships. They are formed to serve targeted markets and customers that demand value that only can be delivered by many vendors working together.”

A March 2023 article in The Boston Consulting Group talks about critical characteristics of a partner ecosystem.

"The most powerful aspect of a business ecosystem is its modular structure––the components of the platform are designed independently yet function as an integrated whole. To maintain and increase revenue, these components can be enhanced, altered, or replaced depending on shifting customer demand and preferences."

To narrow things down a bit further, for software companies, an ecosystem consists of the technology partners that integrate with, extend, and augment your technology. As a software vendor this makes your solution even stickier in the hands of customers.

But ecosystems aren’t just a “thing.” They reflect a change of mindset. A successful ecosystem is the result of a group of partners—even sometimes competitors, in what is often called “coopetition”—deciding to work together, taking risks, and making investments accordingly.  

McKinsey & Company outlines five industry-leading practices companies are employing right now to stay competitive, including the development of a marketplace strategy. They estimate organizations can increase market share by more than 10 percent annually, even in a challenging economy.

1. Deploying advanced sales technology

2. Increasing hybrid sales teams and capabilities

3. Delivering hyper personalization

4. Tailoring strategies on third-party marketplaces

5. Achieving e-commerce excellence across the full marketing and sales funnel

Focused on winning and keeping customers? Ecosystems can help with that too

While executives recognize the power of ecosystems, too many are weighed down by business-as-usual priorities like acquiring new customers and retaining existing ones. Some might be put off by the term ecosystem and think it’s reserved for Fortune 500 companies with in-house consultants and unlimited budget. It’s true that designing and building an ecosystem requires mindshare and resources—but it is absolutely within reach.

Done right and ecosystem strategy can have  tangible and quantifiable impacts on your business.

In a future state, a product may be closely integrated with that of a partner’s. Making it easy to sell and adopt your solution can increase direct, indirect, and co-sell opportunities.

• Direct sales: When customers are evaluating your platform as part of an RFP process, you can point to technology partners who fill gaps or augment out-of-the-box capabilities in your core offering. Presenting a comprehensive solution makes it easy for them to choose you over the competition. For instance, we give customers the ability to capture ratings and reviews for the products they sell in their AppDirect-powered marketplace. Some prefer to use a ratings and review content partner to fill in this information in their marketplace, often because a partner can give them access to more data points than they could collect on their own.
• Indirect: You may find good prospects within your ecosystem partners’ installed base, and depending on the nature of the relationship, they can provide warm introductions to leads that would otherwise take extensive outbounding on your part. Consider also indirect selling opportunities by tapping into opportunities in the channel, including accessing a partner network that sells on your behalf. By building your channel ecosystem this sales force, including consultants, advisors, and agents, can help you reach new markets. The benefit of this strategy is that it expands your reach, exposing products and services to new customers at a minimal cost of customer acquisition.
• Co-sell: In certain cases, you may decide to build a joint funnel and respond to RFIs together.

Maximizing customer value

Once you’ve onboarded new customers, the next stop in the customer lifecycle is around maximizing the value they get out of your solution. Traditionally, this would take the shape of an upsell/cross-sell opportunity within your own product portfolio. But in a true ecosystem model, this is about recognizing the customer need and solving for it accordingly—that may mean a sale going to a complementor, another party like a systems integrator (SI), or even a competitor. Ways to maximize customer value may include:

• Driving adoption within the wider organization: To become a system of record your solution will likely need to integrate with your customer’s existing business-IT stack. Early on, this often takes the shape of bespoke integrations performed by SIs until you have built standardized connectors.
• Augmenting your out of the box capabilities with best-in-class solutions: You have your core competencies, and strategically partner with other technology providers for theirs. Presenting partner solutions that are commonly used by your installed base is a great way to illustrate knowledge of your customers and platform use cases. This likely results in no direct revenue to you, instead, referral business to a complementary partner.
• Co-innovating with you to fulfill new use cases and applications: Customers are often at the heart of, if not leading, innovation. With increasingly complex use cases, coopetition becomes the norm as industry players collaborate to unlock value—and revenue—across the value chain.

The net result of any of the above approaches is a stickier customer, one who has further invested in your product (whether directly or indirectly), is extracting greater value as a result, and likely reporting higher net promoter scores (NPS). (NPS).

And with that, you’re back to the first step—presenting a set of differentiated capabilities to secure new business—in effect setting in motion a flywheel effect to benefit both you and your greater ecosystem.

How to start: as a participant or orchestrator?

The case for ecosystems should be clear, but how do you go from strategizing to action? Chances are, you’re already participating in an ecosystem.

Participant
You are already participating in an ecosystem if your customers are integrating your product with someone else’s. Whether you have an active commercial relationship with that other party is an altogether different question. There is definitely value to be gained: you can collaborate with these partners to build a standardized integration between your products and monetize it accordingly.

Quite frequently, the first step in building your ecosystem is determining whose ecosystem you are already participating in and formalizing those relationships through partnership agreements. There may be obvious partners to you, but you might be surprised what your customers are already doing that you had never considered.

Orchestrator
To really reap the benefits of ecosystems, the end goal for most organizations is to one day orchestrate their own. For software vendors, orchestrating is when others are anchoring their products to yours. The dream state is for external developers to leverage your APIs to integrate their existing products into yours, and even build totally new, purpose-built products that sit on top of your software. Atlassian, with its extensive ecosystem of more than 4,000 third-party add-ons, is a great example of a company doing just that.

Orchestrating an ecosystem requires more governance and resources. As the orchestrator, it’s for you to determine the rules for participation, how commercial value is captured by each party (and how much), technical and business development resources that you make available to participants, co-marketing plans, and so much more.

Want to learn more about creating and profiting from a diverse partner ecosystem? Start here to launch a custom marketplace or read what Forrester is saying about how the right platform can accelerate ecosystem success.