Strategy & Best Practices

Resilience in Turbulent Times: Why Software Ecosystems Are More Essential Than Ever

By Ideas @ AppDirect / Aug 24, 2020

Why Software Ecosystems Are More Essential Than Ever

It's no secret that software ecosystems are a critical component of a successful digital strategy. In fact, they are on track to generate $60 trillion in revenue by 2025, or more than 30 percent of global corporate revenue. What may be surprising, however, is just how much value they can provide in an economy that is struggling with the lingering effects of a global pandemic, where many businesses must find not new ways to thrive, but just to survive.

To understand the role software ecosystems can play in our current business environment, let’s first step back and take a quick look at their evolution.

Accelerating Adoption and Increasing Revenue

On the rise for the past decade, software ecosystems have come into their own in recent years as enterprises have grown to understand that they can massively scale distribution of their digital platforms and services through an ecosystem of third-party digital innovators—in the process accelerating adoption and increasing revenue for their own organizations.

But it’s not just the platform owners that are benefitting. Platforms are also booming because of the value they create for the parties within their sphere of influence—in other words, their ecosystems. Indeed, on platforms like Salesforce.com, more than half the economic value created goes to the platform partners. Thus, it becomes clear: A platform ecosystem’s value increases as its community expands.

This is why in February 2020—before COVID-19 was declared a global—IDC cited companies establishing their own development ecosystems as one of its “Top Ten Developer and DevOps Predictions for 2020.” It’s also why 60 percent of Chinese G2000 companies plan to establish their own software ecosystems by 2023.

Keeping Businesses Going During (and After) a Crisis

With the global pandemic altering just about every aspect of how we live—changing not just what we consume but how we consume it—many businesses are struggling to reinvent themselves. Nowhere is this more difficult than in organizations whose competitive advantage is based on the ownership of unique physical assets—such as airlines and cruise lines, but also manufacturing and traditional retail.

In contrast, the organizations that are finding the resilience and flexibility to survive in these wildly turbulent times are those that are able to use partnerships, investments, and alliances to continuously adapt their offerings to a changing customer base.

This is the ecosystem advantage.

Take, for example, China’s Ping An, the world’s second-largest insurance company: After spending the last decades transforming its business into an ecosystem focused in five areas—finance, property, automotive, health care, and “smart city” services—the company is now well-positioned to survive the current crisis despite the fact that its life insurance business has been hit hard. This is due in large part to its ecosystem: Ping An’s B2B customers (including more than 30 banks) have now turned to Ping An’s digital services, which are similar to Amazon Web Services but specialized for the financial sector. Not surprisingly, Ping An announced plans to expand its investment in technology amidst the crisis.

The strength of this type of ecosystem is derived from the wide variety of revenue streams and business models its partners present—enabling the ecosystem owner the ability to fulfill any number of customer needs, with opportunities to cross-sell and attract new clients from one business to another. Simply put, when customers’ needs change in times of crisis, a company with an ecosystem like Ping An’s is still likely to find offerings to meet those emerging needs.

Or as McKinsey recently put it, “Those organizations that are making the shift from closed systems and one-to-one transactional relationships to digital platforms and networks of mutually beneficial partnerships have proved more resilient during the crisis. … By organizing to encourage insight generation—for example, by linking previously unconnected goods and services—technology is revolutionizing how organizations relate to their customers and their customers’ customers. Creating digitally enabled ecosystems is therefore critical because these catalyze growth and enable rapid adaptation.”

Navigating the New Normal

So what can you do to make your software ecosystem more resilient? Here are three areas to focus on as you navigate the new normal:

1. Address your customers’ changing needs. It’s a new world out there, so the first thing you need to ask is, “What problems have arisen for my customers as a result of the pandemic? And how have they changed the way they do business?” Once you’ve answered these questions, you can look to your ecosystem to begin innovating and providing the solutions that will fit their new-world needs.

2. Reassess partnerships and widen your ecosystem. If there were ever a time to draw on the skills, services, and solutions of your partners, this is it. Look to every corner of your ecosystem, and brainstorm with your partners, to come up with new ways to serve existing customers. Actively grow your ecosystem by adding partners that will complement your platform. Also, make sure to give your partners the tools they need to reduce development time and keep quality assurance costs low.

3. Speed the rollout of new technologies. Accelerated innovation has long been a hallmark (and selling point) of software ecosystems. Now, it’s time to draw on the hive mind of your ecosystem partners to take it up another notch. With a flourishing software ecosystem, you should be able to deploy technology under experimentation more quickly, test it in your own environment, and then rapidly scale it to meet the demands of your customers.

To learn more about ecosystems, read our recent white paper, “Creating a Path to Monetization: How Enterprise Software Companies Can Win Developers and Create Thriving Ecosystems."

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