January 25th, 2022 • Open Economy by Marketing Skaleet

Contributor or Orchestrator, make your predictions now! 🎲

Business ecosystems are on the rise. In 2000, just three among the S&P 500 top 100 global companies relied predominantly on ecosystem business models. In 2021, this number had grown to 22 companies, which accounted for 40% of total market capitalization. (Standard & Poor's 500 List). Among the 772 companies that achieved unicorn status (a valuation of more than $1 billion) between 2015 and 2021, 23% were built on ecosystem business models.

It is no wonder that many leaders of established companies are looking at this trend and feel compelled to come up with their own business ecosystems. Among the 2020 S&P 500 top 100 global companies, more than half of them have already built or bought into at least one ecosystem, and 90% of multinational companies indicated that they were planning to expand their activities in business ecosystem models.

Most of these firms seem to assume that they need to become orchestrators of their own ecosystems. However, not every company is in a position to take on this role. Sometimes, being a contributor to an ecosystem can be just as attractive. Remember that the biggest winners of the California gold rush in the 19th century were the suppliers of pots, pans and jeans. 

Acting as contributors to existing and emerging ecosystems presents huge yet often neglected business potential for many companies, and leaders should be more strategic in analyzing and exploiting these opportunities and choose to take on the role of contributor rather than orchestrator in an ecosystem model.

The growing role of ecosystem contributors 🚀

An orchestrator is an independent economic player who creates or assembles products and services that constitute a single, coherent solution. Examples include Amazon, Apple, Meta (formerly Facebook), GoJek, Grab, Tencent or Tinkoff, who have built their success on owning the platforms and being orchestrators of their own ecosystems. As orchestrators, they build the ecosystem, encourage others to join, define standards and rules, and act as arbiter in cases of conflict. However, a successful ecosystem needs not only orchestrators but also contributors. And, for every orchestrator there can be hundreds, thousands, or even millions of contributors (as in large marketplaces or operating systems). 

Not every company has the capabilities of being an orchestrator. You cannot unilaterally choose to be the orchestrator; you need to be accepted by the other players in the ecosystem. There are four requirements to qualify as an ecosystem orchestrator

  • First, the orchestrator needs to be considered an essential member of the ecosystem, and it must control critical resources, such as a strong brand, customer access or key skills. 
  • Second, the orchestrator should occupy a central position in the ecosystem's network, with strong interdependencies with many other players and the ability to coordinate effectively.
  • Third, the orchestrator should be perceived as a fair partner by the other members, not as a competitive threat.
  • Finally, the best candidate is likely to be the player with the greatest net benefits from the ecosystem and a correspondingly high ability to shoulder the typically larger investments.

Besides orchestrators, there are two types of contributors to an ecosystem: complementors and suppliers

  • Complementors contribute to the ecosystem solution by directly providing customers with products or services that enhance the value of other ecosystem components. In this way, complementors grow the offering of the ecosystem, contribute to its variety and drive innovation. Customers can freely decide which complementors to engage with. Examples are vendors on a digital marketplace, weather data providers in a smart-farming ecosystem and app developers for mobile operating systems.
  • Ecosystem suppliers, on the other hand, are upstream providers of products and services. Suppliers may enable the entire ecosystem (for example, by providing the cloud or a payment infrastructure) or serve individual players (for example, by offering cleaning services to Airbnb hosts). With their more generic offering, suppliers can serve ecosystems from different domains, but they typically do not have direct access to the ecosystem's customers.

In the past, most startups and incumbents that considered engaging in ecosystems were attracted by the orchestrator role and its position of power as the rule maker. The contributor role, by comparison, seemed much less appealing because contributors depend on an ecosystem that they can hardly influence. They are exposed to a high level of uncertainty regarding the scope, composition, and governance of the ecosystem. Moreover, many potential contributors are afraid of being commoditized by the orchestrator as they may be forced to share critical data or relinquish their direct access to their customers,  thus losing their differentiation. But these ideas should be challenged.

Substantial benefits of being a contributor to an ecosystem 💳

  • For a start, contributors do not face the high upfront investment risk for building the ecosystem. The broad scope of the orchestrator role comes with the bulk of responsibility for ecosystem success and for the sustained level of investment required to get the ecosystem going.
  • Contributors can typically choose among multiple competing ecosystems and join the most attractive one.
  • What's more, they can limit their exposure, hedge their bets and increase their strategic flexibility by participating in more than one ecosystem at the same time. In this way, the contributors have a strong bargaining position vis-à-vis the orchestrator.
  • If they provide essential or bottleneck components to the ecosystem, contributors can secure a substantial share of the overall profits. Indeed, the contributor role can be as financially attractive as the orchestrator role, or even more attractive. For example, the mobility platform orchestrator Uber achieved an impressive annual growth rate of 24% between 2016 and 2020, but it was clearly outperformed by one of its suppliers, the payment services provider Adyen, which achieved an annual growth rate of 43% over the same period. We are seeing similar trends emerging in many industries and domains.

Not surprisingly, ecosystem contributors are increasingly attracting the attention of investors. For a number of years now, the share of ecosystem contributors among new unicorns has been on the rise, and in 2019 they surpassed the number of ecosystem orchestrators for the first time. Two parallel trends explain this situation. 

  • On the one hand, given the recent growth and proliferation of business ecosystems, the opportunity space for new ecosystem business models is shrinking.
  • On the other hand, the emerging large platforms and their ecosystems, such as mobile operating systems, cloud platforms, and digital marketplaces are opening up significant new opportunities for contributors.

A window of opportunity for banks 💡

Banks are facing an existential threat as other players move on to territory that for generations has been exclusively theirs. Yet, while banks are aware of this, most of them are still doing what they have always done: provide banking products and services. Granted, many such offerings are available via digital channels, but simply digitising existing banking products and services isn’t enough.

To survive and thrive, banks must think about their role and how they can expand their functions to stay relevant in their customers' lives. They need to extend their reach and create ecosystems that offer hyper-relevance and a market of one for each customer. 

Marketplaces are one-stop digital platforms that focus on product or service comparisons and provide a range of offerings. Banks can use them to help their customers seamlessly fulfill their everyday needs.

As banks move away from the shrinking opportunities provided by traditional banking and embark on delivering a relevant, user-centric customer experience, there are a number of solutions they can employ:

  • Life moments orchestrator: The bank orchestrates its own ecosystem built around specific life moments, like buying a house or car.
  • Marketplace orchestrator: Where the bank sells – either by white-labelling or co-branding – non-financial products to its customers.
  • Third-party ecosystem participant: This channel solution sees the bank offer its own financial products to a third-party’s customers via that third-party’s platform.
  • Open Banking Platform: Banks can leverage open application programming interfaces (APIs) to enable partners to incorporate products, data and/or specific processes in their value propositions.

These business models help banks and financial institutions create value through these ecosystems. They will be able to develop hyper-relevant experiences. These institutions will be able to increase the value of their relationships with fintechs and tech players offering other financial products and by increasing the possibility of cross-selling, for example adding a consumer loan to the purchase of an appliance. Banks can also offer ecosystem partners access to their customers and data for a fee, by orchestrating the ecosystem or opening up their infrastructure. By joining third-party ecosystems, banks will be able to offer more meaningful customer experiences and follow customers beyond the boundaries of their traditional relationships.

These business models help banks generate a volume strategy and create a network effect in which different ecosystems interact, providing the opportunity to up-sell and cross-sell financial services and acquire new customers. 

Although the marketplace approach lies outside many banks’ comfort zones, they are well-placed to make this happen: they can offer their products through marketplaces or create their own platforms to bring their products closer to customers. In this way, they can create an ecosystem of partners.

Unleashing the power of Open Data! 👨‍💻

Data plays a crucial role in marketplaces by helping banks to understand their customers better and ensuring they know in real-time what customers are doing and their life experiences. This brings greater relevance for both parties, enabling banks to increase their conversions, and customers to complete everyday tasks more quickly. 

Banks can also boost their positioning by integrating their marketplaces with data-driven platforms with rigorous customer and product data management to create up-sell and cross-sell capabilities. Given the uncertainty of information for both buyers and sellers in marketplaces, becoming a data-driven trusted network is key positioning for banks. Buyers, for instance, want more information about the authenticity of what they’re purchasing, while sellers need to know whether customers are creditworthy. Now, banks can leverage this data to become that trusted network, offering better and more personalized services, while helping to meet the needs of existing and future customers. 

At Skaleet, we believe that banks have a real competitive advantage in terms of the amount of data they hold. In an interview, Rob Lamb, Director of the Hursley Lab at IBM, said, "Every second there are 6,900 tweets, 30,000 Facebook likes and 60,000 Google searches. But a bank's application server is capable of processing up to 1.1 million transactions per second, or 100 billion transactions per day.” So, the key is to create value by using data to first create intelligent interactions to maximize retention and attract new customers by providing services in real-time and at the right moment. The second step is to develop digital native products based on platforms with an open and cloud-native architecture, like Skaleet’s

The potential result is that banks can leverage new banking platforms to transform themselves into a model that "orchestrates an ecosystem" (orchestrator) and "enables banks" (contributor) to facilitate the integration of their financial services in third-party environments.

  • #innovation

  • #fintech

  • #banking

  • #openbanking