GROWING THE ECOSYSTEM
#2. Protecting partners’ turf
Having designed an architecture that opens up attractive niches for different partners to contribute to the capabilities and growth of the ecosystem, the ecosystem leader must refrain from intruding into the specialisations or the businesses of its partners. If niches in the ecosystem turn out to be profitable and fast growing, the temptation for the leader to start competing with its partners can be great. Such a ‘land grab’, however, is sure to undermine the credibility of the leader, and can cause growth of the ecosystem to stall. Potential partners are likely to be scared away if they have reason to fear that if they build a successful business, the ecosystem leader will try to take it over.
Ecosystem leaders also need to strike a balance between the growth of the ecosystem and shortterm profit opportunities. Gawer and Henderson (2007) described how Intel, for example, has adopted different approaches to do so. It has chosen not to encroach on some of its partners’ markets, while entering others that were becoming core to its own value proposition, even in the face of damaging its relationship with its partners. Arguably, the latter has limited Intel’s ability to expand its ecosystem.
Amazon re-thought the balance between network growth and corporate profits as its ecosystem grew. After it opened its amazon.com e-commerce platform to third parties and supported them by providing storage, shipping, payments and customer service through its ‘Fulfilment by Amazon’ service, many retailers complained that once they tasted success, Amazon would enter the category and use its size and power to undercut prices and capture market share. That eroded the trust between Amazon and its retailer partners. Amazon is much more careful now to avoid behaviour that would create such conflicts; it recognises that the benefits gained by attracting new retailers greatly outweigh the reductions in direct sales. AWS has taken the lesson to heart: it provides hosting and web-services capacity to Netflix even though the latter competes with Amazon’s video streaming services.
ARM learned early to be careful about suspicions that it would encroach on its partners’ territories. ARM’s semiconductor customers were not happy to be by-passed as ARM increasingly talked to the OEMs (ARM’s customers’ customers) directly. Some feared that joining ARM’s ecosystem would end up commoditising their products, lowering switching costs, and reducing their control over prices. Despite these risks, many semiconductor companies realised that they stood a better chance of winning business from the OEMs if they worked with them, rather than relying solely on their contacts. Despite being the leader of what became a huge and well-established ecosystem, ARM continued to take such partner concerns seriously.