GROWING THE ECOSYSTEM
#3. Stimulating partner investments
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The resources that AWS provides through its partner programme have stimulated thousands of partners to invest in developing their capabilities to provide consulting or technology solutions built around AWS. Making it easy for ecosystem partners to invest in the right kinds of capabilities also helps Amazon avoid the threat of commoditisation. This is a challenge that Amazon’s cloud business faces, given the competition from powerful players such as IBM and Google.
The successful growth of an ecosystem also depends on partners investing to increase the capacity and capabilities available to the ecosystem. One of the key benefits of an ecosystem strategy for an ecosystem leader is the ability to leverage investments made by partners. High levels of uncertainty will of course dissuade partners from investing in the ecosystem. As we saw earlier, providing a clear vision and roadmap for the future evolution of the ecosystem is key. Not only does it encourage partners to invest, it also helps them make the right kind of investments. An important role of the roadmap is to reduce the uncertainty around the technologies the ecosystem will adopt as it grows. This is particularly important in industries with rapidly changing technologies, where a dominant design has yet to emerge. A shared roadmap for innovation, even if it is not highly specific, will enable partners to make sense of unforeseen events, and induce them to keep making investments that scale the ecosystem. The many partnerships in the Dassault Systemes S.E. (DS) ecosystem, for example, are coordinated by a clear and shared technological roadmap of how software platforms for computer-aided design, virtual production and testing, global collaborative working, and social collaboration, will evolve. The roadmap contains information about which new industries DS wants to find applications for, how the company wants to address specific industry needs, what the role of 3D will be, what the timeline for development of enhanced platforms will be, and so on. Another way in which ecosystem leaders can encourage partners to invest is through the provision of tools and training programmes that will enable them to upgrade their capabilities. We have already noted the benefits of equipping partners to perform their roles in the ecosystem. Providing well-structured tools and programmes makes it easy for partners to invest in improving their capabilities, as well as making sure they invest in the right capabilities— those that will be aligned with the needs of the ecosystem and the opportunities it is likely to provide in future. The resources that AWS provides through its partner programme have stimulated thousands of partners to invest in developing their capabilities to provide consulting or technology solutions built around AWS. Making it easy for ecosystem partners to invest in the right kinds of capabilities also helps Amazon avoid the threat of commoditisation. This is a challenge that Amazon’s cloud business faces, given the competition from powerful players such as IBM and Google.
To enable an ecosystem to scale, partners need sometimes to invest hard cash in everything from new infrastructure to redesigning their products and services. Stimulating those investments requires targeting the right partners, aligning with their incentives to invest, and making complementary investments of your own. Alibaba’s experiences with growing its Rural Taobao ecosystem are an interesting example (Williamson et al, 2014). Following its IPO in
2014, expanding e-commerce into China’s rural areas was one of the three main strategies
Alibaba announced (along with globalisation and Big Data). China’s rural regions presented enormous, yet largely untapped, opportunities for the development of e-commerce. Most, however, had limited retailing options and suffered from the prevalence of counterfeited products. Fewer than one in three rural residents were connected to the Internet, and in the first quarter of 2015, less than 10% of the online purchases made on Alibaba Group’s retail marketplaces were shipped to rural areas. Catalysing the growth of a new ecosystem to serve a potential market of 600 million people was a massive challenge. Even for a company with considerable financial resources, it would not have been possible for Alibaba to do so had it not been able to get partners to invest in making it happen. To get the ball rolling, Alibaba had to make significant seed investments. In October 2014, it announced that it would invest RMB 10 billion (US$1.6 billion) over the next three to five years to build 1,000 county-level Taobao Rural Operations Centres and 100,000 village-level Taobao Rural Service Centres throughout China. These outposts of e-commerce would provide villagers the facility to buy and receive goods from Alibaba Group’s online marketplaces and, eventually, start online businesses. The opportunity looked attractive, but to get these rural operations and service centres up and running would require investment well beyond even Alibaba’s means. In additional to physical space, each centre would require a bundle of computer equipment including a large-screen display as well as a datalink with reasonable speed and capacity. Alibaba approached the provincial, county, and village administrations in China. And it found the key to getting them to invest, buried in a central government press release. Following a directive from China’s State Council, the focus on GDP growth in assessing local performance had been broadened to include social inclusion and the well-being of the local population. With an incentive to deliver on this new performance indicator, local governments enthusiastically embraced the opportunity, leading many provincial and county governments to include provision for co-investment in building local Taobao service centres.