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JOHANNES KEPLER UNIVERSITÄT LINZ Altenberger Straße 69 4040 Linz, Österreich Submitted by: Jürgen Schatz, BSc. Student Number: 01051022 Department: Institute of Strategic Management Supervisor:

Assoz. Univ.-Prof.inMag.a Dr.inRegina Gattringer Date:

November, 2018

The emergence of the

business ecosystem as a

result of digitization and

globalization

Master’s Thesis

for the acquisition of the academic degree

Master of Science

in the Master’s Programme

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STATUTORY DECLARATION

I hereby declare that the thesis submitted is my own unaided work, that I have not used other than the sources indicated, and that all direct and indirect sources are acknowledged as references. This printed thesis is identical with the electronic version submitted.

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Abstract

The phenomena of digitization and globalization are having profound effects on the ways companies create value. While it used to be widely accepted in academia that companies

followed value chain strategies, where a linear sequence of activities ultimately resulted in some final output – i.e. goods or services, more recent studies have shown that this assumption is no longer always valid. Instead, companies in some industries are nowadays organising their value-creation efforts within a so-called business ecosystem. Using the metaphor of the biological ecosystem to refer to business networks allows for a perspective that considers the high levels of interconnectedness, interdependence, and coopetition between firms that characterise the way customer value is increasingly created. Particularly in the past five and a half years, management research has focussed on business ecosystem performance, business ecosystem patterns, the way business ecosystems are organised internally, their differentiation from knowledge ecosystems and the performance of individual ecosystem participants.

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Executive Summary

The concept of the business ecosystem as a value-creating system has emerged in certain industries as a result of growing digitization and globalization (Annanperä et al., 2015, pg. 1-3). As a result of profound changes in the business environment that lead to an ever more

interconnected and global economy, businesses are faced with new ways of creating and delivering value to their customers (Annanperä et al., 2015, pg. 1; Gay, 2014, pg. 1). Thus, companies, particularly in ICT-related fields, are more often organising themselves in what academic literature refers to as business ecosystems (Annanperä et al., 2015, pg. 3).

These business ecosystems are collaborative networks of companies and other stakeholders which leverage their relationships with one another to jointly create value for an end consumer (Clarysse et al., 2014, pg. 1166; Chronéer et al., 2017, pg. 2; Korpela et al., 2013, pg. 3839; Moore, 1993, pg. 76). They are composed of a keystone company which acts as a leader, and which develops a (digital) platform upon which other complementor firms, or niche players, can build their innovations, thereby contributing to the overall solution (Clarysse et al., 2014, pg. 1166; Iansiti & Levien, 2004, pg. 74-75; Peltoniemi, 2006, pg. 11; Zahra & Nambisan, 2012, pg. 220). As such, within business ecosystems, one can typically observe high levels of

interconnectedness, interdependence, and coopetition between the different actors (Peltoniemi, 2006, pg. 10-11). Moreover, literature suggests that the business ecosystem concept developed out of other, more traditional value-creating systems such as the value chain and the value

network (Chronéer et al., 2017, pg. 2; Clarysse et al., 2014, pg. 1166; Normann & Ramirez, 1993, pg. 68).

Management research on the topic of business ecosystems in recent years has focussed largely on five broad topics. While some authors have analysed more general aspects of business

ecosystems such as their overall performance (Letaifa, 2014, pg. 288ff ; Rong et al., 2018b, pg. 247ff ), their patterns (Peltola et al., 2016, pg. 1276ff; Rong et al., 2013a, pg. 75ff; Sun et al, 2018, pg. 420), and the way they are organised internally (Rong et al., 2015b, pg. 293ff), others have chosen to study more specific aspects relating to the performance of individual

complementor firms (Kapoor & Agarwal, 2017, pg. 531ff), or the differences between knowledge ecosystems and business ecosystems (Attour & Lazaric, 2018, pg. 4ff; Clarysse et al., 2014, pg. 1164ff; Majava et al., 2016, pg. 26ff).

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Table of Content

1. Introduction ... 6 1.1. Objectives ... 7 2. Theoretical Background ... 7 2.1. Globalization ... 7 2.2. Digitization ... 9 2.3. Business Ecosystems ... 11

2.3.1. Business Ecosystem Participants ... 13

2.3.2. Business Ecosystem Life Cycle ... 18

2.3.3. Business Ecosystem Attributes ... 20

2.3.4. Digital Platforms ... 24

2.3.4.1. Network Effects ... 27

2.3.4.2. Types of Platforms ... 28

2.3.5. Historical Development of the Business Ecosystem Perspective ... 30

2.3.5.1. Value Chains ... 31

2.3.5.1.a Value ... 31

2.3.5.1.b Value Chain Models ... 32

2.3.5.1.c Value Chain Governance ... 36

2.3.5.2. Value Networks ... 43

2.3.5.2.a Value ... 46

2.3.5.2.b Relationships... 48

3. Systematic Literature Review ... 52

3.1. Methodology ... 52

3.2. Clusters ... 54

3.2.1. Organising Business Ecosystems ... 54

3.2.2. Business Ecosystem Performance ... 60

3.2.3. Business Ecosystem Patterns ... 71

3.2.4. From Knowledge Ecosystem to Business Ecosystem ... 79

3.2.5. Complementor Firm Performance ... 81

4. Conclusion ... 85

5. Table of Figures ... 90

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1. Introduction

Companies, nowadays, have to deal with increasingly dynamic, complex, and global business environments, which make it difficult to remain competitive (Gay, 2014, pg. 1). Furthermore, as Annanperä et al. (2015, pg. 1) argue, advances in technology are allowing for entirely new solutions to be developed, which “add value to new domains where they have not been

considered important before” (Annanperä et al., 2015, pg. 1). Consequently, consumers’ needs

are evolving, wherefore companies are tasked with developing new services that are appealing to customers (Annanperä et al., 2015, pg. 1).

Indeed, a single firm’s innovation activities, in this day and age where markets are highly competitive and global, are becoming less and less likely to guarantee a competitive advantage (Annanperä et al., 2015, pg. 1). Moreover, many innovative technologies are often only of particular use to consumers if they are complemented by other technologies, products, or

processes (Gay, 2014, pg. 5). As such, in order to remain profitable and to create customer value, firms, in growing numbers, are seeking out new partners with whom they can create collaborative alliances (Annanperä et al., 2015, pg. 1). These firms leverage their partners’ technologies, products or other assets such as organisational capabilities (Gay, 2014, pg. 1). In return, they allow their partners to do the same (Gay, 2014, pg. 1).

Most of today’s innovations, whether they are in the form of products or services, require different stakeholders to cooperate throughout the entire innovation and development process (Annanperä et al., 2015, pg. 3). Hence, there is a trend towards companies organising themselves in collaborative networks through which they re-shape the way value is created (Annanperä et al., 2015, pg. 3). With this in mind, Moore (1993, pg. 75ff), in the early 90s, first used an ecological analogy by comparing such networks to biological ecosystems. Thus, the term business

ecosystem was born (Moore 1993, pg. 75ff), which has since been used repeatedly in academia to describe these new types of value-creating structure (Adner, 2006, pg. 98ff; Iansiti & Levien, 2004, pg. 68ff; Moore, 1996, pg. 1ff; Moore, 2006, pg. 31ff).

Such business ecosystems, as Annanperä et al. (2015, pg. 3) put it, can be comprised of a large number of different stakeholders that are connected via a broad network which, in turn, allows them to contribute to the process of creating value for the customer. This means, that not only the companies directly involved in the production process are considered ecosystem actors, but so are

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research organisations, government organisations and even customers and end users themselves (Annanperä et al., 2015, pg. 3). Ultimately, what can be observed as a result of the emergence of business ecosystems is that traditional industry boundaries, particularly of those within the ICT field, are blurring (Annanperä et al., 2015, pg. 3). As such, it is stated that such ecosystems have attracted much attention in academic research, where they are treated as a means to achieve market introduction of collaboratively developed innovations (Chronéer et al., 2017, pg. 2).

1.1. Objectives

In light of the developments described above, this thesis attempts to explore, in more depth, what the notion of the business ecosystem entails. The main objectives are the following:

 To explain what the business ecosystem essentially is and what features characterise a business ecosystem.

 To provide an overview over the historical development of the business ecosystem concept – i.e. to show how it developed out of earlier concepts of value-creating strategies.

 To highlight which aspects of business ecosystems have been dealt with by researchers in most recent years.

2. Theoretical Background

The following section will entail an exploration of the theoretical background of the concepts discussed in this thesis. First, the phenomena of globalization and digitization will be briefly introduced as causalities for the emergence of business ecosystems. Then, based on the extant literature, an in-depth discussion of business ecosystems, their main features, and the way the ecosystem perspective evolved out of the study of value chain and value network strategies will follow. The theories developed here, in turn, serve as a basis for the systematic literature review conducted in the third section of this thesis.

2.1. Globalization

Globalization, as noted by Gereffi et al. (2001, pg.1), is often used as a catchword to describe the 20th century’s international economy. It is defined as “the truism that nations have become more

interdependent through the flows of goods, services, and financial capital since the 1970s”

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export-oriented industrialisation has become more and more important, joining the global economy has driven development in many countries.

As such, Sturgeon (2013, pg. 9) similarly defines economic globalization as “the inward and

outward flow of goods, services, and investment across national borders, along with the functions – including functions related to innovation – that enterprises and organizations use to set up, support, and manage these flows” (Sturgeon, 2013, pg. 9). This, as he puts it, is driven mainly by

the cost of labour as well as its quality, since entry into international markets allows firms to access low-cost labour as well as specific skills (Sturgeon, 2013, pg. 9). Nevertheless, Gereffi and Fernandez-Stark (2016, pg. 10) suggest that besides the demand for competitive inputs, economic globalization is driven by advances in transportation on the one hand, and telecommunications infrastructure on the other. Moreover, Gibbon et al. (2008, pg. 317) add to that how the fall of regulatory barriers to cross-border trade, particularly in more recent times, has also contributed to economic globalization.

Gereffi and Fernandez-Stark (2016, pg. 10) go on to explain how, these days, “in the global

economy, countries participate in industries by leveraging their competitive advantages in assets” (Gereffi & Fernandez-Stark, 2016, pg. 10). This means that different parts of the world

specialise on different activities, wherefore companies’ supply chains become globally dispersed (Gereffi & Fernandez-Stark, 2016, pg. 10). This is closely comparable to what Gereffi et al. (2001, pg. 2) already mentioned, which is that globalization refers to the “functional integration

between internationally dispersed activities” (Gereffi et al., 2001, pg. 2). In this regard, Elms and

Low (2013, pg. 14) state that the spatial separation of production and consumption was, indeed, first enabled back in the 1830s when the steam revolution (which brought about railroads and steam-powered ships) allowed for profits to be achieved through economies of scale and comparative advantage. Hence, Elms and Low (2013, pg. 14) imply that globalization actually began much earlier than is postulated in Gereffi et al.’s (2001, pg. 1) definition.

In any case, according to Kaplinsky (2000, pg. 117), the global economy’s increasing integration – i.e. globalization, has led to substantial income growth for many around the world. He states that this manifests itself not only in the fact that people’s income is becoming larger, but also in the fact that consumers have increasing access to products that are of better quality and that are more differentiated (Kaplinsky, 2000, pg. 117). However, the author also admits that not all effects of globalization have been positive (Kaplinsky, 2000, pg. 117). As he points out, wealth is

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becoming more unevenly distributed, both within countries as well as between them (Kaplinsky, 2000, pg. 117). However, Gibbon et al. (2008, pg. 318) also claim that while globalization was formerly associated with firms from more economically developed countries setting up

subsidiaries in developing nations, this is no longer always the case. As a matter of fact, Gibbon et al. (2008, pg. 318) write that particularly in labour-intensive industries, ownership of industrial capacity is increasingly vested in nationals of the country in which production takes place, or in people from other developing nations.

That being said, Gereffi and Fernandez-Stark (2016, pg. 6) propose that “the global economy is

increasingly structured around global value chains (GVCs) that account for a rising share in international trade global GDP and employment” (Gereffi & Fernandez-Stark, 2016, pg. 6). This

is supported by Amador and Cabral (2016, pg. 278), who argue that global value chains are a vital feature of globalization. The authors state that, in recent decades, global value chains have largely changed the way goods and services are produced around the world, whereby they have had lasting effects, not only on patterns of international trade and investment, but also on competitiveness and macroeconomic developments (Amador & Cabral, 2016, pg. 278). Comparative advantages are being reshuffled as a result of the rise of global value chains, meaning that they are no longer only identified in connection with final goods, but also in connection with intermediate goods and services, or with specific tasks that take place along the value chain (Amador & Cabral, 2016, pg. 278). Hence, the main focus of GVCs is on how firms can integrate value originating from different places across the globe (Amador & Cabral, 2016, pg. 278).

Yet, is it still appropriate to refer to global value-creation in sequential steps – i.e. by using the chain metaphor? How do companies around the world collaborate within the context of the business ecosystem, which, in certain industries, has replaced the notion of the global value chain? These questions will be addressed as this thesis progresses.

2.2. Digitization

Digitization, according to Kagermann (2015), is “the networking of people and things and the

convergence of the real and virtual worlds that is enabled by information and communication technology (ICT)” (Kagermann, 2015, pg.24). The author claims that it represents a trend that is

expected to have one of the largest impacts in terms of driving innovation throughout the next couple of decades (Kagermann, 2015, pg. 24). As such, many fields including the mobility sector,

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the energy sector, the healthcare sector as well as manufacturing will be affected by digitization, as it will play a large part in transforming said fields’ key infrastructures (Kagermann, 2015, pg. 24). Indeed, Kagermann (2015, pg. 24) notes that markets, social structures and the way people work are already being disrupted by the advances of digitization. Consequently, as he puts it, “today’s value chains and business models will come under increasing pressure” (Kagermann, 2015, pg. 24).

In comparison, Gulati and Soni (2015) write that “digitization is the process of conversion of

relationship information into micro information” (Gulati & Soni, 2015, pg. 60). Hence, they

explain that it has become a medium through which information is exchanged globally, as society edges closer to having all types of everyday objects being interconnected (Gulati & Soni, 2015, pg. 60). In addition, they state that “digitization multiplies the benefits of connectivity” (Gulati & Soni, 2015, pg. 60), - i.e. it advances the economy much more than the mere presence of

broadband internet (Gulati & Soni, 2015, pg. 60).

Similarly, Hirt and Willmott (2014, pg. 1) also suggest that digital technologies that have been around for a while, these days, are being used in new, very effective ways. They highlight how the amount of information available (be it proprietary big data or other sources that are publicly accessible in the form of open data) is as large as never before (Hirt & Willmott, 2014, pg. 1). At the same, time they point out that capabilities in terms of data processing and data analysis have grown immensely due to the fact that algorithms are able to spread information across digital networks housed by the cloud (Hirt & Willmott, 2014, pg. 1). This information, in turn, can be accessed by users around the globe by using smart mobile devices (Hirt & Willmott, 2014, pg. 1).

Kagermann (2015, pg. 24) draws attention to the fact that by 2020, mobile networks will allow approximately 6.5 billion people, as well as 18 billion objects to be connected in some form or another. This, as he writes, is proof that the virtual world and the physical world are no longer separate from one another, but in fact, are merging (Kagermann, 2015, pg. 24). As do Gulati and Soni (2015, pg. 60), Kagermann (2015, pg. 24) also indicates that digitization will generate vast economic benefits, particularly in fields such as healthcare, education, energy, and transportation, as well as for the government. In this sense, he posits that “it is clear that the impact of

digitization in terms of transforming the world we live in will be comparable to past waves of innovation such as those triggered by mechanisation and electricity” (Kagermann, 2015, pg. 24).

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When it comes to the world of business, Gulati and Soni (2015, pg. 61) write that the challenges and opportunities that are being brought about by digitization are forcing companies to adapt their strategies. Hirt and Willmott (2014, pg. 1) add on to this notion by postulating that digitization is “profoundly changing the strategic context” (Hirt & Willmott, 2014, pg. 1), as it changes not only the structure of competition, but also the way business is conducted and, in turn, performance across industries. Indeed, both Gulati and Soni (2015, pg. 62) as well as Hirt and Willmott (2014, pg. 2) point out how the way business transactions and interactions with customers are carried out is being reshaped by digitization. At the same time, new technologies are opening up completely new sales channels through which businesses can market their products (Gulati & Soni, 2015, pg. 62).

Furthermore, it is stated that “digital capabilities increasingly will determine which companies

create or lose value” (Hirt & Willmott, 2014, pg. 2). Research shows that digitization plays a part

in lowering entry barriers, causing industry boundaries to be torn down (Hirt & Willmott, 2014, pg. 2). Also, the way digital assets allow firms to ‘plug and play’ is affecting value chains in the sense that they are being disaggregated, thereby creating opportunities for new fast-moving competitors to enter the market (Hirt & Willmott, 2014, pg. 2). The following chapters of this thesis will explore this notion in more detail and show how, nowadays, with the help of digital platforms, firms are interconnected in such a way that they can organise themselves in the types of networks that constitute business ecosystems and collaboratively co-create value in new and innovative ways.

2.3. Business Ecosystems

Back in 1993, Normann and Ramirez already produced the following statement: “Today, under

the impact of information technology and the resulting globalization of markets and production, new methods of combining activities into offerings are producing new opportunities for creating value” (Normann & Ramirez, 1993, pg. 68). In addition, Kandiah and Gossain (1998, pg. 29)

indicate that the internet is providing the interconnectedness that stimulates the creation of business ecosystems, which according to Clarysse et al. (2014), are “nested commercial systems

where each player contributes a specific component of an overarching solution” (Clarysse et al.,

2014, pg. 1166). This next section will deal with the concept of the business ecosystem in more detail. Its main characteristics will be outlined, one of its most prominent features, the digital platform, will be presented, and its roots in the concepts of the value chain and value network will be explored.

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Korpela et al. (2013,) define the business ecosystem as “a dynamic structure that consists of an

interconnected population of organizations” (Korpela et al., 2013, pg. 3839). The authors claim

that the organisations in a business ecosystem can come in all sizes and can include research institutes, public sector organisations, and any other party that may have a stake in the system (Korpela et al., 2013, pg. 3839). Furthermore, as Rong et al. (2013a, pg. 76-77) posit, the business ecosystem concept allows firms to adopt a perspective that stresses cross-industry collaboration, as opposed to a more traditional perspective of the supply chain in which partners are directly linked. Here, the authors indicate how the mobile computing industry in particular, serves as an example for an industry that has adopted this concept (Rong et al., 2013a, pg. 77).

Clarysse et al. (2014, pg. 1164) explain how business ecosystems are characterised by the joint value creation of firms and how “such ecosystems are organized as complex networks of firms

whose integrated efforts are focused on addressing the needs of the end customer” (Clarysse et

al., 2014, pg. 1164). Moreover, it is claimed that business ecosystems allow the firms involved to deliver solutions that encompass a 'full package of value' for the customer (Moore, 1993, pg. 76) which none of the firms would be able to offer by themselves (Adner, 2006, pg. 2). It also

increases the firms’ ability to create new markets on the one hand, and to pursue less well-defined commercial opportunities on the other (Clarysse et al., 2014, pg. 1166).

In line with the definitions by Clarysse et al. (2014), Peltoniemi (2006) highlights the interdependence of firms in a business ecosystem by writing: “Business ecosystems are

characterised by a large number of loosely interconnected participants who depend on each other for their mutual effectiveness and survival.” (Peltoniemi, 2006, pg. 10 – 11). At the same

time, Moore (2006) suggests that a business ecosystem is “a collaboration to create a system of

complementary capabilities and companies” (Moore, 2006, pg. 53). Alternatively, Moore (2006)

also writes that a business ecosystem “can also be seen as a network of interdependent niches

that in turn are occupied by organizations” (Moore, 2006, pg. 34).

Nevertheless, another comparable definition is offered by Zahra and Nambisan (2012) who postulate that “a business ecosystem is a group of companies - and other entities including

individuals, too, perhaps – that interacts and shares a set of dependencies as it produces the goods, technologies and services customers need” (Zahra & Nambisan, 2012, pg. 220). As such,

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the ecosystem is reinforced (Zahra & Nambisan, 2012, pg. 220). In addition, Rong et al.’s

(2013b) definition of the business ecosystem is also very much comparable to the ones mentioned above, but also acknowledges the roles not just of firms, but also of other stake holders within the business ecosystem. They write: “The concept of the business ecosystem is proposed as an

interdependent economic community including industrial players, governments, universities, and other relevant stakeholders, who co-evolve with each other to create and deliver value” (Rong et

al., 2013b, pg. 388).

Finally, Moore, in the mid-90s, already defined the business ecosystem as: “an economic

community supported by a foundation of interacting organizations and individuals – the

organisms of the business world” (Moore, 1996, pg. 26). Valkokari (2015) expands this definition

when she posits that

“in the same way as business or value networks, the business ecosystem can be seen as a group of

companies and other organizations, which simultaneously creates and captures value by combining its resources, while it operates around a focal firm or is linked to a platform”

(Valkokari, 2015, pg. 19).

2.3.1. Business Ecosystem Participants

Early on, Moore described how ecosystem participants “tend to align themselves with the

directions set by one or more central companies” (Moore, 1996, pg. 26). Within the business

ecosystem literature, these central companies are frequently termed ‘keystone’ company.

Clarysse et al. (2014, pg. 1166) write about how the role of the keystone company is to ensure the all other ecosystem participants are healthy. Furthermore, they claim that these companies

continuously invest in new technological innovations developed by other firms in the ecosystem and integrate them (Clarysse et al., 2014, pg. 1166). In doing so, keystone companies develop infrastructure that is vital for the entire business ecosystem, whereby it fosters the creation of previously non-existent markets (Clarysse et al., 2014, pg. 1166). In this sense, Peltoniemi (2006, pg. 11) also explains how keystones “are the kind of companies that serve as enablers and have a

great impact on the whole system” (Peltoniemi, 2006, pg. 11). Moreover, Zahra and Nambisan

(2012, pg. 222) refer to the keystone company as a central node connecting all other participants and thereby determining how said participants are to engage with one another. Paulus-Rohmer et al. (2016, pg. 9) also characterise the keystone company as being the company that is responsible for the improvement of the ecosystem’s health and which therefore becomes a hub in the

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ecosystem. Thus, as they put it, the keystone protects the ecosystems and ensures its survival by providing the necessary tools (Paulus-Rohmer et al., 2016, pg. 9).

In addition, Tan et al. (2009, pg. 5) claim that keystone firms have the power to raise the

ecosystem’s productivity by keeping the number of ecosystem participants at an optimum. Iansiti and Levien (2004, pg. 73) also posit that the keystone works towards maintaining the

ecosystem’s robustness which helps protect it from outside shocks by “consistently incorporating

technological innovations and by providing a reliable point of reference that helps participants respond to new and uncertain conditions” (Iansiti & Levien, 2004, pg. 73). At this point,

however, it is important to stress that keystones do not simply offer benefits to all other

ecosystem participants for purely selfless reasons, but that they strive to improve the ecosystem’s health in order to secure their own survival (Iansiti & Levien, 2004, pg. 74). Interestingly, Moore (1996, pg. 26) also noted that the leadership role within an ecosystem may be held by different companies as time progresses. In any case though, “the function of the ecosystem leader is valued

by the community because it enables members to move toward shared visions to align their investments, and to find mutually supportive roles” (Moore, 1996, pg. 26).

Yet, as both Paulus-Rohmer et al. (2016, pg. 9) and Peltoniemi (2006, pg. 11) note, keystone players are small in number and only occupy a very small part of the ecosystem. Consequently, the literature also identifies the so called niche players. According to Peltoniemi (2006, pg. 11), niche players are much larger in number than keystone players and in fact make up the bulk of the ecosystem participants. These, as Rong et al. put it, develop “specialized capabilities to add

value to the ecosystem” (Rong et al., 2013b, pg. 388). Furthermore, it is suggested by

Paulus-Rohmer et al. (2016, pg. 9) that these niche players follow a strategy of specialisation and aim to differentiate themselves form the other niche players. In line with the definitions of the niche player presented here, Zahra and Nambisan (2012, pg. 220) imply that, in contrast to keystone players (which are typically large, established firms) niche players tend to be newer ventures or start-ups. This makes sense, given the larger number of niche players in relation to the keystone player and the fact that they are more specialised, as was stated above.

However, besides keystone players and niche players, Peltoniemi (2006, pg. 11) also identifies the so-called dominators and hub landlords. As she puts it, these “are the kind of organizations

that attract resources from the system, but do not function reciprocally” (Peltoniemi, 2006, pg.

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control over a large part of the network (Iansiti & Levien, 2004, pg. 75). In such situations, where the responsibility for creating and capturing value is vested with only one large dominator, the meaningfulness of a business ecosystem diminishes (Iansiti & Levien, 2004, pg. 75). Thus, as is claimed by Clarysse et al. (2014, pg. 1175), it should be avoided that a large, established firm turns into a dominator. Where this does occur, it seems likely that the outcome would be a shift away from a business ecosystem structure and towards a structure more reminiscent of an integrated value chain, a model that will be discussed in Chapter 2.3.5.1.b.

Nonetheless, while most authors focus on the types of firms involved in the business ecosystem (i.e. – keystone players, niche players, dominators and hub landlords), Moore (1996, pg. 26) included customers who, according to him, “are themselves members of the ecosystem” (Moore, 1996, pg. 26). In addition Clarysse et al. write that “business ecosystems introduce the customer

(demand) side” (Clarysse et al., 2014, pg. 1166) while Valkokari (2015, pg. 19-20) also

acknowledges the fact that the customer should be considered an ecosystem participant. She explains how the emergence of the service-dominant logic (as was previously discussed in connection with service-value networks) has led to an increasing focus on the relationships between customers and service providers (Valkokari, 2015, pg. 18). This service-dominant logic is particularly apparent in Figure 1 which represents a graphic depiction of a business ecosystem and how different ecosystem partners interact with customers via a single channel representing the service provider – i.e. the keystone company.

Figure 1: Partners Interacting with Customers Through a Single Channel Source: Kandiah, G., & Gossain, S. (1998). Reinventing value: The new business ecosystem.

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Though besides adding customers to the mix, Moore (1996, pg. 26) also considered suppliers to be ecosystem participants. In this respect, Adner and Kapoor (2010, pg. 309) developed a schema of a business ecosystem that takes into account the customer as well as suppliers. In this schema, the focal firm is the actor that assembles components it receives from suppliers into inputs (i.e. products or services) delivered to the customer (Adner & Kapoor, 2010, pg. 309).

Complementors are those firms that offer complementary products or services that can be bundled with the focal firm outputs by the customer in order to derive increased value (Adner & Kapoor, 2010, pg. 309). Figure 2 (below) shows this graphically. Here, the focal firm as well as the complementor firms in this schema are very much comparable (if not identical) to the keystone and the niche players (respectively), as discussed by Iansiti and Levien (2004, pg. 73-77). Here, it can be seen how in a first step, the focal firm’s suppliers deliver inputs that are converted into a product or service, which the customer, in a next step, consumes in combination with the products or services offered by the complementors.

Figure 2: Generic schema of an ecosystem

What is most commonly termed the niche player, and what Adner and Kapoor (2010, pg. 309) refer to as the complementor, is closely comparable to Kim et al.’s (2010, pg. 151-152) flagship company in a business ecosystem. In their conceptualisation of a business ecosystem, the flagship company has closer ties to companies, customers and competitors than the keystone company

Source: Adner, R., & Kapoor, R. (2010). Value creation in innovation ecosystems: How the structure of technological interdependence affects firm performance in new technology generations. Strategic management journal, 31(3), 309

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(Kim et al., 2010, pg. 152). The way Kim et al. (2010, pg. 152) see it, the flagship company is, in fact, located in a hub position, thereby connecting many other ecosystem nodes. One can assume these flagship companies produce the complementary goods and services that can later be

bundled with the offering of the keystone (or focal firm), in the same way that the complementors do in Ader and Kapoor’s (2010, pg. 309) ecosystem. This type of business ecosystem

constellation is shown in Figure 3.

Figure 3: A conceptual business ecosystem

Yet for Moore (1996, pg. 27), including customers and suppliers in the definition of who participates in a business ecosystem is still not enough. Ultimately, he argues that all additional stakeholders are just as much part of what constitutes a business ecosystem, as can be seen in Figure 4. Here, Moore (1996, pg. 27) implies that the business ecosystem is made up of three layers. The first layer is the core business, which is comprised of the core contributors, the distribution channels, and the direct suppliers (Moore, 1996, pg. 27). This core business is surrounded by direct customers, customers of customers, suppliers of complementary products, suppliers of suppliers, and standard bodies, which turn the core business into the extended enterprise (Moore, 1996, pg. 27). The extended enterprise, in turn, is surrounded by labour unions, trade associations, investors, competitors, government agencies and other regulatory bodies, as well as other stakeholders (Moore, 1996, pg. 27). These, together with the extended enterprise, constitute the business ecosystem (Moore, 1996, pg. 27).

Source: Kim, H., Lee, J. N., & Han, J. (2010). The role of IT in business ecosystems. Communications of the ACM, 53(5), 152.

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Figure 4: Moore’s Business Ecosystem

2.3.2. Business Ecosystem Life Cycle

In his 1996 book ‘The death of competition: leadership and strategy in the age of business ecosystems’, Moore first put forward the argument that business ecosystems transition through four distinct stages which make up the business ecosystem’s life cycle (Moore, 1996, pg. 68). These stages are, according to him, ‘pioneering’, ‘expansion’, ‘authority’, and either ‘renewal’ or ‘death’ (Moore, 1996, pg. 68-69). While Moore (1996, pg. 68-81) introduced the business

ecosystem life cycle more than two decades ago, authors such as Rong et al. (2013a, pg.75ff) continue to build their research on it in more recent times (see systematic literature review in Chapter 3), wherefore Moore’s theory still appears to be relevant. As such, the business ecosystem life cycle can be modelled the way it is depicted in Figure 5.

Adapted from: Moore, J. F. (1996). The death of competition: leadership and strategy in the

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Figure 5: Business Ecosystem Life Cycle

The business ecosystem life cycle begins, according to Moore (1996, pg. 69) with the pioneering stage in which firms must find a way to use their core capabilities in such a way that they can create a core offer. Here, it is important that the value created by the core offer is superior to that of any other offers currently on the market (Moore 1996, pg. 70). The next stage is that of ecosystem expansion (Moore, 1996, pg. 72). It occurs as a small number of synergistic relationships is gradually grown into a larger network due to heavy investment in those

relationships (Moore, 1996, pg. 72). The goal of this stage is to reach a targeted level of market scale within the boundaries of the industry within which the ecosystem operates (Moore, 1996, pg. 74). When it comes to the authority stage, Moore (1996, pg. 75) advises individual firms to try and embed their core contributions at the centre of the ecosystem, so that ecosystem partners become more dependent, and the firm in question becomes less likely to be replaced. This ties in well with the suggestions made by other authors that besides the collaborative relationships, there exists a certain level of competition between ecosystem partners (Peltoniemi, 2006, pg. 64) and that keystone players attempt to establish a strong position not only to ensure ecosystem health, but their own survival (Iansiti & Levien, 2004, pg. 74). Maintaining a position of authority, as Moore (1996, pg. 77) argues, is important in order to be able to capture as much of the value generated by the ecosystem as possible, an issue that is also discussed in more depth by Leataifa

Adapted from: Rong, K., Lin, Y., Shi, Y., & Yu, J. (2013). Linking business ecosystem lifecycle with platform strategy: a triple view of technology, application and organisation. International journal of technology management, 62(1), 91.

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(2014, pg. 288ff).1In the final stage, the business ecosystem is faced with either renewal, or death (Moore, 1996, pg.79). For the ecosystem to stay alive, new ideas must somehow be injected into the existing order of the ecosystem, or complete alternatives to the core offer developed (Moore, 1996, pg. 81). If this is not possible, the ecosystem will eventually die (Moore, 1996, pg. 79-81).

2.3.3. Business Ecosystem Attributes

The literature on business ecosystems deals with several key attributes that characterise typical business ecosystems. Peltoniemi (2005, pg. 10-11) highlights the importance of interdependence, meaning that the firms operating within the business ecosystem are mutually dependent on one another. Hence, she states that within the ecosystem, the firms are able to thrive by forming an alliance with the other participants, while simultaneously being protected from potential intruders from outside the network (Peltoniemi, 2005, pg. 11). Indeed, Valkokari (2015, pg. 21) argues that as ecosystem participants interact with one another, their interdependence grows. Similarly, Clarysse et al. (2014, pg. 1166) also claim that in order to gain a competitive advantage, firms within a business ecosystem ‘exploit their interdependencies’.

Nevertheless, despite these interdependencies, Peltoniemi (2006, pg. 11) highlights the fact that firms in a business ecosystem still maintain the ability to make decisions on their own behalf. They strive towards creating innovations and towards achieving commercial success, wherefore they aim to take advantage of the capabilities of other ecosystem participants (Peltoniemi, 2006, pg. 11). As such, Valkokari (2015, pg. 18) indicates that for individual firms, business

ecosystems are, in fact, sources of competitive advantage. Consequently, it can be said that competition in a business context, no longer takes place between individual companies, but between entire ecosystems (Moore, 1993, pg. 76).

However, Moore (1993, pg. 76) points out how even within a business ecosystem, cooperation and competition between ecosystem participants takes place simultaneously. Zahra and Nambisan (2012, pg. 228) support this notion when they posit that within a business ecosystem, firms have the ability to both collaborate and compete at the same time. Similarly, Peltoniemi (2006, pg. 11) also claims that interactions between organisations in a business ecosystem can be cooperative as well as competitive at the same time, something that comes as a result of the firms’ close

interconnectedness.

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Another key attribute of business ecosystems is that they evolve alongside their environments, something that is postulated by Peltoniemi (2006, pg. 11-12), who writes: “a business ecosystem

is coupled to its environments, which may change rapidly and unpredictably. Thus, a business ecosystem is fundamentally a dynamic structure that evolves and develops in time” (Peltoniemi,

2006, pg. 11-12). Valkokari (2015, pg. 18) also highlights the dynamic nature of business ecosystems in arguing that it evolves in its own particular way as a consequence of having a unique constellation of actors and interactions. As such, the decisions made and the subsequent actions taken collectively shape the state of the ecosystem in the present, as well as in the future (Valkokari, 2015, pg. 18). Figure 5 summarises how the business ecosystem attributes discussed above relate to one another, as conceptualised by Peltoniemi (2005, pg. 64).

Figure 6: The characteristics of a business ecosystem

Figure 6 demonstrates how business ecosystems are characterised by a large number of

participants and the presence of simultaneous competition and cooperation (Peltoniemi, 2005, pg. 64). This ‘coopetition’ causes the participating companies to interact with one another and creates a shared fate, as a result of which the participating firms not only interact with one another, but become interconnected (Peltoniemi, 2005, pg. 64). At the same time, the participating firms make the conscious choice to aim at achieving innovation and commercial success, something that is important in order to address the changing environment of business ecosystems (Peltoniemi,

Source: Peltoniemi, M. (2005). Business ecosystem: a conceptual model of an organisation population from the perspectives of complexity and evolution. eBRC Research Reports 18, 64.

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2005, pg. 64). Ultimately, these changing environments call for dynamics that drive companies to compete and cooperate at the same time (Peltoniemi, 2005, pg. 64). In addition to the business ecosystem characteristics highlighted by Peltoniemi (2005, pg. 64), Moore (1996, pg. 29-31) suggests that there is an economic model at the heart of every business ecosystem. This, as he puts it, can be expressed as a ‘virtuous cycle’ of investment and return, which can be depicted as a double-looped model, as shown in Figure 7.

Figure 7: A virtuous cycle of investment and return

This virtuous cycle begins with a set of core capabilities with which some form of value can be created for end customers, which stimulates allied business activity (Moore, 1996, pg. 29). As these core capabilities are transformed into products or services that can be commercialised, they generate a large sales volume through which substantial economies of scale can be achieved (Moore, 1996, pg. 30). The customer, on the other hand, receives a total experience, which not only comes as a result of using the core product or service, but also from the set of

complementary offers aimed at enhancing the experience (Moore, 1996, pg. 30). The profits derived from the sale of core products and services are, in turn, used for reinvestment in the core business to further develop core capabilities, allowing for a gradual widening of profit margins as

Adapted from: Moore, J. F. (1996). The death of competition: leadership and strategy in the

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prices fall and performance increases (Moore, 1996, pg. 30). Yet the core business’ returns are not only used for re-investment, but are also used to invest in the wider ecosystem in order to build leadership and to facilitate community support activities such as standard setting and dispute resolution (Moore, 1996, pg. 30). As such, the result is “continuous improvement in both

the core offer and in the community of allies” (Moore, 1996, pg. 30), wherefore the overall value

for the end user is increased (Moore, 1996, pg. 30).

As is pointed out by Clarysse et al. (2014, pg. 1166), keystone companies develop the infrastructure with which all other ecosystem participants are able to create value. Here, they mention the creation of platforms – i.e. services, tools or technologies that are open for use by the other ecosystem participants in order to improve their performance (Clarysse et al., 2014, pg. 1166). As such, one of the major responsibilities of keystone companies, beside the co-creation of value, is the sharing of said value with the other participants via the platforms they create

(Clarysse et al., 2014, pg. 1166). Similarly, Rong et al. (2013b, pg. 388) indicate that platforms are created by keystone companies with the goal of involving the other participants’ contribution to the value creation process. Here they posit: “The platform could be regarded as the package

through which keystone players share value and niche players add value, which encourages diversified innovation and triggers a high degree of interaction between firms” (Rong et al.,

2013b, pg. 388).

Moreover, Gawer and Cusumano (2014) define the ecosystem platform (or the industry platform as they refer to it) as “products, services, or technologies developed by one or more firms, and

which serve as foundations upon which a larger number of firms can build further

complementary innovations and potentially generate network effects” (Gawer & Cusumano,

2014, pg. 420). In the same vain, Ghazawneh and Henfridsson (2015) argue that such platforms “offer a common set of technologies for generating derivative products and services, which are

complementary to the platform core” (Ghazawneh & Henfridsson, 2015, pg. 199). In line with

the argument made by Moore (1993, pg. 76) that competition takes place between business ecosystems, Cusumano (2010, pg. 34) makes the following statement: “Who wins and who loses

these competitions is not simply a matter of who has the best technology or the first product. It is often who has the best platform strategy and the best ecosystem to back it up” (Cusumano, 2010,

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Rong et al. (2013a, pg. 78) list three main functions an ecosystem platform, according to them, has. The first of these functions is that the platform acts as an interaction interface – i.e. a

‘toolkit’ with which ecosystem participants can build their own products (Rong et al., 2013a, pg. 78). The second function is that it enables inter-firm collaboration to co-create value (Rong et al., 2013a, pg. 78). Finally, in enabling ecosystem partners to work together; it leads to the

formulation of specific network patterns which allow them to compete against the ecosystems of their rivals (Rong et al., 2013a, pg. 78). Consequently, based on the above, it is clear that such platforms are of great significance for the existence of business ecosystems in the first place. What these platforms look like, especially when they take on a digital form, will be discussed in more depth in Chapter 2.3.4.

2.3.4. Digital Platforms

As Kenny and Zysman (2016, pg. 61) note, the emergence of a so-called digital platform

economy is observable. As they put it, numerous companies are “creating online structures that

enable a wide range of human activities” (Kenny & Zysman, 2016, pg. 61). The authors posit

that “these digital platforms are multisided digital frameworks that shape the terms on which

participants interact with one another” (Kenny & Zysamn, 2016, pg. 61) which, as a result,

allows for radical changes in the way value is created in the economy to take place.

In line with what was discussed in the previous chapter, de Reuver et al. (2018, pg. 124) argue that competition is no longer a matter of controlling the value chains, but a matter of “attracting

generative activities associated with a platform” (de Reuver et al., 2018, pg. 124). Kenny and

Zysman also describe digital platforms as being “complicated mixtures of software, hardware,

operations, and networks” (Kenny & Zysman, 2016, pg. 64) and argue that “the key aspect is that they provide a set of shared techniques, technologies, and interfaces to a broad set of users who can build what they want on a stable substrate” (Kenny & Zysman, 2016, pg. 64). At the same

time, Sedera et al. (2016, pg. 126) offer perhaps a more technical definition of the digital when they posit that a digital platform is “a technology architecture that allows development of its own

computing functionalities and allows the integration of information, computing, and connectivity technology platforms available to an organization” (Sedera et al., 2016, pg. 367).

Most recently, another definition is provided by de Reuver et al. who state that “digital platforms

can be defined as purely technical artefacts where the platform is an extensible codebase, and the ecosystem comprises third-party modules complementing this codebase” (de Reuver et al., 2018,

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pg. 126). Moreover, Tiwana et al. define the digital platform as “the extensible codebase of a

software-based system that provides core functionality shared by modules that interoperate with it and the interfaces through which they interoperate” (Tiwana et al., 2010, pg. 675). The authors

continue to explain that according to their definition, a module is an “add-on software subsystem

that connects to the platform to add functionality to it” (Tiwana et al., 2010, pg. 675), and that

collectively, the platform and the modules associated with it represent the platform’s broader ecosystem (Tiwana et al., 2010, pg. 675) – hence the connection to the notion of the business ecosystem. Figure 8 depicts how the platform and its modules fit into the context of a platform-centric ecosystem.

Figure 8: Elements of Platform-Centric Ecosystems

Authors de Reuver et al. (2018, pg. 126) discuss how the aforementioned modules, or ‘add-on software subsystems’ as Tiwana et al. (2010, pg. 675) call them, frequently take on the form of applications built by third-party developers. Ghazawneh and Henfirdsson define these

applications as “executable pieces of software that are offered as applications, services or

systems to end-users of the platform” (Ghazawneh & Henfirdsson, 2013, pg. 175). Nevertheless,

Sedera et al. (2016, pg. 375) indicate that not all platforms allow for third-party application development and that many simply “provide the delivery mechanism of a software service” (Sedera et al., 2016, pg. 375).

In any case, Tiwana et al. (2010) define a platform’s modularity as “the degree to which changes

within a subsystem do not create a ripple effect in the behavior of other parts of the ecosystem”

(Tiwana et al., 2010, pg. 678). Gawer and Cusumano (2014, pg. 421) also highlight the

Source: Tiwana, A., Konsynski, B., & Bush, A. A. (2010). Research commentary—Platform evolution: Coevolution of platform architecture, governance, and environmental dynamics. Information systems research, 21(4), 676.

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modularity of digital platforms when they argue that platform interfaces need to open to such a degree that outside firms are able to ‘plug in’ complements and create innovations on top of these complements. This is echoed by Rong et al. (2013a, pg. 79), who state that the technology

provided by platform leaders is usually sufficiently open so that complementary products and services can be built on it. Indeed, Sedera et al. (2016, pg. 369) point out how digital platforms can foster innovation by the different users, wherefore it has the potential to affect the strategies, structures and processes of organisations. In this sense they state that “digital platforms provide

organizations with an opportunity to innovate, facilitated by the growing ecosystem of providers and suppliers of tools, techniques, and practices, beyond the conventional boundaries of

traditional corporate IT” (Sedera et al., 2016, pg. 369). In this context, Gawer and Cusumano

even argue that “in fact, for truly successful industry platforms, the end use of the product or

service does not seem to be fully predetermined by the platform owner. This creates

unprecedented scope for innovation on complementary products, services, and technologies”

(Gawer & Cusumano, 2014, pg. 421).

However, while openness is necessary for complements to be supported (de Reuver et al., 2018, pg. 127), Kenny and Zysman (2016, pg. 67) claim that at the same time, platforms and the

algorithms on which they are based structure and even constrain behaviour. The authors highlight the fact that action, in the digital world, “is possible only if it conforms to frameworks expressed

in the code that shapes and directs behaviour” (Kenny & Zysman, 2016, pg. 67). In this sense,

Zysman and Kenny (2018, pg. 62) draw on Lawrence Lessig’s famous quote that ‘code is law’ to show that platform governance is “effectively embedded in the code itself” (Zysman & Kenny 2018, pg. 62). In fact, they suggest that where market regulations are non-existent, unclear or difficult to apply, platform businesses can introduce new regulations or at least some new interpretations thereof (Zysman & Kenny 2018, pg. 62).

Moreover, Gawer and Cusumano (2014, pg. 423) also write that platform leaders are in a position where they can “influence the direction of innovation in complementary products and services by

third parties” (Gawer & Cusumano, 2014, pg. 423). Nonetheless, they concede that is still in the

platform leaders’ interest to foster competition between complementors (Gawer & Cusumano, 2014, pg. 423). As the authors explain, if a platform leader’s goal is to generate innovation on behalf of its complementors, it must treat them as allies (Gawer & Cusumano, 2014, pg. 421). This also means not entering the market of a complementor as a competitor (Gawer & Cusumano, 2014, pg. 421-422).

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2.3.4.1. Network Effects

According to Gawer and Cusumano (2014, pg. 417), digital platforms typically display network effects. As they explain, this means that the platform grows in value both for the owner and the user the more users adopt it (Gawer & Cusumano, 2014, pg. 417). The reason for this is that the network becomes larger and the number of complementary innovations increases (Gawer & Cusumano, 2014, pg. 417). Consequently, the incentives for more users and complementors to join the ecosystem grow as the network grows (Gawer & Cusumano, 2014, pg. 417). This idea is supported by de Reuver et al. (2018, pg. 125) who, like Gawer and Cusumano (2014, pg. 417), postulate that digital platforms are subjected to network effects or network externalities as they bring different user groups together for whom the usefulness of the technology increases with the size of the user-base. Edelman sums it up nicely when he states: “Platforms usually provide

exceptional value to multiple types of users – if the platforms are widely adopted” (Edelman,

2015, pg. 97).

Furthermore, Edelman (2015, pg. 92) adds that once platforms have established a significant user-base, these network effects actually even protect their positions, since users are unlikely to leave vibrant platforms. Thus, Zysman and Kenny (2018, pg. 56) argue that these network effects can ultimately “result in winner-take-all dynamics” (Zysman & Kenny, 2018, pg. 56), where the platform owner can become very powerful. Keeping in mind what was discussed above about platform owners’ ability to regulate the market depending on how the platform is coded, Tiwana et al. (2010, pg. 676-677) note that platform governance is therefore a balancing act between exerting control on the one hand, and allowing independent developers to act autonomously on the other.

However, network effects need not only be direct, but they can, in some cases, also be indirect (de Reuver et al., 2018, pg. 125; Gawer & Cusumano, 2014, pg. 422). Direct network effects occur when, as was stated above, the value of the network is dependent on how many users there are in the same user group, which is usually the case with social media platforms that become more useful for an end-user the more other end-users are registered (de Reuver et al., 2018, pg. 125). Gawer and Cusumano (2014, pg. 422), who also refer to direct network effects as ‘same-side’ network effects, add on to that by mentioning how these direct effects may, in fact, be reinforced by a platform implementing technical standards that make the use of multiple platforms – i.e. ‘multihoming’ or the switching between platforms costly and difficult.

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Indirect network effects, or ‘cross-side’ network effects as Gawer and Cusumano (2014, pg. 422) also term them, in contrast, happen when the value of the network is based on the size of a different user group (de Reuver et al., 2018, pg. 125). An example of such indirect effects would be for instance when a search engine platform such as Google becomes increasingly useful for advertising companies as more end-users turn to it for their inquiries (Gawer and Cusumano, 2014, pg. 422). Another example, provded by de Reuver et al. (2018, pg. 125) would be video gaming consoles, which increase in value for the gamer, the more game developers release games that are compatible with the console. Adding on to this, Gawer and Cusomano (2014, pg. 422) point out how platform owners can design their business model in such a way that they can charge different sides of such a multisided market.

Indeed, Edelman (2015, pg. 95-96) introduces two main ways of charging platform users. The first option is pay-as-you-go pricing, which is deemed to be a method used to minimize the risk associated with the use of the platform (Edelman, 2015, pg. 95). It is said that technology is oftentimes advanced enough that it allows individual transactions to be captured and recorded automatically, making pay-as-you-go payment options more and more feasible (Edelman, 2015, pg. 95-96).

The second option described by Edelman (2015, pg. 96) is introducing user subsidies. When platform owners subsidise one user group, thereby increasing the incentive for them to join, they can simultaneously charge the other user group a premium, due to the large number of users in the other group (Edelman, 2015, pg. 96). Again, Google is used as an example because it attracts end-users by offering free services such as search, e-mail and maps on the one hand, and charges companies for their ad placements on the other (Edelman, 2015, pg. 96). Thus, when considering the two different types of network effects mentioned above, it becomes obvious that subsidising one side of the market is particularly relevant where platforms experience indirect network effects.

2.3.4.2. Types of Platforms

Kenny and Zysman (2016, pg. 65-66) differentiate between several types of digital platforms. In their analysis they list platforms for platforms, platforms through which digital tools are made available, platforms mediating work, retail platforms and service-providing platforms (Kenny & Zysman, 2016, pg. 65-66). The first of these, i.e. platforms for platforms, are the likes of Apple and Google’s smartphone operating systems, upon which, as Kenny and Zysman (2016, pg. 65) write, entire ecosystems have been built. Similarly, de Reuver et al. (2018, pg. 126) also note how

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the introduction of iOS and Android (the mobile operating systems of Apple and Google

respectively) have brought about “associated ecosystems of apps and stakeholders” (de Reuver et al., 2018, pg. 126).

Platforms providing digital tools include repositories of open source software that firms can use to facilitate many different functional tasks – i.e. sales support, accounting or human resources-related tasks (Kenny & Zysman, 2016, pg. 65). Furthermore, when it comes to platforms

mediating work, LinkedIn which connects head hunters with potential employees is a prominent example, while amongst retail platforms, Amazon, which acts as an electronic marketplace for goods, is one of the most recognizable examples (Kenny & Zysman, 2016, pg. 66).

However, besides the types of platforms mentioned above, those referred to as service-providing platforms by Kenny and Zysman (2016, pg. 66) receive most attention in the literature, alongside the aforementioned platforms for platforms. Indeed, Zysman and Kenny (2018, pg. 59) point out how there is a particular interest in the platforms created by companies such as Uber and Airbnb, which are challenging the way traditional industries work. Particularly those offering peer-to-peer services are creating what is nowadays often referred to as the sharing economy (de Reuver et al., 2018, pg. 124).

Here, Andersson et al. (2013, pg. 3) break down what they call ‘peer-to-peer service sharing platforms’ into four sub-types, according to which such platforms can be classified. The first of these types are file sharing platforms (such as Napster) where digital media content – i.e. movies, music, books or even software, can be exchanged (Andersson et al., 2013, pg. 3). The second of these types are trading platforms (such as eBay) which allow for trading in physical goods (Andersson et al., 2013, pg. 3). Next, the authors mention goods sharing platforms which differ from trading platforms in that ownership of a good is not transferred (Andersson et al., 2013, pg. 3). Instead, the platform allows access to and usage of a certain good for a set period of time in exchange for a fee (Andersson et al., 2013, pg. 3). In this sense, Kenny and Zysman (2016, pg. 62) argue that such platforms, which include the widely discussed examples of Airbnb, Uber and Lyft, “facilitate the conversion of consumption goods such as automobiles and apartments into

goods that are monetized” (Kenny & Zysman, 2016, pg. 62). The last type of peer-to-peer service

sharing platforms discussed by Andersson et al. (2013, pg. 3) is the service sharing platform which brokers users and service providers who offer a service that is produced and consumed at the same time.

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In addition, the industries covered by such service-providing platforms in general are wide in range, including financial services (e.g. PayPal, Apple Pay and Kickstarter), transportation (e.g. Uber and Lyft), accommodation (e.g. Airbnb), and healthcare (e.g. PatiensLikeMe) (de Reuver et al., 2018, pg. 124). In any case, what is true for all digital platforms is that they provide “a useful

template for the management of exploration of possible avenues for collective value creation structured along technological trajectories” (Gawer & Cusumano, 2014, pg. 428-429).

Consequently, due to the fact that collective value creation is the ultimate goal of the new types of value constellations (Normann & Ramirez, 1993, pg. 65-66) discussed previously in this paper, it is obvious why digital platforms (as well as non-digital industry platforms) (Gawer &

Cusumano, 2014, pg. 418) need to be taken into account when analysing the influence of digitization and globalization on value chain and value network strategies.

2.3.5. Historical Development of the Business Ecosystem Perspective

In order to better understand the business ecosystem concept, it is important to explore where it originates from. Clarysse et al. (2014, pg. 1166) claim that the roots of the business ecosystem lie in the value network concept. This idea is supported by Chronéer et al. (2017, pg. 2), who write that “ecosystems are as such viewed as value networks encapsulating sustainable linkages

between individuals and organizations” (Chronéer et al., 2017, pg. 2). Hence, there exist many

parallels in the literature where business ecosystems and value networks are concerned. Nevertheless, the concept of the value-network as a ‘value-creating system’ (Peppard & Rylander, 2006, pg. 131), is not the only way firms can organise their value-creating activities. For instance, Sturgeon (2001, pg. 10-11) distinguishes between value chains and value networks as models according to which value creation can be organised. While the value network is characterised by multidirectional (Basole & Rouse, 2008, pg. 55) inter-firm linkages which bind firms together, thereby creating larger economic groups, the chain metaphor refers to a linear sequence of different value-creating steps which ultimately ends with the delivery and

consumption of goods and services (Sturgeon, 2001, pg. 10). As such, both the value chain and the value network can be interpreted as being predecessors to the business ecosystem concept, which is why defining them more closely, is important for the understanding of the historical development of the business ecosystem perspective. This is done in Chapters 2.3.5.1 and 2.3.5.2.

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2.3.5.1. Value Chains

Porter (1985, pg. 36) describes the value chain as a representation of the collective activities of a firm that are performed in connection with the product it sells (i.e. design, production, marketing, delivery and any kind of support activities). According to him, the concept of the value chain allows for disaggregation of a company in order to identify strategically relevant activities that have the potential of becoming sources of differentiation (Porter, 1985, pg. 33). While Porter’s definition is restricted only to the activities of one firm, other authors offer a broader definition of the value chain. Sturgeon (2001, pg. 11), for example, argues that the term value chain should denote the complete range of activities that is needed in order to bring a certain product to market. Timmer (2014, pg. 100), in reference to global value chains, states that they are to be defined as the sum of all value-added activities that are required in order to produce a final product both directly and indirectly. In a similar vein, Gereffi et al. (2001, pg. 3) note how said global value chains allow for an analysis of the relative value of each activity that takes place between the initial conception of a product or service and its final delivery to the consumer. In addition, Kogut postulates that “the value-added chain is the process by which technology is

combined with material and labor inputs, and then processed inputs are assembled, marketed, and distributed” (Kogut, 1985, pg. 15).

However, Freeman and Liedtka, on the other hand, offer an alternative perspective that is less focussed on physical products when they claim that value chains constitute a “a set of processes

through which a constellation of actors work together to continuously innovate in a way that produces value for customers” (Freeman & Liedtka, 1997, pg. 288). Nevertheless, although

Porter’s definition focusses mainly on the value chain within one firm, he does acknowledge that each firm’s value chain is “embedded in a larger stream of activities” (Porter, 1985, pg. 34). Hence, there appears to be consensus among authors that the value of a final product or service offered to the consumer is the result of multiple value-added activities that take place in

sequence, explaining the chain metaphor.

2.3.5.1.a Value

However, the question arises of what constitutes value in the first place. Freeman and Liedtka (1997, pg. 290) posit that the value created can be expressed from a consumer’s point of view on the one hand, and from the supplying company’s point of view on the other hand. For consumers, value is derived from low prices or from increased functionality of a product or service, while for the company; value is derived from the profit it makes by selling the product or service (Freeman & Liedtka, 1997, pg. 290). Porter (1985, pg. 38) also defines value in financial terms when he

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states that the basis for measuring value is the firm’s total revenue. He states that the company’s goal must be to create value for its customers to such an extent, that it exceeds the costs involved in creating it (Porter, 1985, pg. 38). Furthermore, Gereffi et al. (2001, pg. 5), again, claim that profit is the most frequently used indicator used to conceptualise value and that its distribution among value chain actors is subject to many value chain analyses. Nonetheless, the authors admit that defining value solely through profits has its limitations, wherefore they propose the value added that is attributable to each value chain activity as an alternative means of measuring value. This concept is also supported by Kogut when he writes that “the value-added chain is best

defined in terms of each link’s contribution to total cost” (Kogut, 1985, pg. 16).

Moreover Freeman and Liedtka (1997, pg. 290) put forward the notion that value chains include the simultaneous aims of creating value and of capturing value. While it is the overall goal of all value chain actors as a collective to create value for the final consumer, each individual actor must also bargain within the chain in order to capture the largest possible share of the profit generated by the end product’s sale (Freeman & Liedtka, 1997, pg. 290). Likewise, Porter (1985, pg. 57) mentions how the way shares are distributed among value chain actors depends on their relative bargaining power. Consequently, from these descriptions of value creation and value capture, it can be assumed that value can have different meaning to actors, depending on which end of the value chain they find themselves on. In addition, the literature appears to suggest that value travels in two ways, from suppliers and producers to final consumers and vice versa.

2.3.5.1.b Value Chain Models

When it comes to the analysis of the individual components of the value chain, Porter (1985, pg. 37-38) focusses, as mentioned above, on the different value-added functions within a single firm. Here, he distinguishes between primary activities and support activities. According to the author, primary activities constitute those activities that are directly involved in the production of a product as well as its distribution until it reaches the consumer. Porter (1985, pg. 39-40) hereby identifies five generic categories which are inbound logistics, operations, outbound logistics, marketing and sales, and service. These, as he puts it, are present in every firm’s value chain to varying degrees.

Sturgeon (2001, pg. 13) also provides a model of a generic value chain. He also breaks the value chain down into a number of essential functions that are needed to transform raw materials into a product of value that is brought to the end use consumer (even including after sales service and disposal or recycling). However, the model introduced by Sturgeon (2001, pg. 13) differs from

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