Ecosystems create market momentum and erect formidable barriers for competitors
The entertainment industry knows how to take a single product and turn it into a galaxy of merchandise. If you have kids, you know that a movie may be the beginning of a yearlong obsession with toys, clothing, bedding, school supplies, books, and who-knows-what-else. In the enterprise technology market, many vendors sell education, support, or professional services that complement their products; and maintain a partner program but stop short of building a complete ecosystem. That requires active recruitment of complementary vendors to offer a broad array of products and services that expand the value and usefulness of your own offerings. Ecosystems create market momentum and erect formidable barriers for competitors.
One great example is Microsoft Windows’s victory over the Apple Macintosh. In the 1990s, Microsoft beat out the better-designed Apple operating system through the creation of an enormous and well-supported ecosystem of third-party application vendors.
Apple started as a product-focused company and almost disappeared, despite its loyal following among educators and designers. Its computers were easier to use and better designed, but the mass market of buyers who needed easy-to-use computers was only beginning to appear. For them, computers still held only limited usefulness.
While Apple concentrated on great product design, Microsoft opened the interfaces to its product and wooed a broad community of software developers to meet the growing demand for specialized applications. Microsoft understood that an army of software companies would generate greater momentum and demand for their operating system than Apple ever could alone. The path to securing the market was an ecosystem, and Apple completely missed that opportunity in its early years.
Apple has learned from past mistakes. When music sharing emerged, launching wars between record labels and music enthusiasts, the company recognized a new need and designed around it. This time, Apple focused on the customer in addition to product design, with savvy marketing and even savvier ecosystem creation. Apple has created an ecosystem of music and content licensing companies, toymakers, carmakers, and even furniture and clothing manufacturers for its mobile devices. It’s questionable whether those horrible iPod-enabled lima-bean-shaped “chairs” ever helped sell an iPod, but the ecosystem of complementary products has created an entry barrier that has been extremely difficult to surmount, and has established Apple as the premier player in a completely remade music and communications industry. Apple is repeating that strategy with the iPhone and iPad.
The first step toward an ecosystem occurs before ever entering a new market, creating a product, or designing a solution. Determine whether the new market or offering is likely to generate demand for complementary products and services that will increase its overall value to the customer. Then identify which kinds of partners could be involved in offering related products. Design and package your product or service to simplify and encourage the addition of third-party products. Consider also how you’ll claim the ecosystem as your own. This can range from something as simple as a compatibility logo to co-branded marketing tools and products.
Recruit the required alliances to form the core of your ecosystem, starting with completers and implementers and, finally, complementors. As with any effective alliance, explicitly define each partner’s expectations from and contributions to the solution. Agree on ownership of the intellectual property surrounding product integration and responsibilities for various levels of customer support. Ensure that you have clear rules of engagement for sales opportunities, and that both sales organizations are aware of them.