7

Unleashing Ecosystem Learning and Innovation

ONE OF THE MOST IMPORTANT ADVANTAGES OF AN ECOSYSTEM is its exceptional ability to foster co-learning and catalyze innovation. The ecosystem leader can play a pivotal role in turning that potential for learning and innovation into reality.

New knowledge is the lifeblood of innovation in an ecosystem. Consequently, the ecosystem leader’s role starts with the actions it can take to bring new knowledge into the ecosystem or to ensure that fresh ideas are generated from the ecosystem’s day-to-day activities. Once that knowledge is captured, the ecosystem leader must harness that knowledge to trigger innovation. Sometimes it is the ecosystem leader itself that innovates, using knowledge it has accumulated by virtue of its pivotal position in the ecosystem. But equally important, the ecosystem leader can also encourage its partners to innovate, individually and jointly. To facilitate such innovation, ecosystem leaders must disseminate knowledge so that both explicit and tacit knowledge gets to those who can effectively use it to innovate.

At the same time, ecosystem leaders need to keep proprietary some of that new knowledge their ecosystems generate. Proprietary knowledge underpins a leader’s soft power and, as we will see in the next chapter, can be critical to ensuring they can monetize their contributions to the ecosystem. Deciding how much knowledge to share with partners in order to stimulate innovation, and how much knowledge to keep proprietary, is one of the most fundamental calls an ecosystem leader needs to make.

Encouraging Inf lows of New Knowledge

Ecosystem leaders infuse new knowledge into the ecosystem by deploying strategies to engage with a wide variety of partners, each of whom brings distinctive capabilities and experiences to the network. The benefits of a strategy that is carefully designed to stimulate fresh inflows of knowledge is well illustrated by the example of The Guardian, one of the UK’s oldest and best-known newspapers, and a case we already touched upon in chapter 6.

Started as the Manchester Guardian, a regional newspaper in England in 1821, for the first 178 years it was a newspaper, initially thriving, and, more recently, struggling like most of its rivals as advertising and content increasingly moved to the internet. Even so, the ecosystem that The Guardian has built since 2000 has made it the fourth-most-popular news portal in the world, attracting over 270 million unique visitors in February 2019. Almost two-thirds of them came from outside the United Kingdom, 26 percent from the United States alone.¹

Central to The Guardian’s success has been the decisions taken by its top management team during the early 2000s, aimed at harnessing the knowledge and capabilities of its partners. This led to a business model different from its rivals. Rather than producing and distributing content for which readers are willing to pay, and selling advertising alongside that content, The Guardian built an ecosystem that is able to continually access new knowledge from readers, advertisers, and other news outlets. In this way, the ecosystem was continually refreshed with diverse flows of new content.

Initially, this idea faced a lot of internal resistance. As The Guardian’s former editor, Alan Rusbridger, observed in 2010: “We had to get over the arrogance that only journalists are figures of authority in the world. If you let other voices in, you will create a Website where authors and readers are more engaged, more involved, and, I think, journalistically better.”² Any newspaper that remains closed, by contrast, is “going to have to generate everything itself,” according to Rusbridger, and that, quite simply, is no longer possible in today’s connected world.³

The first move that The Guardian made to create a more open ecosystem was to make its online content freely available, not only to readers, but also to third party websites. The newspaper launched an open platform application programming interface in 2009 that allowed Web developers to create links to Guardian content and relay it to their viewers. Initially free to all users, the platform later transitioned to a two-tiered pricing model giving limited access for free and charging for wider access, as discussed in chapter 6.

But if it were to continually fuel innovation within its ecosystem The Guardian would also have go beyond maximizing the reach of its stories and establish an inflow of new content. To achieve this, it would have to change the way it interacted with its partners in the ecosystem. This meant relinquishing some control over how its content was used. Rather than simply allowing other websites to link to its content, it created, as we mentioned in the previous chapter, an open and flexible platform that allowed The Guardian’s content to be embedded into partners’ sites. This enabled The Guardian to start engaging with innumerable partners in a new way without the costs of searching them out. Many of these partners were journalists, publishers and websites that The Guardian was not previously even aware of. Its open platform allowed The Guardian’s content, in the words of Digital Content Director Emily Bell, “to be woven into the fabric of the internet.”⁴

These moves might look like an act of extraordinary benevolence on the part of The Guardian. But they also had an upside for the company: as its content was distributed around the world by its partners the Guardian was able to track how that content was being used and when and where it was being consumed. The result was access to a massive stream of new data, way beyond anything it could generate in-house. It would subsequently use this treasure trove of data to further innovate its business model. Precise information on when and where its content was being used allowed The Guardian to understand the relationship between content and where and when users accessed it. Having captured this new data, it was later able to precisely tailor its content and advertising to the specific contexts of its users, as we explain below.

The obvious next step in the quest to use its ecosystem to generate innovation was for The Guardian to open up the way it sourced and created content. Again, this required it to cede a degree of control, this time over how it produced some of its content. In 2011, it launched “n0tice.com,” a platform for self-generated content that was an amalgam between a message board and a social media platform. It became a mobile publishing platform that resembled a community notice board.

Using the locational tools embedded in mobile phones and web browsers, n0tice.com displayed to users Guardian content relevant to their current locations. It also allowed them to post on its website content tagged with their location.⁵ Therefore, while the platform was free, it enabled The Guardian to generate revenues through location-specific classified advertising, optimized using algorithms derived from the data it had garnered from its original open-access platform. Although anyone could list things for sale for free on n0tice.com, they were also offered premium services such as featured positions on the screen, larger sized advertisements, and extended duration on the website for which they paid fees.

A year later, The Guardian unveiled an open API for n0tice.com that allowed businesses, journalists, and other developers to use the full complement of information available on the platform. All content published on n0tice.com was covered by the Creative Commons Attribution Share-Alike standard, so that it could be used commercially elsewhere.6

n0tice.com and the moves that preceded it, show how an ecosystem leader can stimulate an increased flow of knowledge into its ecosystem. For The Guardian this had the advantage, in Matt McAlister’s words, that: “When you let go a bit, and let a community run with the space you’ve created, amazing things start to happen.”⁷ Over the next few years, n0tice.com was spun off into a separate subsidiary, called Contribly, transforming itself from a location-specific message board into a broader platform that provided media companies with the tools to access, moderate, and curate user-generated content.⁸

The Guardian leveraged Contribly to expand its ecosystem further into user-generated journalism, when it launched GuardianWitness, in April 2013. GuardianWitness allowed readers to submit images or stories to The Guardian, either through a smartphone app or over the internet. Contributions appear on the GuardianWitness website, and a selected few features on The Guardian’s main website or its print edition. The platform encourages users by setting weekly news ‘assignments’ (essentially investigative questions) that readers are asked to respond to. From time to time, The Guardian also invites readers to contribute to breaking news stories, which, in addition to appearing on the GuardianWitness app and website, could be incorporated into the newspaper’s articles. Readers can also submit unsolicited content and ideas. These are then reviewed by The Guardian’s editorial team to see if they are fit for publication.

The Guardian’s leadership rightly saw GuardianWitness as a culmination of its longstanding strategy of creating new opportunities within its ecosystem by drawing in massively more data and knowledge from a wide variety of sources. As Joanna Geary, The Guardian’s social and communities editor, noted in 2016: “At The Guardian, we have a long history of getting our readers involved in our journalism. In the last few years, our readers have helped us to review MPs’ expenses documents, follow the UK riots, gain real-time insights into the Arab Spring as events in the Middle East unfolded, and challenge the government’s employment schemes. GuardianWitness further reinforces our recognition that journalism is now a two-way conversation, and will open up our site, as we never have before. Not only will this make it even easier for our readers to get involved in our journalism and form both local and global communities of joint interest, it will also provide our journalists with a fantastic new tool, providing them with insights and views that we don’t yet have access to.”9 Thus the quality of The Guardian’s content and its ability to identify and leverage scoops ahead of its rivals were greatly enhanced as a result.

The Guardian’s experience aptly illustrates how an ecosystem leader can stimulate innovation in its ecosystem by engaging with more and different partners, and attracting strong inflows of new knowledge from diverse sources. By creating platforms that provide readers and local media organizations with the opportunity to contribute news and content, The Guardian found a way to open the floodgates of new knowledge into its ecosystem. It developed effective and user-friendly tools, as well as incentives, that encourage contributors to engage afresh with a trusted institution. The mass of new information its ecosystem was then able to access and absorb fueled innovations, both by The Guardian and its partners. These delivered a richer experience for its customers and opened up new revenue streams.

In the same way, many of the ecosystem leaders we studied for this book have found novel ways of stimulating flows of new knowledge into their ecosystems that benefit themselves and their partners. For example, when a new industry partner joins the DS ecosystem, it brings fresh knowledge about the design challenges, the behaviors of materials and products, and customer requirements in their industry. DS offers tools to encourage its new software partners to capture this expertise and fresh knowledge into software applications. These applications then become fully integrated into the DS platform and service offering, enabling it and its ecosystem to generate more value for customers. ARM’s partners, including OEMs and semiconductor fabricators, continually bring knowledge about new technologies, product needs, and manufacturing processes into its ecosystem. This new knowledge is then incorporated into ARM’s chip designs and the tools, as well as software and services offered by other partners in the ecosystem, allowing it to deliver more functionality and greater value to customers.

In the case of e-commerce ecosystems such as Amazon and Alibaba, the data continually created by day-to-day activities is an even more important source of knowledge. Every transaction generates new data about the behavior of the parties involved, as well as their characteristics such as location, service performance, and timing. With the right analytics, this data can be turned into new knowledge and insights, ranging from likely consumer preferences and consumer psychology, to the credit worthiness of suppliers and the risks they might pose, allowing Amazon and Alibaba, and their respective ecosystems, to create more value for customers and generate more revenue for themselves.

In each of these examples, however, the benefits could only be reaped once the ecosystem leader had engineered a significant, and sometimes difficult, change in mind-set. Its own staff, and its partners, had to embrace the conviction that, far from destroying value or risking it leaking away, opening the gates to flows of information from outside the ecosystem is fundamental to generating new opportunities for value creation.

Innovating as the Ecosystem Leader

One way to utilize the new information and knowledge flowing into the ecosystem is for the leader to use it to fuel its own innovation (the results of which, as we will see, it may or may not choose to share with its partners).

Generating insights from data aggregation is one of the easiest ways for an ecosystem leader to innovate. At athenahealth, data from around one hundred million patient encounters each year provided near real-time insights into clinical trends.”10 athenahealth used that data to create its annual Payerview ranking, which ranks payers (insurance companies) on a variety of financial, administrative, and transactional metrics. These metrics include the average time taken by a provider to receive reimbursement, the percentage of claims resolved on the first submission, how long it takes a payer to respond to an enrolment request, the administrative burden related to provider enrolment in electronic transactions, and other aspects of the quality and reliability of insurers.¹¹ Sharing these rankings enables patients to make better informed choices, encourages competition, and indicates where the potential for improvements are greatest. Hence, by simply aggregating data from across the ecosystem and sharing it with partners in an easily digestible form, athenahealth was able to stimulate innovation that created more value for customers and partners alike.

ARM has gone a step further to become one of the key innovators in its ecosystem. Drawing on complex information about the emerging directions of key technologies, products, and services among its partners, it uses this data to guide the design of innovative chip architectures. The importance that ARM places on this flow of data from its partners is so great that whenever it grants a license for the use of its technology, it also insists on a reciprocal relationship with the licensee. The aim is to ensure that it gains insights into the licensee’s process technology road maps and potential applications that are emerging.

By developing strong relationships with several OEMs, ARM could gain an early indication of the requirements for new products. Likewise, its relationships with semiconductor partners and other players provided a window on the way hardware technologies would evolve. ARM combined the knowledge it accessed from its partner network with its own views to identify the emerging trends for new products and technologies. As Mike Muller, ARM’s former Chief Technology Officer, explained to us, the key innovation challenge then for ARM as the ecosystem leader was: “How do you integrate and communicate the multiple strands of information coming from the OEMs and partners?”

Part of the answer lay in keeping the ultimate objective in mind: To develop architectures that embodied the highest common denominator as the best compromise between different partners’ requirements. Initially, this kind of thinking did not come naturally to many of ARM’s partners, particularly large high-tech companies that are extremely protective of their intellectual property. However, once they saw the upsides for innovation within the ecosystem and were convinced that ARM could be trusted to keep their proprietary knowledge confidential, they were willing to engage in two-way knowledge flows. Thereafter, the new architectures that rapidly emerged benefitted the entire ecosystem, so partners had to forgo designs customized specifically for them—but in exchange, they enjoyed more cost-effective solutions. By pooling knowledge from across the ecosystem and designing innovative architectures that multiple customers could use, ARM was able to spread the development costs. Some of the resulting scale economies were then passed on, offering better value to customers.

These examples underline the key role of the ecosystem leader’s own innovation in enabling the ecosystem to create new value for customers. Ecosystem leaders can fuel this innovation by designing structures and processes that enable the ecosystem to keep on sucking in new knowledge from partners, customers, and its broader environment, and using this to innovate. But they can also go much further in helping to realize their ecosystem’s innovation potential by stimulating innovation among their partners.

Encouraging Learning and Innovation between Partners

Beyond using the information generated by the ecosystem to fuel its own innovation, the ecosystem leader can also catalyze learning and innovation between the partners in its ecosystem. Opening up the ecosystem to new partners and encouraging them to share information are first steps, but they don’t go far enough. The leader also has to create the channels, tools, and interfaces through which information can be shared between partners so that joint learning can take place.

In the AWS ecosystem, for example, Amazon doesn’t control all the communications between its partners and customers. AWS maintains a directory to help potential customers find partners they can work with, and the AWS marketplace facilitates direct connections between customers and software or service vendors. Amazon works hard to turn these connections into more than sales opportunities for existing products. As it explains to its partners, Amazon provides tools and training to help “invite the customer to innovate and to be proactive in their IT development while creating more opportunities for your firm.”12 Amazon also facilitates linkages between the partners in its ecosystem to foster innovation by including the partner’s information and search functions within the APN partner network so that it becomes easy to identify others with complementary capabilities.

In a similar vein, The Guardian promoted joint learning between partners by enabling them to share data about the preferences of their customers under the auspices of its Pangaea Alliance. Pangaea brings together data from Reuters, CNN International, Financial Times, The Week, Fast Company, and others. As a group, these well-known media brands reach over two hundred million of the world’s most affluent and influential people. Their readers tend to consume multiple media, and travel globally. It is therefore difficult for any publisher working alone to develop accurate profiles of these readers. Pangaea offers a solution by enabling pieces of information on any individual customer to be shared between all the partners in the ecosystem. This allows readers to be segmented in innovative ways and advertising to be targeted more precisely. As Tim Gentry, the global revenue director at Guardian News & Media and the leader of the project, explained, “We share first-party data with each other, and create compelling audience segments.”13 For instance, subscription information from one publisher is combined with behavioral data from other publishers to create an innovative reader profile for which an advertiser pays handsomely.¹⁴ Advertisers can thus target readers who are frequent travelers, often reading content from multiple publishers.¹⁵ In addition to promoting that kind of innovation, Pangaea enabled companies to target the combined audience of all the partners by purchasing advertising space on all their websites in a single transaction on a shared platform. By connecting the major publishers in its ecosystem and providing the infrastructure necessary to share and analyze their respective data, The Guardian was therefore able to catalyze innovation among its partners in a way that helped its ecosystem unlock new value.

Designing the right kinds of structures and interfaces to connect partners, and help them identify productive opportunities to exchange data and knowledge as we saw in chapter 6, can be an effective way to promote innovation by partners. Where innovation is impeded by difficulties in sharing information, the creation of standard interfaces, protocols, and codification of knowledge allows for better coordination, reduced transactions costs, and reduced uncertainty. This can help remove the barriers to shared innovation, just as we see in the trading of commodities and in financial markets.

Beyond the volume of data and knowledge accessed by partners, successful innovation often is driven by the quality of their interactions. This is particularly true when innovation requires experimentation. In this case, rather than one party simply relying on the other, dependence in the relationship is symmetric. As we saw in chapter 6, that implies the interactions between partners need to be designed to provide adequate opportunities to experiment with joint activities in ways that develop trust and allow the partners to learn from each other. By facilitating these kinds of interactions, ecosystem leaders can play an important role stimulating innovation.

DS facilitates high-touch interactions between groups of cutting-edge partners and its own employees in its quest to develop innovative solutions and create the ultimate user experience. For example, it has brought together groups of leading manufacturers of virtualization devices, including partners with knowledge of virtual reality, augmented reality, virtual training, and gaming, to work with the DS certification lab and R&D teams to apply these new technologies to industrial design. By initiating these kinds of new collaborations, DS enables partners to verify the compatibility and performance of their respective technologies and align their future technology road maps. DS continues the learning and innovation process by hosting demonstrations for customers along with joint marketing and business development activities that help expand its partners’ reach into markets they are jointly targeting.16

In other cases, the ecosystem leader may need to invest in new ways for customers and partners to interface with the ecosystem in order to stimulate innovation. When Amazon launched the Kindle Fire in 2011, for example, it was entering a tablet market dominated by Apple and some Android devices. However, the company’s intention was not to make money on the devices themselves. Instead, it sought to create a channel through which customers could interact with the Amazon ecosystem differently. That opened up new opportunities to sell content, and for its partners to develop innovative offerings. As technology writer Steven Levy wrote: “When you pay $199 for Fire, you’re not buying a gadget—you’re filing citizen(ship) papers for the digital duchy of Amazonia.”¹⁷

Amazon has continued to invest in the same way, launching the Amazon Echo, a smart speaker connected to the voice-controlled personal assistant service Alexa. The Echo has stimulated a wave of partner innovation across its extended ecosystem as partners have developed for Alexa what Amazon calls “skills.” These third-party applications have added several new capabilities to Alexa, including the ability to play music; check for delays on your daily commute by train, bus, ferry, or car; answer general questions; set an alarm; order a pizza; call an Uber; and control connected devices such as lighting and thermostats. Amazon helps its partners to innovate around its Echo-Alexa platform by providing them with The Alexa Skills Kit, a collection of self-service APIs, tools, documentation, tutorials, and code samples that make it quick and easy for any company to develop new skills for Alexa. All the code is in the “cloud”—not on any device—making innovative upgrades seamless.

Meanwhile, athenahealth has encouraged innovation in its partner ecosystem by establishing a start-up accelerator. The accelerator has been designed to provide additional resources to start-ups with well-developed products so that they can scale. The start-ups get workspaces, seed funding (from $250,000 to $2 million), and access to the ecosystem’s client base. More importantly, athenahealth channels expertise drawn from its employees, clients, and partners to help the chosen start-ups innovate and grow.

ARM has taken a different approach to nurturing start-ups. It found that start-ups interested in using ARM technology for their products would make contact with each other. Using a light touch, ARM provided them with the tools and other support necessary to integrate its technologies into their products and link them with others using ARM’s designs. It also offered flexible licensing on a per-use basis, recognizing that building a product prototype is the partners’ primary focus. This reduces the hurdle to using ARM technology, even while allowing fledgling companies to focus their resources on innovation. By using proven technologies, design tools, and supporting software from ARM, the start-ups enhance their credibility. Encouraging innovative start-ups to attach themselves to the ARM ecosystem in this way has the potential to pay handsome dividends when these companies open up new applications for ARM’s designs, or provide superior tools and software for use by its other partners in the ecosystem.

These examples show how, as an ecosystem leader, you can stimulate innovation among partners, which benefits the ecosystem and, importantly, if indirectly, your own business. You choose the mechanisms, ranging from bringing new groups of partners together through to investing in a new platform on which you could innovate or launch an incubator. You don’t need to control every aspect of that innovation process. The trick is to step back, let your partners’ creativity and drive for success do their work, and enjoy the benefits.

Sharing Ecosystem Learning

Once an ecosystem leader has successfully stimulated learning and innovation in the ecosystem, there are additional benefits to be gained if the results get shared across the ecosystem. Sometimes the ecosystem leader or its partners may want to keep some of their learning proprietary so that only they can profit from it. But in many other cases, sharing what has been learned will be what we like to call an “ecosystem good.” This is akin to what economists term a public good. It is a good from which the entire ecosystem can benefit without disadvantaging anyone else. The improved reader segmentation that The Guardian’s Pangaea ecosystem has created, for example, is a “good” that helps all the partners in the ecosystem more successfully target content and advertising. By using it, everyone can gain and nobody needs to lose.

Most companies actively spread the word about their insights and innovations across their markets and supply chains through controlled “broadcasting” in order to encourage the uptake of new products, services, and technologies. They might also offer training to selected distributors and service providers to ensure their innovations are properly supported. However, to unlock the full potential of their ecosystem, an ecosystem leader needs to go much further. Their aim should be to stimulate partners to innovate, not just inform or equip partners to support innovations that already exist. To achieve this, they need to find ways to make sure that whatever new knowledge is generated flows smoothly in many directions and to multiple partners so that it reaches every corner of the ecosystem where it might be valued.

Amazon, for example, encourages innovation in its ecosystems by constantly fostering the sharing of information among its partners. The benefits of this strategy, and Amazon’s role in generating them, are aptly demonstrated by its experience with 2nd Watch, one of its partners in the AWS ecosystem. Now one of AWS’s cadre of premier consulting partners, 2nd Watch provides cloud migration and management services to help customers “maximize [their] value from AWS” by designing, deploying, and managing their cloud-deployment strategies. When Coca-Cola realized that a digital marketing campaign was generating more traffic than its internal systems could handle, it needed a solution—quickly. In just two months’ time, 2nd Watch worked closely with Coca-Cola to develop an innovative way of migrating all its North American sites to AWS.18 Amazon communicated this case to all its other partners and customers by publishing a best practice case study on its partner network, APN. Doing so helped 2nd Watch win new customers. It also enabled the ecosystem to figure out how to innovate and improve cloud migration services for the benefit of other customers. That, in turn, helped grow the ecosystem and its capabilities, driving more business to AWS.

Another case in point of a smart ecosystem leader that helps its partners share experiences and disseminate new learning is DS. By staging an annual partner forum, the 3DEXPERIENCE Partner Executive Summit, DS brings together partners from around the world to interact with its senior executives and specialist engineers, discuss vision and strategy, participate in workshops, and network face-to-face with peers. The opportunity to share learning across the ecosystem is augmented by dozens of more specialized knowledge-sharing events each year that bring its ecosystem partners and customers together. Examples include user-group meetings around the world, technical meetings, and customer-led seminars describing experiences, such as how Finnish engine-maker Wärtsilä Marine used the ecosystem to develop innovative products, systems, and services to meet its customers’ needs.19

ARM exhorts its partners: “Jump-start your concept-to-compute journey with ARM processor designs, rich development resources, and a diverse partner ecosystem. You’ll be joining one of the world’s largest, most prolific and creative communities of product innovators.”²⁰ ARM had set up eleven communities to discuss, among several topics, innovations in graphics and multimedia, the Internet of Things, security, embedding ARM-based processes in machinery and equipment, and one in Mandarin to help its Chinese partners.

These examples underline the point that while ecosystem leaders have a role in promoting innovation in the ecosystem by making it easy to share information and learning across the ecosystem, they can also put in place mechanisms that encourage partners to develop “ecosystem goods” that can be shared. Because they leverage the innovation capacity of large numbers of partners, these mechanisms may prove to be the most effective way to stimulate innovation within the ecosystem that benefits all and drives value creation forward.

The Dilemma: Proprietary versus Shared Learning

Given its pivotal role in the ecosystem, the ecosystem leader is often in a position to absorb a great deal of fresh data and new knowledge generated by the ecosystem. Sharing this knowledge can clearly help promote innovation across the ecosystem. But sometimes sharing this knowledge isn’t in the ecosystem leader’s best interest. Ecosystem leaders therefore have to make what might turn out to be one of their most important and difficult decisions: How much of the new knowledge should it share with its ecosystem partners? And how much should it keep proprietary to bolster its leverage over the network and its capacity to extract profits?

This dilemma is real. The performance of the ecosystem leader depends on the health and vitality of its ecosystem and its ability to discover and generate new value through innovation. The leader therefore has an incentive to share knowledge across the ecosystem in ways that help its partners and the ecosystem create more value, innovate, and grow. This was aptly demonstrated by The Guardian’s ecosystem, wherein sharing news, analyses, opinions, and even customer-behavior data was fundamental to its success. The Guardian ecosystem developed because it recognized that the traditional stance of using news collected exclusively by its own journalists would constrain its access to information, impede learning, and narrow its appeal. By sharing its knowledge, The Guardian could stimulate its partners to access, analyze, and share new knowledge. By sharing its customer data with other media outlets, The Guardian could better understand the behavior of readers, improve segmentation, and create better value propositions for advertisers.

Likewise, we saw that ARM, DS, and AWS were able to help their ecosystems create more value, grow, and enhance their productivity by sharing the knowledge they had gleaned about everything from customer needs to technology advances. They developed a set of tools, training programs, and workshops, often making them freely available or at a low cost, to enable the knowledge to be disseminated to partners that could make the best use of them.

Yet there are some types of new knowledge that many ecosystem leaders need to keep to themselves or within a small circle of a few, close partners. That is either because sharing the new knowledge would damage the partners who provided it or stymie the ecosystem leader’s ability to make profits. ARM, for example, cannot share the knowledge it has about OEM and chip-fabrication partners’ future product and technological road maps. Broadcasting the details of its partners’ crown jewels across the ecosystem of partners that sometimes compete with each other would result in the immediate termination of ARM’s partnerships. At the same time, ARM’s engineers integrate the knowledge that the company accesses from its partners to create a picture of each industry’s future technological requirements. These data are a critical input in ARM’s design process. It underpins its ability to create chip architectures that meet the competing needs of its partners. That knowledge plays a key role in ensuring that ARM profits from its contributions to the ecosystem. Clearly, it is not something ARM would be able to share with its partners without impairing its revenues and profitability. By keeping the knowledge to itself, ARM can develop and sell designs that earn it handsome returns.

To help make this decision about what knowledge it should share with partners and what to keep proprietary, the ecosystem leader needs to work out whether or not the new knowledge and innovation is what we termed an “ecosystem good.” Recall that the key characteristic of an ecosystem good is that all partners can benefit from using it without reducing the benefit that another partner can gain by doing so. Much of the knowledge, learning, and innovation that an ecosystem generates falls into this category. In fact, its use by other partners might even have advantages, enabling the whole ecosystem to create additional value and become more productive. In this case, it makes sense for the ecosystem leader to facilitate the dissemination of that knowledge across the ecosystem as much as possible.

The decision whether or not an ecosystem leader should share particular pieces of knowledge is not always so clear cut. The potential benefits of sharing knowledge in the hope of improving the performance of the ecosystem as a whole will need to be weighed up against the advantages of keeping it proprietary and allowing the ecosystem leader to capture the benefits itself. And these trade-offs don’t apply only to the leader; the partners in the ecosystem will also be making similar decisions about when it makes sense to share their innovations with the ecosystem and when to keep it for themselves.

Recall how 2nd Watch shared some of its innovations about how to migrate IT functions to the cloud with its partners in the AWS ecosystem. It could be argued that 2nd Watch should have kept the knowledge proprietary; by publishing it, it may have helped its competitors in the ecosystem. However, 2nd Watch adopted the view that the benefits of sharing outweighed the disadvantages. Sharing its innovations helped popularize the idea of moving the IT function to the cloud and demonstrated that it could be done quickly. That accelerated the growth of the market for cloud migration services. Potential competitors may have benefited, but so did 2nd Watch. Besides, publishing the new ideas first helped establish 2nd Watch as one of the pioneers in the field. Exhibit 7.1 lays out these trade-offs for the ecosystem leader and also its partners Each of the parties in the ecosystem can potentially generate new knowledge, but then need to decide whether they will benefit more by sharing that knowledge or keeping it proprietary. In arriving at a decision, they must take into account the fact that the ecosystem is a dynamic system. As we will discuss in chapter 10, ecosystems may evolve, and thus the choices may also evolve over time. What seems proprietary today may become a common good later.

As exhibit 7.1 illustrates, knowledge shared by one partner may enable innovation by others, which can stimulate further learning and innovation in the ecosystem. Sharing new knowledge can thus ignite a spiral of innovation across the ecosystem, helping it grow faster and create new value, benefitting all the participants. On the other hand, if the ecosystem leader or the partner decides to keep the knowledge proprietary, it may be able to use it to improve its own business and extract more profits.

If this process is managed well within the ecosystem, it can create a powerful, virtuous cycle of sharing and additional knowledge creation. When Alibaba, for example, shares knowledge about demand patterns with its logistics partners, it encourages them to invest in new IT systems and algorithms to optimize distribution. That helps improve the efficiency of distribution partners as well as customers’ satisfaction-levels. The logistics partners’ innovations also generate better data about the sellers’ performance in terms of how quickly and reliably they had an item ready to be picked up as well as data about customer returns. Alibaba then accesses that data on the sellers’ service levels, and uses it to create proprietary indicators of their competitiveness and health. These indicators can be combined to produce unique credit scores that are much more accurate than those relying on standard financial measures. They can also be continually updated in real time.

EXHIBIT 7.1. Proprietary and Shared Knowledge in an Ecosystem. Source: authors’ research.

By leveraging the data generated by its ecosystem in this way, Alibaba has built a highly profitable new business, Sesame Credit. Its competitive advantage is the ability to generate reliable assessments of creditworthiness of small-and medium-sized borrowers who lack a credit history, which it can sell to potential lenders who would otherwise struggle to assess the likelihood that they would be repaid.

This cycle of new knowledge creation, sharing and innovation in any ecosystem can act as a powerful driver of new revenue and profit opportunities for partners as knowledge moves back and forth between them. One of the unique strengths of an ecosystem is precisely its capacity to have a higher level of sharing of the ecosystem goods, because ecosystem partners realize that the potential for innovation for all is enhanced through this sharing.

Unleashing Innovation in the Ecosystem

The success of an ecosystem ultimately depends on its ability to innovate. The diversity of partners, in terms of their capabilities, activities, and the different environments in which they operate an ecosystem, creates the potential to generate greater and faster innovation than is possible for any company acting alone. The ecosystem leader can play a critical role in helping realize this potential, both for its own benefit and that of the ecosystem. To achieve this as an ecosystem leader, you need to answer the following questions:

1. What kind of mechanisms do I create to encourage the flow of new knowledge into the ecosystem that would enable innovation?

2. How do I use the data and knowledge coming from the partners in the ecosystem to enhance my own innovation?

3. What structures, processes and incentives do I need to set up to facilitate innovation among my ecosystem partners?

4. How do I promote sharing of the knowledge the ecosystem generates to stimulate even more innovation in the ecosystem?

5. How do I convince my ecosystem partners that by sharing information they can create “ecosystem goods” that can be used to benefit the whole ecosystem without disadvantaging themselves?

6. Have I got the right balance between the knowledge I share with partners in order to benefit the ecosystem and the knowledge I keep proprietary to reinforce my power in the ecosystem and my ability to generate profits?