„Trust comes from transparency
and a dialog on equal terms“

Manuel Audi and Florian Weihe explain why traditional networks cannot develop into open ecosystems, how decentralized structures promote innovation and why the discussion about data ownership is going in the wrong direction.

Types of Ecosystems

Mr. Audi, Mr. Weihe, what types of ecosystem can be identified in the market today?

Manuel Audi: We observe three types of structures. First, there are focused partner networks, in which the responsible company maintains linear relationships with a number of partners, e.g., major automobile manufacturers with a very efficient supplier network. The value of such a structure is mainly generated for the responsible company. This company controls the linear supply chains and, through its product, also the customer experience, which is the result of the linear added value chain. There are in fact no lateral relationships between partners. This is the typical structure of the past decades, which we call type 1 “Focused Partner Networks”.

Centralized business networks are type 2. Here, too, the main beneficiary is the central player, who is responsible for network control and supply orchestration. In addition, relationships already exist among the partners, not just between the partners and the center. The customer experience is orchestrated by the center, e.g., through a marketplace. This type is dominant today and characterizes the large tech networks.

Finally, the third type, "decentralized ecosystems," is a lateral association with largely equal actors that seeks maximum value for all actors and organizes itself.

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"In decentralized ecosystems, there is no spider in the web, no orchestrator. There are only partners."

What characterizes this open and self-organized structure and how does it differ from the type of networks that dominate today?

Florian Weihe: There's not the famous spider in the web, there's no orchestrator. This is the paradigmatic difference. In such an ecosystem, it is a matter of establishing loose couplings, initiating cooperations, and jointly developing new value propositions with one or more partners Which is not to say that one player can't develop some dominance. But there is nobody who exclusively holds the platform, or the customer interface. In type 2 networks described above, clear roles can be identified – operator, orchestrator, supporter, enabler. In type 3 ecosystems, there are only partners.

An interview with

Manuel Audi msg advisors Profilbild

Dr. Manuel Audi

manuel.audi@beltios.com

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Manuel Audi and Florian Weihe explain why traditional networks cannot develop into open ecosystems, how decentralized structures promote innovation and why the discussion about data ownership is going in the wrong direction.

Types of Ecosystems

Mr. Audi, Mr. Weihe, what types of ecosystem can be identified in the market today?

Manuel Audi: We observe three types of structures. First, there are focused partner networks, in which the responsible company maintains linear relationships with a number of partners, e.g., major automobile manufacturers with a very efficient supplier network. The value of such a structure is mainly generated for the responsible company. This company controls the linear supply chains and, through its product, also the customer experience, which is the result of the linear added value chain. There are in fact no lateral relationships between partners. This is the typical structure of the past decades, which we call type 1 “Focused Partner Networks”.

Centralized business networks are type 2. Here, too, the main beneficiary is the central player, who is responsible for network control and supply orchestration. In addition, relationships already exist among the partners, not just between the partners and the center. The customer experience is orchestrated by the center, e.g., through a marketplace. This type is dominant today and characterizes the large tech networks.

Finally, the third type, "decentralized ecosystems," is a lateral association with largely equal actors that seeks maximum value for all actors and organizes itself.

Minium Viable Ecosystems 2 Thumbnail 115x115

"In decentralized ecosystems, there is no spider in the web, no orchestrator. There are only partners. "

What characterizes this open and self-organized structure and how does it differ from the type of networks that dominate today?

Florian Weihe: There's not the famous spider in the web, there's no orchestrator. This is the paradigmatic difference. In such an ecosystem, it is a matter of establishing loose couplings, initiating cooperations, and jointly developing new value propositions with one or more partners Which is not to say that one player can't develop some dominance. But there is nobody who exclusively holds the platform, or the customer interface. In type 2 networks described above, clear roles can be identified – operator, orchestrator, supporter, enabler. In type 3 ecosystems, there are only partners.

Business Ecosystems: Definition and Typology

An ecosystem in the economic context is a network of actors, which provide key components of their products or services in an integrated manner in relation to a particular human or organizational set of needs, thereby creating or serving a common market. The customer benefit achieved exceeds the sum of the individual services of the companies participating in the ecosystem due to positive network effects and thus makes the difference to a mere network or a linear value chain.

Business Ecosystems Definition und Typologie

 

But what is the key to such an ecosystem and what keeps it together?

Manuel Audi: There must be compatibility – of partners, products, customer groups. This can be ensured by technology, by regulations, defined rules, standards. Above all, however, it is essential that the value systems of the actors are coordinated and accepted, and that there is an overarching purpose.

 

Are transformation paths between these types of networks possible? Can a mere partner network develop into an ecosystem?

Florian Weihe: Such developments are possible but unrealistic. A dominant player in a working network will never give up his role because he benefits disproportionately from this configuration. The reverse, on the other hand, is conceivable. It is possible that over time, a central point will emerge where most customers dock and the highest network effects are generated for the rest of the ecosystem. In regulated markets, the regulator is therefore an active part of the ecosystem and must make sure that there is no abuse of dominance.

This evolutionary picture is ultimately also counterproductive – no economically minded company will give up a working structure. It's really more about parallel processes. For example, established distribution channels will continue to (co) exist. But there are important opportunities when contributing to the creation of such open, cross-industry and decentralized systems. For example, to get in touch with customers in an innovative way. Or to create additional values and address specific market problems that other organizational forms are not suited to solve.

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"The evolutionary picture of ecosystems is counterproductive – no economically minded company will give up a working structure."

Business Ecosystems

What problems can be solved by business ecosystems?

Manuel Audi: One is information asymmetry, which can be addressed by establishing a marketplace, for example in the municipal sector. This would be a decentralized, organized structure, an ecosystem based on a marketplace operated by a public entity. The participants are thereby enabled to be compatible in this local market.

Allocation problems can also be solved in this structure, for example through the establishment of local, logical chains by municipalities. Furthermore, coordination issues, i.e. ultimately the question of how contracts are created and how their fulfillment is monitored. Matchmaker models and predefined contractual standards can be established for this purpose, and there is no need for a dominant entity. Last but not least, there are trust issues that directly influence the behavior of end customers.

 

But the problems described can also be solved by centrally controlled networks?

Manuel Audi: Yes, and even quite effectively. At Amazon, for example, the solution to all these problems is provided in a single structure that we have described as type 2. One click and you don't have to read through a contract or the general terms and conditions. You rely on the processes being handled properly and the orchestrator monitors the reliability of the suppliers. Highly efficient logistics and user-curated information are provided. It is precisely this combination that makes Amazon so successful. This is an effective protection mechanism that works well from the perspective of the type 2 network.

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"It's about “win-win" and
not “the winner takes it all"."

However, this efficiency and effectiveness also come at a price.

Manuel Audi: Of course. Monopolism and strong dominance also lead to negative externalities, distortion of information, inhibition of innovation and fair competition. So it's no coincidence that these issues are increasingly becoming the focus of public discussion, and I think it's only a matter of time before we see substantial regulatory intervention. Over the past ten years, platforms have been steadily chipping away at value creation in many industries and (ab)using public infrastructures, but have given little back in return.

This makes it all the more urgent to recognize that it cannot just be about dominating entire industries and always wanting to be the orchestrator. It is more important to consider how existing offerings and ideas can be combined on the basis of technologies and data in such a way that new offerings (value propositions) are created and thus attractive business cases for all parties involved. It's about “win-win" and not “the winner takes it all".

It is also important not to let technological path dependencies and predefinitions become an obstacle to connectivity and permeability. Data must be exchanged continuously and ideally in real time, processed jointly, enriched and refined. Data must circulate in an ecosystem, which also requires the highest possible openness to technology.

 

Doesn't this open approach make decentralized ecosystems fragile and vulnerable?

Manuel Audi: Type 3 ecosystems will always find imitators and cannot be protectionist by definition. There is no central data pool, no omnipotent platform operator. They protect themselves by evolving, getting larger, attracting more and more partners, strengthening the common purpose and the common value proposition.

If we want to ascribe a characteristic to the type 3 ecosystem, then we could use the term resilience They can live with competing ecosystems as long as their own growth momentum works. And if the ecosystem is sufficiently vital, even the substitution of existing participants can be beneficial to the overall system. If someone has a better offering, or has a higher compatibility, this increases the overall benefit and makes the ecosystem more attractive and more resilient. In addition, sub-ecosystems can break away over time and create their own structures.

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"Decentralized ecosystems can live with competing systems as long as their own growth momentum works."

Requirements for Innovation

You addressed the topic of “innovation” in decentralized systems. Why should a loosely coupled network provide a better framework for this than an efficiently organized platform?

Florian Weihe: The less hierarchically a structure is organized and the more customer interfaces it has, the more likely innovations will emerge. The large technology platforms are clearly faster and more innovative than linear, hierarchical partner networks. And type 3 ecosystems have even greater potential. Innovation is much less inhibited by rigid frameworks and the dictates of sales or controlling; instead it emerges from customer needs and the common value proposition.

In traditional structures, new ideas are often killed off because they are too expensive, put on hold because their time has not yet come or because they are not among the top three in comparisons and rankings. The problem is that with this logic, you can only optimize what already exists, but not really develop anything new. In decentralized, cross-industry and open ecosystems, the chances are higher that something new can emerge and survive. 

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"The topic of data ownership is not a restriction, but a catalyst of innovation for the future."

Minimum Viable Ecosystem

Does a minimum viable ecosystem (MVE), from which a vital, decentralized ecosystem can grow, also require a particular market environment?

Florian Weihe: An area such as smart homes, which is not yet structured by large players and highly automated relationships, can of course offer a more ideal environment than mobility, for example, where a few but very powerful players are already vying for position at the center.

More important than the industry environment, however, is the question of whether the minimum viable ecosystem even has the necessary properties for further development into a vital ecosystem. In addition to the lowest possible complexity, there should be a common value proposition of the actors that clearly goes beyond their individual 'value propositions'. Outlining this is by no means not trivial – you have to step out of the familiar frames of reference, i.e., you have to consider more than just another "upgrade" of a process or a product.. This keeps you in the safety zone of your familiar "playing field".

 

What could this look like in concrete terms, for example, in the case of the smart home?

Manuel Audi: Each networkable smoke detector or window sensor of the alarm system not only protects the smart home but also reduces the number of claims. For example, an insurer could work with a manufacturer of alarm systems to offer its customers a product that combines the benefits of smart home technology with those of insurance. In this case, a new value proposition would be created for the customer under the purpose “protection”. The customer would receive a suitable insurance policy directly with the alarm system as "embedded insurance", such as household insurance.

In addition to the time saved for the customer by having to purchase and coordinate the two products separately, this is also promising for another reason. In the medium term, the data from the alarm system usage can provide insurers with information that they can use to lower premiums and thus offer customers more favorable benefits. This would move us towards an ideal “win-win-win” scenario and would also create a basis for expanding the MVE with other suitable services.

 

But isn’t there a risk that the “embedded insurance” introduces restrictions and thus complexity into the MVE – for example with regard to questions of ownership and protection of customer data?

Manuel Audi: As a convinced European, I support the goal of data sovereignty. In line with this, the data essentially belongs to those who generate the data, i.e. the consumers, users – and this is not a restriction, but a catalyst of innovation for the future. Because business models would then have to be development that convince customers to make their data available. And that works better in a small, transparent type 3 ecosystems. I, as the customer, clearly understand the consequences. I consciously share my data and am actively involved in generating added value for me. And in the case of an embedded insurance service, there is also the fact that a customer need exists directly here, or is at least very obvious. Ultimately, however, the decisive question in this aspect is the question of trust. And trust comes from transparency and a dialog on equal terms.

An interview with

Manuel Audi msg advisors Profilbild

Dr. Manuel Audi

manuel.audi@beltios.com

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