Dr. Stephan Melzer about the design of vital ecosystems, what you can learn about their setup from Elon Musk and why fixed stars don’t shine brightly forever.
Coexistence of ecosystems
Mr. Melzer, how good can ecosystems coexist?
The relationship of several different ecosystems to each other can be described in a variety of ways – similarly to the circumstances under which they can be merged with each other. When starting with the topology of an ecosystem, you may be able to recognize its core, a center of gravity, around which the elements of the system are grouped.
The ecosystem cannot live without this core. It creates the compatibility of the overall structure for new components and defines their purpose, similarly to the business model and the market. In this, the core can have different forms: Such as a fixed star, when one player dominates everything, something that restricts the cooperation options with other ecosystems. It may also consist of a circle of supplementing players that facilitates new connection options.
Another factor is vitality – the more vital an ecosystem is, the more interfaces its topology has for coexistence. In the case of a hegemonial structure, this means a dominant player, the continuity of the system certainly depends on this player. At the same time, one advantage of hegemonically constructed ecosystems is that they follow a certain logic and have specific weak points. One can derive strategies for cooperation or coexistence – or also the type of growth, which means who is taken over by whom and when.
On the other hand, there are binary stars.
This is not as simple. Let us take Microsoft Azure and Amazon AWS as an example. They coexist next to each other – in fact, they have no interfaces. A company, which wants to be on the way on both systems, must invest a very large amount of energy or must establish a very complex governance for parts of the company to be active here and there.
In principle, the opportunity costs significantly rise when I want to be part of two very strong, dominant ecosystems. My role as a company here can best be described by the proximity of your own business model to the core of an ecosystem. Those that do not belong to a core are facing the danger to get lost between the gravity fields of the ecosystems.
"The more vital an ecosystem is, the more interfaces its topology has for coexistence."
Positioning as an actor
Which positions and strategies can exist in such a structure?
You may have a direct relationship to the core, be only attached to the system by an edge or be connected with other players by several cords. And there are different strategies of the core. For example, the aspiration to directly access the periphery from the core. Then, dominance is created. By a shortcut directly to the final consumer without intermediate sales and distribution steps, for example.
As a player in such a system, which does not belong to the core or is not on the outside of the shell – and thus part of the growth strategy – has his cards stacked against him in such a structure. He becomes an easy prey to the shortcuts. Or he has to get into core in different ways, find his own shortcut.
Do we need a type of ecosystem explorer to be able to understand such relations and to reflect strategically?
This is exactly the case. Understanding such power relationships is still largely missing – which makes an appropriate strategic process difficult. What could this look like? Let us assume that I want to be part of an ecosystem. There are different strategies. Either I buy into the core. Or I take a weak part in the ecosystem and I consciously attack it to take its places. Or I also search for a shortcut to get in.
"In principle, the opportunity costs significantly rise when I want to be part of two very strong, dominant ecosystems."
Tesla's holistic ecosystem
Does a stakeholder like Elon Musk attack the cores of established ecosystems?
I can assume that he wouldn’t describe his actions as such – but as creating new cores. A good example is the automobile operating system. That is a very strong and essential element that will keep the core of the mobility ecosystem together. Whoever provides this operating system is automatically at the core – and Tesla is already driving far ahead in this respect at a high rate of acceleration.
It is also possible that Musk does not consider today's premium manufacturers as competitors – at least not when it comes to the great vision. Many strategic maneuvers of Tesla can be regarded in the context of setting up an actually holistic ecosystem. While the premium manufacturers are only concentrating on themselves and singularly try to create their own systems. That makes it easier for Tesla to setup an adequate gravitational pull.
How does Elon Musk go about this?
In the end, we can only interpret his visible moves in our context. What is noticeable is that he never hops onto visions of other players. Rather, he enters fields with very far-reaching visions that promise economic potential on the one hand and correspond to very large, long-term social visions and transformations on the other.
His message always seems to be: “These are big tasks that no one can solve on his own. Let’s do this together.” The more so as the competence to build good cars is actually no longer a sufficiently high defensive wall against disruptions in an electronic age. And this way you get a launchpad for ecosystems. The companies of Elon Musk position themselves in the core of the newly establishing systems – supported by enormous financial resources.
"Each Tesla is an agent, a multiplier. It is not about quantity and quality but about network effects and the software."
Key factor Softwarestack
How aware are the established players of the dynamics that are emerging and their disruptive potential?
The ecosystem, which is established around Tesla, is not yet big and vital enough. The fleet has no critical mass yet. For Tesla, each additional vehicle on the road has, in principle, a different meaning as for established players. Each Tesla is an agent, a multiplier. It is not about quantity and quality, consumption rates or whatsoever – it is about network effects, about software the improvement of which and further development provides valuable data with each new vehicle.
It still takes cars because any other approach to get the software into the vehicles has not yet worked. Tesla builds cars but focuses on the software stack. When this becomes a standard in more and more vehicles of newcomers, the situation will quickly change and the ecosystem begins to scale. I think that nobody today can ignore this development. OEM and Tier 1 suppliers are now pumping billions into building their own software stacks.
"Many strategic maneuvers of Tesla can be regarded in the context of setting up an actually holistic ecosystem."
Will the battle for dominance in the mobility ecosystem be fought on this playing field?
As I mentioned, the automobile operating system is indeed a key issue. We can see a similar development in autonomous driving. Presumably, autonomy is the qualitatively better and also safer way in the very demanding definition of the European premium manufacturers. The question remains whether it can catch on. Because there are parallel approaches, which can do without the high art of engineering, without high-resolution maps, without lasers. Evolutionary, agile approaches that are based on the exchange of data between the vehicles on the road, possibly on the establishment of a learning AI network that continuous to get better. Then, we have immense incentives to be part of this ecosystem, to be part of this vehicle league, which becomes better, smarter, more powerful with each additional vehicle. And this again is the question of the software stack. Because then it becomes increasingly attractive for manufacturers to participate.
"There is no lack of ideas and visions. There is a lack of freedoms and means to pursue this over decades."
You describe a way of thinking that seems far removed from the strategies of German and perhaps European companies.
This is already structurally hardly possible. A German CEO would quickly get tangled up in difficult discussions with works councils and supervisory boards, stakeholders, shareholders and analysts with such a disruptive, so far ahead meandering line of thought. He also wouldn’t have the financial resources and the freedom to take such enormous financial risks. There is no lack of ideas and visions. But there is a considerable lack of freedom and also of the means to pursue this over decades, as was still possible in the post-war period.
But this only one side of the medal. The other is to have relied on market dominance for too long. Also the typical constellation with the OEM in the middle, surrounded by the suppliers. Everyone had his domain. In the end, value added chains and ecosystems have been equated in thought. And we have had an incredibly hard time with collaboration.
In Europe, we haven't found a common solution, have not agreed on general standards, have not created an ecosystem – now, everyone is fighting their battle alone. Elon Musk serves as a different example here. He seems to brake waves at exactly the right place or to create them or to also slide on the waves. He seems to know when control and competition are beneficial. This is the reason why we have established so little ecosystems. We only know competition and distrust this open, light-weight approach of building up a core. But this is precisely what we should urgently learn in the coming years.
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