You Cannot Tell the Ecosystem What to Do

Vertical integration worked fine as a business strategy for telcos in the monopoly era. “You don’t need it (flexibility, agility) when you have a very predictable environment because you can organize and orchestrate things neatly,” says Jacobides. Cost reduction works, as a strategy, when markets are stable.

Ecosystems are useful when there is market variety or there isn’t a predictability of demand. And that is why connectivity providers, who now are part of the internet ecosystem, have to become more agile. Telcos and connectivity providers are not at the center of their own stable industries.

So why the premium on agility? When a firm is in an ecosystem, even when you are the the ecosystem orchestration agent, you cannot tell the ecosystem what to do. In fact, you have to rely on the ecosystem because there is no way any single firm can figure out how to produce all the value produced by the ecosystem.

source: MIT Sloan Management Review

 ”If I’m Android or if I’m Apple, I don’t know, which part of this variety is going to work for you,” said Michael Jacobides, London Business School professor. “Neither am I good in producing all this variety.”

And it is not clear if, and when, connectivity providers actually can be the orchestrating agents of some part of the ecosystem. It seems unlikely a connectivity provider ever can create a full ecosystem around itself.

On the other hand, “services have extremely fast cycles where you have much smaller bets, where you have much more rapid developments, where you need to be making decisions and changing your decisions a few weeks at a time,” said Jacobides. And connectivity is nothing if not a services business.

So ambiguity is the essential price of operating in any ecosystem: no single firm can produce most of the value, or anticipate what end user demands are going to be.

The thing that is new is the extent to which ecosystems are more important than traditional firms are today,” argues Michael Jacobides, London Business School professor.

The reason virtualized networks are viewed as strategic is agility; the ability to create and try new services and features very rapidly.