Group of business people working together in the creative office

Seven business models for creating ecosystem value

Related topics

We identify seven distinct ecosystem business models that companies are using to drive growth and create value for common customers.


In brief
  • Ecosystem business models are becoming ubiquitous as companies seek to optimize capital and create new forms of value.
  • EY has identified seven types of ecosystem business model, each of which has a set of distinguishing attributes and characteristics.
  • Identifying the correct model to participate in or orchestrate is the first step to incorporating ecosystem into an organization’s strategy and operations.

Previously considered mainly within the context of large technology platform companies, ecosystem business models are now being explored by organizations across industries to create more value and minimize capital-intensive internal processes. As we enter this “age of business ecosystems,” the companies that utilize business ecosystems models will be better positioned to drive innovation and capital efficiency to create customer value.

We have explored the evolution of business ecosystem in previous articles, defining what business ecosystem means, why it matters and how organizations can create value through ecosystem integration. As more organizations explore and begin their journey towards business ecosystem value creation, it is essential that they are able to understand and identify the correct models to participate in or orchestrate themselves.

Discovering the seven ecosystem business model types 

Through our client interactions and research, we’ve observed, identified and utilized seven distinct ecosystem business models, each with distinct go-to-market, risk sharing and commercial characteristics. These models are explored below. 

The symbiotic ecosystem business model 

We refer to the ecosystem business model employed by most technology platform companies as the “symbiotic” model. We call this model symbiotic because the technology platform company is dominant as the orchestrator, all of the value creation is shaped around their core platform(s) and the majority of the ecosystem participant go-to-market motions tend to align to the technology platform company’s primary motions.

Let's take a company like SAP, a very successful provider of enterprise software platforms. Their annual revenues exceed $30b, but they have orchestrated a mature ecosystem that generates $150b for the participants. Microsoft, which is about five time the size of SAP, orchestrates an ecosystem that probably generates more than $1t in revenue for its participants. We know that technology platform companies benefit from orchestrating a large ecosystem in 3 primary ways:

We know that technology platform companies benefit from orchestrating a large ecosystem in three primary ways:

  • Platform enhancement through the availability of additional functions and capabilities (e.g. from ISVs and professional services firms) that would be too expensive to maintain in the core platform
  • Expansion of surface area to market through the introduction of more “sellers” provided by the ecosystem participants 
  • Increased likelihood of successful platform deployment and business goal achievement – known as “customer success” in the industry

There are other examples of symbiotic models, but in today’s world, almost all of them revolve around a “platform” in some form, with the sales motions of the platform company the dominant aligning force around which the ecosystem participants organize.

The marketplace ecosystem business model

This is the “original” ecosystem business model. Marketplaces go back thousands of years. The marketplace operator is the orchestrator and the coordinating brand, and the members pay the operator a fee to participate in the marketplace. All brands are present, and the common customers get a more convenient shopping experience as a result of the marketplace’s aggregation of supply.

Amazon, Apple and Google are modern day examples of marketplace operators. Uber is an example of a marketplace operator who created a supply of vendors (e.g. people with cars, available time, and a desire to earn money) that wouldn’t have the ability to be vendors if it weren’t for the platform and the marketplace Uber created. 

These are examples of the real power of platform and ecosystem in action.

The scaling ecosystem business model

Generally, the participants in a scaling ecosystem are all in the same business and technically could be considered competitors, but the benefits of working together to create scale and abiding by agreed upon rules of risk and reward sharing outweigh the competitive concerns. Typically, the members of a scaling ecosystem model will jointly orchestrate, often setting up a collectively funded entity to perform the orchestration functions.

These models also go back thousands of years and are often associated with multiple countries banding together to form a defensive alliance to act as a deterrent to external aggression (e.g. NATO after World War II). A business example would be the alliances the airlines have formed to create global scale, giving their customers the convenience of booking global travel through any of the members of the alliance and getting some measure of “status” recognition across the network. 

The accretive ecosystem business model

This model is typically an arrangement between two, or just a few, entities, where all parties have a portion of an overall customer value proposition that combined is worth substantially more than the sum of its parts. In the accretive model, the members generally don’t compete with each other. The example we most often see is companies that have developed some sort of distinct and valuable IP and/or substantial aggregation of valuable data as a result of their primary business activities. There is a realization that those assets present a monetization opportunity, but there is no appetite to invest internally to form a new business unit to create the platform and the channels to market. By selecting the right partner(s), these assets can quickly become revenue-generating without the deployment of significant capital.

The EY-P&G Alliance demonstrates the potential value of this model. P&G is on a decades-long continuous journey of purposeful improvements to its way of working, business processes and technology innovation. In a world where sustainability has become so important, running over one hundred manufacturing facilities at 85% OEE or better (vs. the less than 60% OEE many manufacturers achieve) shows the value P&G’s IP could represent.

Via an accretive business model between P&G and EY, the IP was used to build software to help other companies begin their own transformation and innovation journeys to higher OEE, zero-touch manufacturing and hyper-efficient supply network operations. In this model, EY acts as the channel to market and P&G acts as the subject matter advisor. Both participants in this model realize ecosystem value to provide an enhanced proposition for clients that want to transform their manufacturing and supply chain operations.

The coopetive ecosystem business model

Ray Noorda, the former CEO of Novell, coined the term “coopetition,” a model where competitors cooperate to create higher customer value, to describe the relationship between Novell and Microsoft in the early 1990s (though using our model definitions, the relationship would be characterized as Novell functioning as an ISV participant in the Microsoft Windows symbiotic ecosystem). 

An example of a true coopetive relationship can be found in the relationship between P&G and Clorox. P&G owns the Febreze product line, the category leader in odor elimination, and Clorox owns the Glad trash bag product line, a category leader as well. Though the two compete across multiple product categories, they agreed that the innovation of embedding Febreze in Glad trash bags would create a more compelling product for consumers, and thus signed a coopetive agreement to jointly deliver that to the market. The product line has been a resounding success. P&G and Clorox are both the orchestrators and the participants in this ecosystem of two mega-brands.

The difference between the coopetive model and the scaling model is that scaling takes the existing value proposition and scales it for efficiency and convenience. The coopetive model takes two or more separate value propositions and combines them for an entirely new value proposition. In effect, the coopetive model is similar to the accretive model, but the members are competitors, not complimentary. That last distinction is important because it changes the nature of the relationship, the commercials, and the likelihood of entering into such arrangements to begin with.

The value chain ecosystem business model

There are many examples of value chains world-wide. Value chains sit between original suppliers and end consumers of goods and services and are characterized by many participants across many different role types. The participants in the value chain all manage their pieces, but without an orchestrator at the center of a value chain, the overall efficiency of the collective participants is not optimizable. In effect, the orchestrator of this model takes a naturally occurring group of related parties and creates a business ecosystem in which the ultimate end customers get better value from the collection of participants, and the participants themselves can be more effective while better managing risks.

In an example of this model, EY acts as an orchestrator in a blockchain-enabled global trading platform driven by multiple ecosystem partners and insurance industry leaders. The platform is designed to enable surety in moving shipping containers from port of origin to port of destination, providing secure access to a single version of the truth to all participants in specialty insurance. The network of players (including ports, customs and border patrols, insurance carriers, trade finance providers and shipping companies) existed before this platform was created, but the addition of an orchestrating participant sitting at the center marked the transition to an ecosystem business model. 

The integrator ecosystem business model

An orchestrator, referred to here as the "ecosystem integrator," brings together a bespoke set of ecosystem participants to create a fully integrated end-to-end solution for customers. This model differs from others in that the ecosystem integrator offers full commercial responsibility for the workings of the solution delivered to the client. The ecosystem integrator rapidly assembles and integrates the solution, creating a quasi-bespoke value proposition combined with a contract of convenience. The participants all have their brands present in the value proposition, but the end customer can choose to contract just with the ecosystem integrator (the orchestrator) or to contract with the ecosystem integrator and a subset of the participants.

This model effectively replaces solutions that were historically delivered as systems Integration projects. For example, the EY Nexus for Insurance platform started as a means by which to elevate and accelerate the roll-out of GuideWire-based insurance solutions to small subsidiaries of EY's largest insurance customers. The pace, cost and time of doing traditional systems integration work in each market would have been prohibitive. Over time, the solution evolved to add in the capabilities of certain InsureTechs and business processors, extending the capabilities resident in the platform and EY's ability to deliver in a consumption model.

In this, EY is now a platform company, and the model is drifting closer to symbiotic, but with the key difference that EY curates the ecosystem participants.

The journey towards ecosystem value

At EY, we understand how ecosystem relationships drive value and are seeing a consensus emerging among business leaders that that ecosystems must be a core component of business strategy. We are also seeing increased outreach from clients who are just beginning the path to creating customer value from ecosystem business models. Non-technology businesses are exploring platform-enabled business models and in the process realizing they cannot succeed on that journey absent the build of an ecosystem around them.

As organizations begin this journey and evolve their thinking around ecosystems, they must become more proficient on several fronts:

  • Identifying the correct ecosystem business model to consider for each desired business outcome – as explored in this article
  • Determining which of those selected ecosystems they should orchestrate and which they should simply participate in
  • Creating effective commercial arrangements that appropriately manage and share risks and rewards in each ecosystem business model
  • Enabling each of the business model types, from compliance and risk management through go-to-market support
  • Defining ways to measure ROI for each model
  • Delivering market leading growth by integrating ecosystem business models into the broader operating model and culture of their company

We know that this is not an easy task - many organizations are in the early stages of managing their own ecosystem relationships and realizing the challenges of ecosystem integration and operating models. One thing is clear, the future will belong to those companies that complete this journey and weave ecosystem relationships into the fabric of how they create value.

Summary

An ecosystem business model is a commercial arrangement among two or more companies to collectively create value propositions that are greater than each can create individually. EY has identified seven distinct types of ecosystem business models to aid business leaders in incorporating ecosystem into their business strategy and operating models.

About this article

Read on article

What business ecosystem means and why it matters

The term “ecosystem” is used the world over, but there’s a lack of understanding in the context of business relationships.