Evolution of Business Ecosystems

Abstract

The aim of this chapter is to investigate the dynamics of business ecosystems, which are a special form of industrial cluster characterized by diversity of firms, complex relationships among them, and the presence of platform firms. Such characteristics come from network effects. Firms often set open standards to trigger network effects that are advantageous for their business models. Among them, platform firms, which strategically use the open standards and make the most of the network effects in relation to their business models, play a special role in business ecosystems, because their strategic behavior contributes not only to increasing their market presence but also to the expansion of the ecosystem by stimulating the entry of newcomer firms.

To predict the dynamics of business ecosystems, we should try to understand how product architecture influences firm collaboration within them and characterizes their industrial structures. Open-modular systems, such as PCs, tend to modify their industries and turn them into business ecosystems, whereas closed-integral systems, such as automobiles, yield an industrial form called cohesive clique. Owing to the linkages between architecture and industrial cluster, changes in architecture lead to actual changes in industrial clusters.

Two main factors have recently been affecting product architecture, i.e., digitalization and globalization. Digitalization works as a trigger for architectural change, and globalization acts as its amplifier, which means that products whose architectures have seemed stable for years might drastically change. A slight change in architecture often causes the industrial structure to quickly transform from a cohesive clique into a business ecosystem, which naturally causes changes in the profitability and competitiveness of firms. Faced with these architectural dynamics, each firm needs to thoroughly understand the connections between product architecture and industrial cluster.