The following is an excerpt that was adapted and lightly edited from chapter nine of Smart Rivals: How Innovative Companies Play Games That Tech Giants Can’t Win, written by Feng Zhu and Bonnie Yining Cao and published August 20, 2024.
In today’s global digital and tech business landscape, traditional businesses may struggle to adapt to the constantly changing nature of ecosystem strategies. In his book, Smart Rivals: How Innovative Companies Play Games That Tech Giants Can’t Win, Feng Zhu provides principles to help companies shift their strategic thinking about tech giants and their evolving relationship with growing business ecosystems.
Excerpt from Chapter 9: Principles for Growing Ecosystems
Traditional businesses, often accustomed to a more self-contained and linear approach, might find it challenging to adjust to the open, dynamic, and interdependent nature of ecosystem strategies. Hence, this transition necessitates a paradigm shift in strategic thinking.
Flip the perspective: Your ecosystem, tech giants included
Often, traditional businesses perceive themselves as mere participants in the ecosystems of tech giants when collaborating with them. However, it’s crucial to keep in mind that these tech giants are also working to create value for you in these relationships.
“Thanks to these tech giants, a significant portion of your ecosystem is already established and readily accessible.”
By shifting this perspective and considering these tech giants as participants within your own ecosystem, you can become more proactive in harnessing their resources, such as data and infrastructure, for innovation and growth. In today’s digital age, it isn’t daunting to utilize resources from tech giants to fuel innovation. Companies can tap into a plethora of available resources—be it the myriad Amazon product reviews, a rich collection of free videos on YouTube, or Google’s open-source algorithms. Thanks to these tech giants, a significant portion of your ecosystem is already established and readily accessible.
Anker: Supercharging its ecosystem.
Anker was one of Amazon’s native brands. Founded in 2011 by ex-Googler Steven Yang, Anker sells digital accessories—batteries, cables, chargers, and so forth. These products are also offered by hundreds of other manufacturers or agents. In addition to renowned branded items like Apple’s cables, Amazon sells a wide array of private-labeled digital devices at competitive prices.
Yang credited Amazon for the company’s success. In addition to Amazon’s established infrastructure that helped it save on retail and logistics costs, “the key to building high quality and innovative products is to listen to the customers. Amazon reviews are actually the single most important input to our new product development process. We make sure that our new products start from the needs that customers express,” Yang said in an interview in 2016.
“Traditional businesses should embrace the mindset to proactively view tech giants as potential participants in their ecosystems.”
Leveraging the momentum and great reviews on Amazon, the company started selling through its direct-to-consumer websites as well as penetrating other sales channels. For example, Anker also sells products in Apple’s official direct-sale stores, selling similar products next to Apple’s own products such as charging cables. Anker has also managed to partner with offline retailers Best Buy, Costco, Target, and Walmart and sell through their channels. Through this strategy, Anker has managed to develop an ecosystem that encompasses several giants including Amazon and Apple, thereby further solidifying its position in the market.
Traditional businesses, much like Anker, should embrace the mindset to proactively view tech giants as potential participants in their ecosystems. Rather than merely utilizing these giants as channels to broaden their reach, traditional businesses should leverage these tech companies to boost their own capacity for innovation. It’s this enhanced ability to innovate that not only provides traditional businesses with a competitive edge against tech giants but also draws multiple tech giants into their ecosystems. This, in turn, strengthens their bargaining position against each of these technology behemoths.
To hub or not to hub: Finding the right path to grow your ecosystem
When building an ecosystem, companies have choices: they can be a hub or a non-hub. Both have pros and cons.
A hub in an ecosystem is a central organization that provides essential services, technology, or connections used by a large number of other participants. Orchestrating an ecosystem as the hub can be a significant undertaking. It often requires a firm to make up-front risky investments with the hope of reaping the rewards at a later date. For traditional businesses unaccustomed to acting as a hub and lacking the commitment to invest time, energy, and resources, undertaking such an endeavor could pose significant risks.
Anker’s journey shows that to build an ecosystem you don’t necessarily have to be a hub. Anker does not aim to become a hub for participants in its ecosystem nor is it essential to the survival of the participants in its ecosystem.
While it may seem disadvantageous for non-hub players to depend on other participants for various needs and not to possess the same power enjoyed by ecosystem hubs, firms can significantly reduce their downside risks and quickly begin to benefit from the ecosystem.
Ping An’s ecosystems.
Ping An started as a thirteen-person small property and casualty insurance office in China’s southern city of Shenzhen in 1988 and grew to become a conglomerate of 1.4 million sales agents at its peak in 2017.
Over the years, Ping An implemented its finance plus ecosystem strategy through three steps.
First, it used technology to enable and increase the competitiveness of its core business of financial services. Second, it leveraged technology to enable five new ecosystems. When building each ecosystem, Ping An developed scenarios first, built traffic, generated revenue, and eventually hoped to make profit. After building the ecosystems, the company also hoped to use those ecosystems to grow its financial services.
Ping An picked these five ecosystems because the business opportunity in each was big enough: They created many touch points for Ping An to better understand a customer’s needs, and they could leverage Ping An’s strength in financial services.
“For companies entering an ecosystem late, adopting an acquisition strategy can be an effective way to establish themselves as hubs.”
Even for resource-rich firms like Ping An, developing an ecosystem as a hub in a competitive environment presents considerable challenges. Most traditional businesses lack the resources of a company like Ping An. Therefore, even if aspiring to become a hub, beginning as a non-hub player can be beneficial. This approach allows companies to empower others while gaining valuable experience, understanding customer and partner needs, and accumulating the skills and resources needed for future hub status.
For companies entering an ecosystem late, adopting an acquisition strategy can be an effective way to establish themselves as hubs. Ping An successfully utilized this tactic in its auto services ecosystem. In a similar vein, Adidas entered the digital fitness market—a field Nike had already ventured into— by acquiring the running app Runtastic in 2015, which then had seventy million users. This acquisition quickly became a cornerstone of Adidas’s digital strategy. Today, over 170 million people use Adidas Running to track more than ninety sports and activities.
Firm footing: Building your ecosystem on a solid foundation
Successful ecosystems often begin with solid and thriving products at their core. To ensure sustained growth of an ecosystem, a company must prioritize the defensibility of its product.
In the case of Anker, the company was able to convince industry leaders, such as Apple and Costco, to join its ecosystem because of its relentless efforts into identifying customer needs and R&D to introduce hit products.
Nike’s ecosystem.
One of Nike’s initial ventures into fitness was the 2012 launch of the FuelBand, a wrist-worn fitness tracker with social features. Its key feature, NikeFuel, aimed to offer a universal metric for tracking various activities. This was part of Nike’s strategy to blend digital technology with its physical products, fostering a fitness and wellness ecosystem. Nike soon realized, however, that its market position in the FuelBand was not defensible. The wearable technology market rapidly evolved with competitors like Fitbit and, at the time, Jawbone UP, and the emergence of smartwatches, especially the Apple Watch, which offered broader functionalities. Acknowledging that hardware innovation was not its strength, Nike discontinued the FuelBand in 2014 to concentrate on software. Its digital products, Nike Run and Nike Training Club, which better aligned with its core strengths in branding, content creation, and community engagement, emerged as hubs of its fitness and wellness ecosystem.
Reprinted by permission of Harvard Business Review Press. Adapted from SMART RIVALS: How Innovative Companies Play Games That Tech Giants Can’t Win
by Feng Zhu and Bonnie Yining Cao. Copyright 2024 Feng Zhu and Bonnie Yining Cao. All rights reserved.
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