[00:10] Peter Boolkah:
Can your business survive without being part of a digital ecosystem? We’re going to find out.
Hi, my name is Peter Boolkah, and welcome to today’s edition of The Transition Guy.
Joining me in the studio today is Benjamin Talin, who is a digital expert.
Ben, thank you for joining us.
[00:32] Benjamin Talin:
Thank you for the invitation. I’m happy to be here.
[00:35] Peter Boolkah:
Digital ecosystems are a big subject.
One of my favourite examples of a digital ecosystem is McDonald’s. Everybody knows McDonald’s.
It began as a conventional restaurant business, with drive-through restaurants and high-street locations. But its business model has changed dramatically over the years.
It has been fascinating to watch McDonald’s enter the digital space. You now have companies such as Uber Eats and Deliveroo in the UK acting as facilitators. Much of the transaction takes place online, and those companies then deliver the order.
I wonder whether McDonald’s would have experienced the same growth without making that digital transformation.
For our listeners today, what is a digital ecosystem?
[01:42] Benjamin Talin:
It’s one of the great mysteries of the digital world. Everybody speaks about digital ecosystems and has heard the expression somewhere, but what is one?
Think about the Earth’s ecosystem, where everything is connected.
We have participants who contribute to the core system, and we have the ecosystem host. In the global ecosystem, the Earth itself would be the host.
Somebody creates an environment in which other people can thrive. That’s a useful way of understanding a digital ecosystem.
As the host, you create the ecosystem first. You then allow other people to become part of it, create different forms of value or add something to it.
Take a payment provider as an example. The ecosystem host might not provide payment services itself, but it can invite another business to provide them within the ecosystem.
Amazon introduced its own payment system. Booking.com, by contrast, has historically used different payment arrangements. The depth and breadth of a digital ecosystem can vary considerably.
When we speak about digital ecosystems, they should naturally contain a digital component.
But Uber Eats, for example, combines digital services with physical services and the delivery of physical goods.
An ecosystem doesn’t necessarily involve only digital delivery, such as the delivery of content through Amazon Prime. Amazon Prime can also involve the physical delivery of products.
With Uber Eats, the interaction between the different ecosystem members is controlled through the digital layer.
[03:48] Peter Boolkah:
You undertake a great deal of work involving the future.
Do you think a business that isn’t part of a digital ecosystem will have a strong chance of succeeding ten years from now?
[04:03] Benjamin Talin:
I would say it’s almost impossible to avoid digital ecosystems.
No matter where you are, you’ll already be in contact with one.
Consider advertising. It consists of many different ecosystems connected together, so a business cannot avoid them entirely.
Different ecosystems will form part of your journey as a business.
If you aren’t capable of creating your own ecosystem, you’ll probably participate in or contribute to somebody else’s.
It could become like having a licence to operate in the future. You’ll participate in a digital ecosystem of some kind.
It might involve delivery, sourcing or customer acquisition. Alternatively, your entire business might create value for one particular ecosystem.
There are operators that provide services specifically for the Airbnb ecosystem. Some don’t have any business outside it.
You could shift your entire business into becoming a provider or contributor within a digital ecosystem, or you could simply use one. Most of us use them.
[05:40] Peter Boolkah:
That’s a fair point. What are the key benefits of participating in a digital ecosystem?
[05:50] Benjamin Talin:
It depends upon what you use it for. Participating is a very broad term.
If you create an ecosystem, you have one of the most powerful business models we know.
Why is it so powerful? Because of the data.
Imagine the power Booking.com possesses. It has information about what you search for, where you want to go, where you’ve previously been, the types of hotels you select and how many people travel with you.
It can understand a significant part of your world.
If you possess that information, you can influence somebody’s actions. That includes advertising, but you can also offer other services.
Why is Amazon’s digital ecosystem so powerful? It can use purchasing information together with film, television and music preferences to categorise people.
It can identify patterns such as somebody listening to a particular artist, watching a particular series and purchasing a particular product. It can then predict that they might also want another product.
That demonstrates how powerful an ecosystem can become.
Amazon can even predict when somebody is pregnant before that person knows they’re pregnant.
Platforms now have significant power to make predictions that even the user might not know.
That’s the real power of a digital ecosystem.
If you possess this information, you can upsell and create new products. That is why Amazon creates its own products: it has the data and can identify demand.
It can also control the wider ecosystem.
That’s one of the criticisms people make of Amazon. When something performs well, Amazon can internalise it, take it away from the other participants and say, “It’s ours now.”
[07:57] Peter Boolkah:
That’s what the cynic in me was about to say.
The data could also be used for the wrong reasons. A platform might use a company for as long as it benefits the platform.
If you don’t control the ecosystem, it can be relatively easy for the platform to shut you out.
[08:16] Benjamin Talin:
Exactly.
Everything in life is a double-edged sword. You can see both the positive and negative sides, depending upon your position within the ecosystem.
That’s why I asked what you meant by participation.
If I create the ecosystem, I occupy a very different position from somebody who merely participates in it.
LinkedIn is a good example. It is gradually generating its own ecosystem.
You now have consultants who focus entirely upon LinkedIn, together with advertising agencies and other service providers. An ecosystem is growing within the social network.
It remains a social network and therefore a platform, but it’s also becoming an ecosystem because tools and services have been built around it.
You could use the ecosystem simply to approach people without contributing anything directly to the network.
You could contribute to it by programming something for LinkedIn—for example, a tool that helps people manage LinkedIn and connects it to their customer-relationship-management system.
That creates a direct value connection with the ecosystem.
Alternatively, you might create a competitor by building your own ecosystem and trying to establish its strategic advantage.
That is a completely different strategy.
[09:54] Peter Boolkah:
How can digital ecosystems help businesses gain a competitive advantage?
[10:05] Benjamin Talin:
It’s difficult to give one answer because an ecosystem has many different connection points and many ways in which it can be used.
If you’re a participant—either supplying something to or obtaining something from the ecosystem—you can benefit considerably by being one of the first movers.
You see the same thing with social media.
When TikTok was new, people who joined at the beginning could obtain considerable exposure because the ecosystem was trying to make them successful.
The later you join the cycle, the harder it becomes.
It’s now much more difficult to gain followers on TikTok. At the beginning, some people obtained millions of followers within days or weeks.
The same was true for Instagram and Snapchat.
Early adopters are usually the frontrunners because they can create, shape and participate in the ecosystem before most other people begin leveraging it.
[11:38] Peter Boolkah:
The early-adopter point is interesting. As you say, obtaining results on TikTok has become considerably harder.
If I wanted to determine whether a digital ecosystem was the right approach for my business, what steps would I need to take?
[11:57] Benjamin Talin:
Examine whether it currently creates enough value to justify the effort you would put into it. That principle applies to almost everything.
If you never want to become a social influencer, there might be little reason for you to invest heavily in a new social network.
But if you plan to become an influencer and see a new network emerging, becoming one of its first participants might be a viable strategy.
Suppose your business is not dependent upon cold calling or a large number of external relationships. You have only five suppliers and know them personally.
It wouldn’t make sense to build an enormous ecosystem to manage those five suppliers.
But suppose you depend heavily upon external forces, whether those are suppliers, customer demand or something else, and those external relationships are fragmented.
Consider Booking.com again.
I cannot know every hotel in the world and don’t want to contact every individual hotel. Equally, no hotel can contact every person interested in booking a room.
That creates the opportunity for somebody to offer a many-to-many solution that makes the interaction easier.
At the beginning, nobody knows whether the winner will be Booking.com, Expedia or somebody else.
Sometimes you need luck, but you can offset some of that luck through trial and error.
If you operate a hotel and know that the booking industry is changing, you might join several platforms. You diversify your digital-ecosystem strategy.
It’s similar to social-media advertising. At the beginning, nobody knew which networks would succeed.
Today, a small number of advertising networks deliver most of the available value, so the choice is easier. Twenty years ago, identifying the correct advertising-network strategy was much more difficult, and businesses had to deal with hundreds of separate websites.
For a business, the strategic question is how exposed it is to many-to-many relationships.
The smaller the number of external contact points, the easier it is to manage them directly.
But most companies don’t have only five customers and five suppliers. That creates demand for digital ecosystems.
Even opening an online shop means participating in something resembling a small digital ecosystem.
You might integrate PayPal, Payoneer or other payment providers. You could also connect suppliers to the shop.
Suddenly, many different participants must contribute to make the online shop work.
If you think ahead, you’re almost always participating in an ecosystem, so you should make the most of it.
[15:22] Peter Boolkah:
What are the initial steps involved in building a robust digital ecosystem?
[15:33] Benjamin Talin:
Even digital marketplaces are difficult because they always have a hard side. One side is harder to attract than the other.
It might be the people who want to sell something or the people trying to find something. It depends upon the marketplace.
A conventional marketplace has something to offer and somebody who wants to buy it. That’s a typical two-sided marketplace.
A one-sided business is easier. I have a product, and I need to find somebody interested in purchasing it.
Two-sided platforms are more complicated. Somebody needs to offer something, and somebody needs to buy it.
If nobody offers, nobody buys. If nobody buys, nobody offers. You have a chicken-and-egg problem.
A digital ecosystem becomes exponentially more complicated because you might not know which groups represent the hard sides.
If you want to build something like that, identify the hardest side. What delivers the essential value?
You might begin creating an ecosystem through a one-sided platform.
Start by offering something that attracts one group. Once you’ve attracted that side, you can begin offering additional services involving another side.
If you want to create a digital ecosystem, focus upon where you can introduce the same or similar value to attract more people.
If I sell shoes and develop a large following interested in shoes, it will be extremely difficult to upsell those people on fucking business services.
Why would somebody interested in shoes want me to offer business services?
That is an extreme example, but the problem is a cognitive disconnect. People come to you for one thing, and you then offer something they weren’t expecting.
Banks provide another good example.
People go to a bank because they want their money managed. They don’t necessarily want to be sold car insurance or other unrelated services.
When they opened the account, they were effectively saying, “Manage my money and don’t do anything else.”
They weren’t celebrating because the bank had created a digital ecosystem and could now offer insurance.
They might prefer to obtain insurance from an insurance company rather than a bank.
Although both services fall within the financial industry, the customer can still experience a cognitive disconnect. That’s why many banking ecosystems have failed.
Expectation management is therefore extremely important.
The shoes and business-services example is deliberately extreme, but the same disconnect can exist between banking and insurance.
Some challenger banks created digital ecosystems with a different promise and value proposition: “We manage all the boring things in your life.”
They manage bank accounts, insurance and other contracts.
The customer can say, “Yes, manage my boring things. I don’t want to handle my contracts or insurance.”
Banking is boring. The only organisation that doesn’t like describing it that way is the bank.
If you rethink the entire proposition and understand the customer, you can say, “Let us manage the boring things.”
The customer doesn’t want to deal with bank statements or insurance, so you remove that pain. That can become a valuable digital ecosystem because it delivers a direct benefit.
[19:45] Peter Boolkah:
In the UK, services such as Compare the Market and MoneySavingExpert satisfy a similar purpose.
Most entrepreneurs are creators and enjoy starting things from scratch.
There are already many ecosystems available, so should a business build its own ecosystem or collaborate with existing ones? Which factors should guide that decision?
[20:31] Benjamin Talin:
I see many people creating ecosystems around a product idea. That’s often the biggest problem.
It’s the same problem we discussed with banks.
“I have an offering, so I want to build an ecosystem around my offering.”
The business isn’t necessarily considering what the customer ultimately wants.
If you identify an ecosystem that satisfies not only your need to sell something but also the customer’s underlying need—such as managing all the boring things—then it might make sense.
But if you don’t know whether the ecosystem genuinely fulfils that purpose, that’s a warning sign that it might not work.
Look at ecosystems for consultants.
Thousands of platforms exist where people can find consultants. It’s relatively easy to create a platform and ecosystem because consultants want to sell consultancy.
The problem isn’t whether somebody wants to buy consultancy. The problem is trust.
People don’t necessarily care about a directory of consultancies. I wouldn’t care about one.
The consultants care about being listed because they hope it will help them sell. That’s the problem with the two sides.
Consultancy directories are built around consultants because the consultants pay for them. The platform adopts a consultant mindset and fails to attract the real users.
That’s why many of those networks don’t work and why LinkedIn can perform the function more effectively.
The platform isn’t fulfilling its real purpose.
It’s the same problem as the bank saying, “I sell banking services, and everything else can be constructed around that.”
[22:29] Peter Boolkah:
You need to be careful when creating your own ecosystem.
You must consider whether you can build the right ecosystem to satisfy the customer’s needs or whether an existing ecosystem already does that, allowing you to become part of it.
[22:50] Benjamin Talin:
You can also create your own ecosystem while participating in others or building connections between them.
There are many examples of ecosystems growing together and bringing their communities together because they developed from different starting points.
I saw an example involving consultancy.
One large German start-up focused upon the demand side. Its proposition was, “We’ll help you choose the best consultancy.”
It connected with another business representing the supply side, which had a directory of consultancies.
You can create both types.
As long as you have a growing user base and an improving understanding of what those users need, you can connect complementary sources of value.
You might combine them through a joint venture and agree a 50-50 arrangement.
If the cake becomes bigger, everybody receives more.
That can be difficult because people love their own ideas. As you said, entrepreneurs are creators and love building things themselves.
But ecosystems also grow on the back of each other.
Creating strategic moats is difficult. If you can combine two or three complementary strategic moats, the result can become extremely powerful.
[24:27] Peter Boolkah:
As the years progress, businesses will become increasingly entrenched within digital ecosystems.
How can they prepare for that future?
[24:50] Benjamin Talin:
It comes down to basic work. There isn’t a magical solution.
When I worked in consulting, I created a model with three components. It’s called the SET model: Survive, Expand and Transform.
I like the model because it’s easy for entrepreneurs to understand.
Every company has three categories of activity.
The first is survival. You need to keep the lights on and pay the rent, salaries and other bills. That’s the daily business.
Then you consider expansion.
You must already have something good; otherwise, you wouldn’t be selling anything. How can you expand it through different markets, products and improvements?
The final part—the one most companies miss and fail to invest in—is transformation.
How can you think outside the box and do something completely new?
Google has a 60-20-20 rule internally. Everybody knows about the free Friday or 20% time.
The 60-20-20 rule means that 60% of your time, money and resources are spent keeping Google running.
Twenty per cent is spent asking, “We already do this well, so how can we expand and improve it?”
The remaining 20% is used to explore whatever you want—something that might become valuable in the future, perhaps even a separate start-up.
You’re completely free to explore something.
Businesses need to combine some of the expansion category with existing ecosystems they should join.
Transformation is about experimenting.
Could I create a one-sided or two-sided marketplace? Could I try a new approach? Could I join another ecosystem? Could I provide value to people on other platforms?
It’s the continual attempt to become an early adopter.
As I mentioned earlier, early adopters in an ecosystem can receive exponentially greater outcomes than late adopters.
The same was true for Amazon. Its earliest sellers had many opportunities. It’s much harder to become a successful Amazon seller now.
A small seller who joined near the beginning could obtain a disproportionately large share of the ecosystem and benefit much more from it.
Businesses should therefore invest a small amount of time, effort and perhaps money into experimentation. It might not even require money initially—just some thought.
[27:37] Peter Boolkah:
There will also be occasions when money becomes important, particularly when the expertise doesn’t exist within the business and you need to bring it onboard.
Ben, thank you very much. We’ve covered an enormous amount, and some listeners might feel overwhelmed.
What I take from our conversation is that people will have to embrace digital change if they want their businesses to survive and thrive.
Without it, companies could be left behind, particularly as younger generations become more influential.
The customer of tomorrow is already digitally centred and digitally literate. They understand the language of digital technology. It’s natural to them.
[28:34] Benjamin Talin:
It’s becoming normal across every generation.
Almost everybody uses digital technology in some form. Everybody has a phone, looks at Google reviews or uses Google to obtain information.
Even my mother does it. She’s always a useful benchmark when I think about how people who aren’t interested in technology use it.
Digital technology has simply become normal.
It remains fascinating that people still think digitalisation isn’t important to business. Everybody is already using it, and it has become normal.
[29:23] Peter Boolkah:
Businesses that don’t embrace it might not survive the next ten years.
If anything has resonated with you today and you would like more information, head over to boolkah.com and get in touch.
Ben, thank you very much. It has been wonderful having you on today’s episode.
Remember: failing to learn is learning to fail.
Stay safe, and thank you, Ben.
[29:47] Benjamin Talin:
Thank you very much for inviting me.
