What are digital ecosystems?

Intro

These are companies that have dramatically changed whole industries, and even entire areas of life.

What is meant by a digital ecosystem?

While the term “digital ecosystem” may not be immediately familiar to everyone, we’ve all encountered real-world examples of such ecosystems that have significantly transformed various aspects of our daily lives. Think of Uber, Airbnb, and Amazon Marketplace – these are all names we’re acquainted with.

Let’s take Airbnb as an example. On this platform, we have private hosts offering accommodations to fellow private individuals. And right in the middle of this interaction, we find Airbnb, playing a crucial intermediary role. This intermediary role is, in fact, the defining characteristic of digital ecosystems, and it’s a common feature shared by all of them.

This intermediation takes place entirely in the digital realm, and the platform becomes the technical core of our digital ecosystem. To effectively serve the voluntary participants, this digital ecosystem and its platform must be highly scalable. You see, these voluntary participants all expect to gain benefits from being part of this digital ecosystem, and this dynamic sets a self-reinforcing cycle in motion. More and more providers join, attracting more and more consumers. This, in essence, is what gives rise to the frequently mentioned network effects that underpin all business models in the platform economy.

What’s new about digital ecosystems?

Digital ecosystems thrive not by introducing entirely novel concepts but by elevating existing ones to new heights. This approach holds significant appeal for consumers as it grants them access to a broader array of offerings than ever before. For providers, it’s equally enticing, offering access to a vast consumer base without the burden of bearing market development costs themselves. Naturally, for the operator of the digital ecosystem, it also proves highly profitable.

Yet, in the public sector, the presence of successful digital ecosystems remains notably scarce. Especially within government agencies, there’s a dearth of prosperous examples. It’s imperative that we harness the potential of this successful paradigm for public sector entities and leverage the capabilities of the platform economy accordingly.

And what are the risks?

Certainly, where significant benefits abound, risks often lurk in the shadows.  Typically, a digital ecosystem is launched in one country, and its operators work diligently to expand it further within those borders. However, due to their inherent scalability, the potential for rapid international expansion looms large. Consequently, there exists a certain peril – namely, the prospect of international giants entering the German market with ease, rapidly gaining dominance, and then dictating the ecosystem’s rules within. And if the ecosystem is really big, and becomes very established, and there aren’t many alternatives, then of course that creates the risk for other participants that they too will no longer have any real alternative.

How can ecosystems be regulated?

The risk of abuse of power is relatively difficult to counter. After all, companies typically build digital ecosystems within the framework of applicable laws, progressively achieving remarkable success. Nevertheless, the issue of power concentration persists, prompting efforts, particularly at the European level, to establish a regulatory framework that curbs excessive centralization of power.

The other risk is more at the level of market dominance, which can be addressed by trying to encourage the emergence of more digital ecosystems in Germany, and thus creating a natural counterweight to the international players. One additional aspect to note is that especially if the state also acts to provide support, it can have an influence on both the regulatory conditions and the values that are embodied in a digital ecosystem of this kind.

Are all digital ecosystems focused on making profits?

These entities do not necessarily have to prioritize profit above all else.  We’re all familiar with examples like Wikipedia, which enjoys widespread usage, or Better Place, a donation platform that sustains itself through contributions. Another avenue to explore is seeking suitable sponsors, or even having the public sector assume a sponsorship role. In this manner, a digital ecosystem can be conceived and operated.