Digital Economy Ecosystem

Ecosystem Metaphor

The concept of business ecosystems was introduced by James F. Moore in 1993.
Moore suggested viewing a company as part of a business ecosystem that crosses various industries, rather than as a member of a single industry.
In a business ecosystem, companies coevolve capabilities around a new innovation, working cooperatively and competitively.
The concept is used to analyze business strategies, especially in the digital economy.
The concept is a biological metaphor, where digital businesses are embedded in a complex community of cooperating and competing businesses and customers.
Removing one stakeholder can have severe repercussions, similar to removing a species in a biological ecosystem.
Industries are vulnerable to changes in regulations, customer habits, discovery of new raw materials, and better production methods.

Illustration of the Vulnerability of a Biological Ecosystem

The vulnerability of a biological ecosystem is illustrated by a small ecosystem in the salt marshes in Southern California (Lafferty & Morris, 1996).
The ecosystem consists of the parasite Euhaplorchis californiensis, horn snails, killifish, and seabirds.
The horn snail and the killifish are intermediate hosts for the parasite.
The bird is the final host where the parasite matures and produces eggs.
The parasite alters the behavior of the intermediate hosts.
Infected snails search for water, where they are eaten by killifish; the infected fish is no longer afraid of birds and becomes easy prey.
Removing the parasite caused a collapse of the ecosystem.

Complexity and Unpredictability

The biological metaphor is an analogy because the evolution of information technology involves interactions within a business ecosystem of entrepreneurs, researchers, developers, software and hardware platform providers, system integrators, network providers, government authorities, and communities.
Examples of systems resulting from complex interactions are the Internet and smartphone technology.
Peer-production, crowdsourcing, and free and open software make the ecosystem more multifaceted.
The digital economy depends on information and communication technology (ICT), including the Internet, smartphones, data storage, and processing.
Digital services require ICT to manage and propagate their value proposition to consumers.
The interplay between digital services, ICT, providers, competitors, marketplaces, consumers, and society shapes the digital economy ecosystem.

Digital Economy Ecosystem

Definition 4.1: The digital economy ecosystem describes the relations and dependencies between digital services, ICT infrastructures, digital markets, and authorities in a socioeconomic context.

Ecosystem Components

The digital economy ecosystem includes basic technologies and stakeholders.
The global ICT infrastructure, owned by ISPs and network providers (NP), carries digital services, applications, and content.
The ICT infrastructure includes interconnected networks, data storage, and computing facilities.
User equipment (devices) such as mobile phones, smartphones, PCs, and laptops access the ICT infrastructure and are manufactured by device providers (DP).
Application service providers (ASPs) offer applications to consumers in the digital marketplace.
Applications run on devices and may feature content from content providers (CPs).
Consumers and providers interact with authorities, adapting legal frameworks and satisfying societal demands.
Digital services depend on other digital services to provide value to consumers.
Existing digital services form the basis for new digital service development.
Dependencies make up the digital economy ecosystem for a particular business.
Complexity makes it impossible to identify all dependencies because of complexity and transient relationships.

Dependencies

A digital Service A depends on two other digital services (B and C) and two technologies (cloud storage and wireless access).
Service E depends on Service A, while Service D and Service A depend on each other.
Modeling the ecosystem can analyze the impact each dependency has on the primary business.
Analysis may uncover critical dependencies, vulnerabilities, structural weaknesses, and other problems.

Transient vs. Stationary States

The digital economy ecosystem results in a transient market due to new stakeholders, technologies, consumer adoption, competition, legislation, and dependencies.
Changes contribute to a market state that is more transient than stationary.
The transient view aligns with complexity economics, where the economy is ever-changing.
For a stationary market to exist, market aspects must be stable and unchanging.
In the digital economy, new technologies are developed and adopted rapidly.
Mobile communication evolved from simple telephone and messaging services to a mix of services and technologies.
New technologies often lead to new business models, causing changes in the digital economy ecosystem.
Mobile communications evolved from services offered by a single provider to services offered by application service providers (ASPs).

Components of the Digital Ecosystem

The most important components of the digital ecosystem are the Internet, computer platforms, applications, consumers, and authorities.

The Layered Internet Model

The commercialization of the World Wide Web (WWW) in 1993 was a significant event.
Before 1993, network operation and service provision were integrated.
The WWW led to a restructuring where network operation and service provision became independent.
The Internet is divided into three parallel planes: networks, user equipment, and applications.
The three planes correspond to independent business areas.
The networks plane includes the physical communication network, supporting network providers (NPs) and Internet service providers (ISPs).
The user equipment plane consists of hosts and connections, the transport layer, and is the domain of device providers (DPs).
The application plane is a graph of software objects, the business arena of application service providers (ASPs) and content providers (CPs).
Vertical interactions (inter-layer connections) exist between the layers.
Competition takes place between stakeholders on the same layer.
The user equipment layer is the demarcation line between ISPs and ASPs.
ISPs cannot perceive the type of services carried by the network due to protocol and encryption.
The ISP is forced to apply service-independent charging.
This separation is a core premise of net neutrality.
ISPs and ASPs are independent but complementary.
ASPs need ISPs to deliver services, and ISPs need ASPs to make the network attractive.

Over-the-Top (OTT) Media Services

One consequence of decoupling ASP and ISP is over-the-top (OTT) media services.
The ASP offers services traditionally supported by dedicated networks without ISP involvement.
Voice over IP (VoIP) may not always be an over-the-top service if it requires protocol support from the ISP.
Telephone service in 4G and 5G mobile systems is a VoIP service, but competition limits differentiated telephone charges.

Skype and Over-the-Top Services

Skype is a digital service providing chat, voice, and video communication for Internet users.
Skype was launched in 2003, bought by eBay in 2005, and by Microsoft in 2011.
In 2013, Skype had almost 40% of the international voice and video market.
Skype contributes to the convergence of digital services.
OTT services provide free voice, video, and messaging over the Internet, competing with traditional services.
Skype has significantly impacted the digital economy by decreasing prices for telephone calls.
Mobile network operators offer free telephone services to meet competition from Skype.
Skype undermined traditional payment methods by offering free calls between Skype users.
Skype is a value network, mediating communication between users with high fixed costs and low marginal costs.
The Internet service provider cannot levy time and volume-dependent charges for web services.
The ISP can only take fixed access charges based on data downloaded per month.
The ASP may levy differentiated fees for apps, films, and music.
OTT services drive the convergence of digital services by providing teleservices at a lower cost.

Computer Infrastructure and Platforms

Software modules for digital services run on computer platforms.
The platform is the mediator between the network infrastructure and application software.
The platform may consist of a single computer or a distributed system.
The platform architecture may be complex and involve several stakeholders.
Cloud computing offers services from infrastructure support to complete software packages.
The provider of the digital service rents production facilities from cloud providers.
Cloud computing reduces the need for investments in ICT infrastructure.
Cloud computing helps to reduce the product development time, meet challenges associated with fluctuating market size, eliminate the need for expert knowledge, and reduce the need for system management and maintenance.

Everything as a Service (EaaS or XaaS)

Infrastructure as a Service (IaaS): Rent access to IT infrastructure (computers, databases, servers).
The IaaS provider offers a virtual machine architecture supporting multiple clients.
A related concept is network virtualization.
Platform as a Service (PaaS): Offers a software development environment.
The PaaS platform contains programming tool kits, software libraries, operating systems, compilers, and databases.
App Engine is a PaaS platform offered by Google.
Software as a Service (SaaS): Users are given licenses to use application software and database functions.
Examples of SaaS are access to office software, maps, GPS, GIS, human resource management, gamification, collaboration, and learning applications.

Grid Computing

Grid computing interconnects many heterogeneous computers to perform large computational tasks.
The grid differs from the cloud as the computers are lightly connected with dedicated tasks.
Typically, the grid uses computer facilities at universities and research institutions.
Tasks use computationally hard problems such as studying protein folding, simulating climate models, searching for primes, and analyzing particle collisions at CERN.

Content as Ecosystem Component

The number of applications available to customers is extensive, especially after the smartphone entered the market.
Digital products are produced and sold by a single ASP, involving ISPs for transporting information.
Large companies like Facebook, Twitter, YouTube, and Google are conglomerates with subsidiaries providing content, running their own platforms, and offering ISP services and cloud computing.
Services may involve an ASP, content providers, and platform providers.
Newspapers buy or receive information from other sources and engage freelance contributors.
The newspaper is part of a web of content providers, news agencies, and stock photography agencies.

Consumers as Ecosystem Component

Consumers of digital services may be companies, organizations, or individuals.
Consumers in digital markets provide feedback for product improvement.
Consumer adoption is a key element in creating dependencies in the digital economy ecosystem.
Consumer adoption measures how and at what rate consumers adopt a digital service.
The technology or service must be adopted by initial consumers.
Early market adoption is important if market growth depends on network effects.
Adoption may depend on other technologies or services.
The adoption of a service like Uber would not be possible without smartphones and broadband access.
Increased use triggers the evolution of new technologies or services, such as touchscreens for mobile terminals stimulating app development.
New dependencies and stakeholders may appear as the service evolves.
Analyzing the technology or service in isolation will not predict its attractiveness.
All interdependencies make up the ecosystem of the digital service.

Authorities as Ecosystem Component

The digital economy ecosystem includes social and legal aspects concerning conditions for marketing and use of digital services.
Legal regulations influence the content of services and consumer adoption.
Regulations may impact the visibility, development, and use of related digital services.
Examples are regulations of cryptocurrencies and sharing services like Uber and Airbnb.
Classifying Uber as a transport company impacts its business operations.
Authorities monitor large corporations for tax evasion, exploitation of information, infringements of competition laws, lock-in barriers, environmental footprint, workforce exploitation, and negligence.
It has been difficult to alter the behavior of these corporations.
The role of authorities as watchdogs is important to avoid concentration of power on a few stakeholders.

Conclusions

The ecosystem metaphor is a strategic planning tool in the digital economy.
Ecosystem analysis reveals stakeholders, interactions, vulnerabilities, and weaknesses.
The ecosystem includes cooperating and competing companies, consumers, and authorities.
Public opinion and government regulations must be considered.
Ecosystem aspects relate to the Internet, access technology, computer infrastructure, and development environment.