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Welcome welcome everybody. My name is Jeff Towson and this is Tech Strategy and the topic for today Alibaba Android and the art of ecosystem management Now this is a follow-up or a part two to last week’s podcast which was podcast 56 titled forget the Alibaba ecosystem think new collaboration based industries and business models Which was not my my greatest title ever. It’s a little bit wordy. But the language is actually somewhat precise and I did think about it for a long time. And I’ll sort of explain what that means. But the topic I was getting into was this idea of ecosystems. I mean, we’ve talked about, or I’ve talked about, pipelines, traditional businesses, products, services, that sort of thing. And then a lot of detail of going between them and platforms. which I’ve described as a network-based business model. A lot of detail there, very specific, very bottom-up. Okay, there’s a third level to this, which is ecosystems, which is a pretty fuzzy idea. It’s kind of a fuzzy term. Nobody really knows what it means. And I’ve sort of described it generally as, look, you’re dealing with lots of partners, a lot of connections, interactions between… various partners could be one, 10, 15, 20, millions of them. And a platform business model is kind of a simple version of that. Yes, we have lots of partners. If you’re on Airbnb, you’ve got four million hosts. I was just reading the S1 for Airbnb. Okay, those would be partners, but the type of interaction is quite standardized. It’s not like… We’re talking about Apple or Epic Games or arm holding, where suddenly you’ve got major companies in manufacturing, chip design, foundry, IP, all working together to create something complicated like a smart car. I mean, it’s just a lot more complex and complicated. Now, the term I’ve been using is this, sort of forget ecosystem. The term I’ve been using is collaboration-based industries or collaboration-based business models. And I think that’s a better term and I’ll explain why. But the question I was trying to tee up was, what is the difference between a traditional supply chain, a traditional pipeline-like business where you have a fairly tightly controlled value chain that’s adding value, usually fairly rigid, between that, between a platform, and between an ecosystem. What are the advantages of each? How do you compete in each? And basically it gets a lot more complicated. My standard line here is traditional businesses competing is like playing checkers, platform businesses competing with each other is like chess, ecosystem competition is like 3D chess. It’s really complicated. And I’ve tried to summarize all of this in my, what I’m calling now my digital strategy pyramid, which is in the show notes and, or if you’re looking at your, you know, the notes in iTunes or whatever, you can click over to the webpage and you’ll see it. And that’s my pyramid with how you compete, how you build structural advantages at the bottom level. There’s sort of short-term tactics. Then we moved a marathon, smile marathon. Then we moved to competitive advantage. Then we moved to the top, which is sort of winner take all. You wanna move up the top of the pyramid and you get a lot more strengths. But you can also sort of go left to right. And on the left, I put pipelines. Traditional businesses on the far right I put platforms in the middle. I sort of put Ecosystems which I’m gonna replace with collaboration based business models and you can play any of those games They are different games if you’re building a platform from day one. That’s a very different business But you in all cases you want to move up the pyramid. That’s what I’m trying to get across in that period. I’ll probably Iterate that a bit and try and improve it, but I think I’m getting close Okay based on that Today what I want to talk about is look, how do you work in these? What is the art of ecosystem management? And that’s the title of a BCG article which had some thinking on that. But then also to get out of theory and say, okay, let’s just talk about how Alibaba does this because that’s what they’re in. They’re in the ecosystem orchestration business. And let’s talk about Android because Android was one of the most effective ecosystem strategies we’ve seen. talk about that. So two examples, a little bit more theory, and hopefully that will round out podcast 56. Now in the last podcast, I feel a little bad about the last podcast. I’m not, I think it wasn’t my best. I kind of had a migraine and the night before I’d been up all night with the migraine, I can’t sleep when I get these. So I don’t think I was even close to a hundred percent. And plus I mispronounced, I didn’t just mispronounce, I got somebody’s name wrong the whole podcast. I kept saying Peter Jakobides, when it was supposed to be Michael. Like I don’t even know, well, the other guy’s named Peter, so that’s how I did it, but you know, that was boneheaded. So anyways, the guy I was talking about, which I corrected in the show notes in bold letters, Michael Jakobides, J-A-C-O-B-I-D-E-S. I mean, he’s focused on ecosystem strategy. So is Peter Williamson, an old colleague from Cambridge, and BCG, those are kind of the three people I keep an eye on. I’ve talked about the first two, I’m gonna talk about the third BCG today, but when you start looking into this, the factors that jump out for me are, okay, if we’re talking ecosystems, I’m gonna keep using that word because I don’t have a better one yet, how does it change competition dynamics? Big question. And generally it does collapse to one or two players. There aren’t 20 androids, there’s two. For various reasons. How does it change competition? How does it change innovation? One of the biggest purposes, advantages, rationales for an ecosystem is when you have to do a level of innovation that is far beyond any one company. We’ll talk about that with the launch of Android, which was really about launching an ecosystem for smartphones that were not iPhones. And then the third is what is the role of this approach, ecosystem or a collaboration-based business model? What is the role of that in industries or sectors where there’s a lot of uncertainty or it’s undergoing a major disruption? Those three factors are really in sort of the sweet spot, the strike zone of ecosystems. Now Peter Williamson, he’s a good dude. I’ve known him for, I don’t know, 10 years. And he was the one who actually was sort of involved in getting me teaching for the very first time when I had just sort of finished working for the Saudi Prince. A buddy of mine was a dean at Judge Basin School in Cambridge and I started being a fellow there, which I didn’t actually teach very much, just a little bit, but I got to go out there and I got to put on the Cambridge robe for the professorship, which was actually pretty cool. And I met Peter along the way and he’s a very, very good thinker, I mean top tier thinker. Anyway, so he wrote a book recently called Ecosystem Edge. Edge basically means advantage. I think that would have been a better word to use, but Ecosystem Edge sounds better, you know. His argument, and this is his language, is these things are about bringing together capabilities. It’s about bringing competencies and capabilities far beyond what one business can do and far beyond what one industry has. You’re going cross industry, cross geography. You need all of that. That’s the power of this. And that tends to be good, he says, in a couple scenarios. when you basically just need more capabilities than could ever exist in one company. Or when you’re creating a complicated solution. So that would be like arm holdings, ecosystem for chip designers, things like that. The other one he talks about is when there’s a very uncertain path to the future. We’re launching something new. The first smartphones, the first smart cars, the first autonomous vehicles. Nobody knows where this is going. This is an evolving path. It’s gonna be very different. So you need an adaptable business model and ecosystems are very good at bringing together capabilities, getting a group of partners together and everyone starts to learn together. So you’re sort of unleashing learning, you’re unleashing innovation and that makes you far more adaptable than any traditional pipeline sort of rigidly structured business. And then related to that third scenario is look, if you’re facing a major disruption and you don’t know what to do, go with an ecosystem because it’s gonna respond to that faster. Now, the flip side to that, so there’s a lot of strengths. He calls it strategy without planning. Lots of interactions, lots of learning together, lots of adaptation, and lots of collaboration, which is the word I use, collaboration-based business models. That’s all incredibly powerful. The price you pay for that is efficiency. Yeah, you’re flexible, yeah, you’re agile, but you’re not doing this very cheaply, you’re not doing it fast. It’s not like you’re a finely honed, hyper efficient supply chain for just in time manufacturing or whatever. I mean, you pay for that flexibility with efficiency and cost, and it’s not as stable. Other advantages, okay, ecosystems do get network effects. That’s pretty good. They tend to get scale advantages. You have economies of scale as one company, but if you’re six companies working together, you have a lot more scale. You have rate of learning and innovation advantages. And I’ve mentioned these all in the past as competitive advantages to think about. That’s basically a recap of last week. Let me get into today’s topic, which is Android, Alibaba, and the art of ecosystem management, according to Boston Consulting Group. Now for those of you who are subscribers, this is all going to go under Learning Goal 30, which is Ecosystems versus Platforms. And the two main ideas are Ecosystem versus Digital Platforms and the Smile Marathon Ecosystem Orchestration and Management. Now that’s the old system for how I laid out the content, which is mostly not liked very much. That’s the feedback. The new version is my strategy pyramid. So This would all go under basically the smile marathon, which is that yellow band. This is a type of operational focus you can have. And then the top of the pyramid, which is ecosystems and winner take all. So that’s where it would be placed on that pyramid. So let’s start with Android. I mean, Android is one of those stories that doesn’t really get enough attention because it’s pretty spectacular what Google did with Android. It wasn’t that long ago. I mean, it’s a totally ubiquitous term now. Everyone knows Android, but 15 years ago This thing didn’t exist and now it’s everywhere and it’s 80 plus percent of all the smartphones on the planet And by the way, everybody on the planet has a smartphone just about That’s a massive market that came, you know happened quickly and they are absolutely dominating in terms of operating systems on smartphones And I think in terms of our discussion of ecosystems, because this is absolutely an ecosystem strategy from day one, it’s a collaboration-based business model from day one. I mean, this was a fantastic use of this approach to handle a major disruption and a major period of uncertainty in technology. So we go back in time a little bit. January 2007, Steve Jobs announces the iPhone. It is the greatest moment of his arguably great career by every measure. This is the high watermark. This is the, you know, he releases a product that is arguably the most successful product in human history, depending what metrics you look at. I mean, it’s changed everything. The more you think about the smartphone, it’s unbelievable. We’re all walking around and we have every bit of human knowledge that has ever existed in our pockets at all times. We can watch videos, we can communicate with pretty much anybody on the planet for free. We can watch endless content, we can read, we can… I mean, it’s absolutely amazing. You know, there’s this argument that we have effectively become cyborgs, that we are now part human and part machine with this thing in our pockets. It’s just that the interface is very clunky. But I mean, we’re really using it for everything. So January 2007, Steve Jobs announces this. And the reaction is really interesting because Microsoft, which was the dominant player back then, and Microsoft was always sort of a B2B focused player. I mean, it used to be in the 90s, if you wanted to be a major tech company, you were B2B first. You were Microsoft, you were Oracle, you were Sun. And the whole B2C thing, it really started after the 2000s when people started to shift to consumer facing products and services and digital. And what everyone discovered is you can get a lot bigger, a lot faster. You can get to tremendous scale. And once you get there, then you can go into B2B from a position of strength, which is ultimately what the iPhone and the smartphones did. And ever since then, it’s been sort of a B2C first world. And these are very different businesses, B2C. I heard it described recently. I forgot who said it, but I thought it was outstanding. They said being successful as a B2C digital company is like catching lightning in a bottle. It’s very unpredictable. You have an app, kids dancing and lip-stinking on your app, and it takes off like wildfire. It’s crazy. But it’s very hard to predict what is gonna hit. That’s B2Cs. You gotta catch lightning in a bottle. B2B is more like being in the mining business. You kind of know where the mountains are. You kind of know where the gold and the iron is under the mountains. But to get it, you just kind of have to grind away slowly to get to it over time. I always thought that was a pretty great description of it. So they don’t take off as fast when you launch something like Slack or Dropbox. Well, Dropbox was more B2C. Let’s say box.com or Ding Talk or WeChat Work. It’s more of a slow grind. as opposed to the explosive growth of, I don’t know, TikTok or something. Anyways, this all kind of changed during that period, but Microsoft was a major player. They see the smartphone and they were in smartphones. I mean, they absolutely were in phones. I can remember having a Microsoft operating system on a phone and they kind of did nothing. You know, the phones were there. They just didn’t have anything like the capabilities of a smartphone. They weren’t platforms per se, but they kind of did nothing. You know, they had some response, but not much. Blackberry, in contrast, which was kind of the leader, which was a B2B product you signed up through your company, they kind of said it wouldn’t work or this wasn’t real, it couldn’t happen, screens are not the future, the future of smartphones is keyboards. You know, they ended up dying, they’re gone. And it was Google that really, as far as I can tell, flew into action. You know, they didn’t deny it was happening. They didn’t have a bad strategy. You know, they pivoted very quickly. They already owned Android at that point. They had bought it for, I don’t know, $50 million, something like that. You know, very small tech-based pre-product company that was some friend of Sarah Gabriel. I don’t know exactly. It wasn’t a huge deal. It was just kind of quietly. Maybe it was an operating system that was gonna be on your camera or your TV or something. Anyways, they… They started to apply that to phones at some point. They fly into action. And very quickly, they launch Android as an operating system. It happened very fast. I mean, you’re talking a year or so at most. And that was clever, okay? They understood the situation. They understood it was a platform business, the operating system. I think, I’m guessing here, so take this with a huge grain of salt. I’m guessing they understood. that if you are a search engine, it’s all about being the front door to the consumer’s attention and that the operating system on a smartphone was going to be the new front door. So you couldn’t let anyone get between you, get ahead of you in the queue and get between you and your customers. Okay. They launched the Open Handset Alliance and this is really, this is Ecosystem Strategy 101. They built the operating system, but then they got together everybody. Samsung, so those are your phone makers. HTC, which used to be a very good outsourced manufacturer of smartphones. They’re very good at that. Their own phones, they’re kind of in deep trouble these days. So all the major handset makers outside of Apple, the carriers, T-Mobile, Sprint, the chip maker, Qualcomm make most of the chips for smartphones. So I mean, they got the whole ecosystem together in this open handset alliance and said, It was literally everybody except Apple. I mean, it was like the anti-Apple alliance might be a better thing. Apple, meanwhile, had sort of gone with the integrated closed solution, which is, hey, we’re gonna do Apple, we’re gonna do the operating system, we’re gonna do the hardware, to some degree, we’re gonna do the chips, and we’re even gonna move downstream and have an exclusive relationship with AT&T. They’re the only people that can sell the iPhone. So they were kind of vertically integrated in one internally-owned product. Google did the ecosystem strategy. Other thing they did at the time, they opened up the source code. Everybody can have Android. You know, it’s free, open source, take it. Do what you want with it. You can build on it. You can take it from us, doesn’t cost anything. If you wanna buy the paid version, you need that to get the developer ecosystem. So if you wanna have the Play Store with all those apps in it, then you have to pay them. But the open source version is free. Everyone can use it and then companies like Xiaomi, they sort of created their own forked versions, so did Kindle and some others. They tried to stimulate an ecosystem around that of developers. So they have these challenges, the $10 million Android challenge, you know, start making apps. They start doing all these developer kits to let everyone start to make apps for this thing. Now that is a full ecosystem strategy versus Apple’s, you know, we’re kind of a standalone, really a product based strategy at the beginning. Now shortly after someone convinced Steve Jobs to… allow other developers to start to make apps. But at the beginning, you couldn’t even put apps in the app store of the iPhone unless Apple made them. So they weren’t even open at that level. Forget all this partnership stuff. Now eventually they switched that probably and respond to what Google was doing. And that turned out to be like an amazing idea. It’s really funny, Steve Jobs. This is a little bit of a tangent. I knew it was the last point in this and then I’ll go off of my tangent. I mean, that is a pure ecosystem strategy against pretty much a pipeline traditional strategy that was then opened up to a platform when they sort of opened up the App Store. But even then, they had nothing like the ecosystem approach that Google and Android did. Now, I actually think about this as my tangent. Like, it’s weird how Steve Jobs had the same story over and over. where he was so good at product development. He was so good at creating great things that people really love. He was really, I always wonder, how was he so good at this? He would make these great iPods and the early Macs and the Apple II Plus. I remember I had an Apple II Plus when I was a young kid. They were fantastic. He was always so good at that. But then he kept missing platform strategy over and over. He went up against Bill Gates in the 80s. with the same internal approach, and then Bill Gates was just a platform guy from the get-go. And Windows took 80, 90% of the market away, even though Apple kinda got there first with the best product. And then the same thing happens again and again, and his next computer didn’t really work that well. That one was kinda crazy. But then even with the smartphone, even with the first iPhone, he had a purely product approach, a pipeline approach, and bam, Google comes in with the ecosystem and the platform. And that forces him to do a platform strategy finally. But it’s that same story over and over. It’s like, it’s very strange that he was so good at product but he wasn’t really great at strategy. Now in the case of the iPhone, it worked out well, but it could have just been a repeat of what happened in the 80s with the Mac. It’s really interesting his resistance to that sort of open collaborative approach. Maybe it was just personality. It is sort of a different person, a mindset. Anyways, okay, so let’s step back from this. Oh, good kids, so five years later, you know, five, seven years later, you know, Android dominates the world. It’s not a beautiful experience. It’s kind of clunky. Things don’t work as well. The experience on the iPhone is better. It’s that integrated, you know, well-crafted user experience, which is what you get when you close things off and you limit it to some degree. But Android… is massive and it’s got a lot more tools. So it’s that open versus closed thing. It’s the modular strategy versus the integrated strategy. It’s the superior user experience in a vertically integrated strategy versus not as great of an experience on this sort of modular everyone can play approach. I mean, it’s that same question, but think about who didn’t make it. So Android dominated and Apple did okay. Quite well, but it’s a niche strategy, right? 50% of the market. But think who didn’t survive. Like Blackberry, RIM, they went bust. I mean, they’re gone. And Microsoft got completely pushed out of smartphones, even though they dominated tech in the PC era. They were nobler on smartphones. They don’t even make those things anymore. They completely got wiped out. So this transition, you know, from… to from PC to smartphone, the arrival of this new paradigm, this new era, this new ecosystem, major players got taken down very fast. So this kind of speaks to this idea of, I think, Peter Williamson, like when you have a period of great disruption, what’s your best approach? Your best approach is to go to an ecosystem strategy that lets you harness all the learning and innovation of everybody. and adapt to changes that are coming very quickly that you can’t possibly predict. This is strategy without planning, as he says. And also, I mean, the early smartphones of 2008, there were nothing like the smartphones five years later. They didn’t even have cameras. They didn’t have much of anything back then. These things have evolved very fast. So even if you got the first phase right, this thing kept evolving. And if you had an ecosystem strategy, per Peter, you’re very good at adapting. Adapt, adapt, agile, agile. And that seemed to be the right approach. And the companies that didn’t do the ecosystem approach got wiped out. Now, it appears there is a secondary strategy that works, which is be a genius. You needed one of two strategies with this major disruption and rapid evolution and high uncertainty in a major area of tech. you either adopt an ecosystem strategy and go for agility, learning, innovation, or you have a Steve Jobs that runs your company who is so good at predicting the future that you survive and everyone else gets it wrong. And he’s done this several times, but if you don’t have a product genius, then I think you have to go for the ecosystem strategy. And he also didn’t get it right 100%. I mean, like half of his products in the 30 years or whatever didn’t work. He got this one right, but it’s one of those two things. I actually wonder why he was so good at this stuff. It’s not obvious to me why he’s so good. Why he could sort of intuit how things were going to work out. And my working theory, which is just an idea, I’m just making this up in my head, was because he was more of an artistic personality at heart, that so much of technology, so much of… products is done by engineers and guys like me who think about, okay, what’s the price? What’s the quality? What are the five factors consumers care about? But guys like me, and especially probably engineers, they don’t think about the emotional experience. They don’t think about how it makes you feel. And that, you know, maybe these devices on the consumer side like smartphones. Maybe these are not like PCs. Maybe these are closer to movies. Where if you make a movie, a Pixar, Frozen. Iron Man, whatever’s your fancy. You know, they have creative teams. There’s a creative director and there’s a technology person. They work together. There’s someone who’s great at the tech and there’s someone who’s just very good at creative and organizes these teams that are really like artist colonies more than anything else. If you ever go hang out at a studio, which I’ve done a couple of times, I mean, there’s nothing like that in engineering firms. You know, it’s just very creative. I think maybe he was closer to that. and that’s why he was so good at making these devices enjoyable and pleasing to use. That’s just a working theory. I think ByteDance is actually quite good at this. I think they’ve got a natural intuition about how to make enjoyable experiences when you’re flipping through videos and whatever. But that’s just my theory. I don’t really know. Okay. Let me give a little credit too before I move on. There’s a podcast called Acquired, which is sort of histories of various companies. So a lot of the, about half the information I just gave you about Android was from that podcast. So I don’t wanna take credit for that. And then half is sort of my own research, but yeah. It’s a really interesting story, Android, and I think it just jumps out at me as a really great example of ecosystem strategy. You know, from day one, they didn’t build something and try and adapt. They didn’t add one platform like an Alibaba, and then a second platform and a third platform. where you’ve got four complimentary platforms and that becomes an ecosystem. No, it was ecosystem strategy from day one against a very specific disruption that emerged on the horizon. And bam, they nailed it. And they succeeded as big as you can succeed in this life in business. From nothing to 80% of every smartphone on the planet, which is everybody in a handful of years. Bam, great strategy. Okay. Let’s do another example and then I’ll talk a little bit more theory. The other example I was thinking about is the Alibaba one, which is not this type of story. It’s not ecosystem from the get-go. It was an evolution. They definitely started out as a platform business company. We build platforms. We built Taobao. Well, actually, they built Alibaba.com first. Then they built Taobao. Then they built Tmall. Then… AliPay slowly became its own platform, a payment platform. It’s one of my five platform business models I talk about. So that was three marketplace platforms and one payment platform. They did Yoku Tudou, which is an audience builder platform, that’s four. AliPay became Ant Financial, which was a, I have described that as three different platforms, a payment platform. a marketplace platform for daily services, and then a marketplace platform for digital finance products like insurance and credit tech. So that’s three platforms. And then they built Sineo, which is a little bit unclear what that is. It’s more of a capability now, but it’s probably gonna become a logistics as a service business more broadly. That’s another question. And it was multiple platforms. they all start sort of reinforcing each other. You’ve got three to four complimentary platforms and this is at the top of my pyramid. When I talk about winner take all, one of the scenarios is linked businesses and complimentary platforms. Because when you get three or four platforms together, they really do reinforce each other. You can share users, your customer acquisition cost drops dramatically, you have data sharing, very powerful. You have resources like tech capabilities. capital, that’s not insignificant. There’s a lot of benefits to complementary platforms. I call this the super predator herd. Instead of one indominus rex running around the island eating all the other animals, you’ve got three of them hunting as a pack. Okay. Alibaba sort of evolves this way and at some point they stop referring themselves as to it as a platform or an e-commerce company. They start referring to themselves as an economy, the Alibaba economy. Or people say it’s the Alibaba ecosystem. And I’ve, again, I don’t like that term. But in Peter’s book, Ecosystem Edge, he knows Ming Zeng, who was the chief strategy officer for Alibaba, very cool guy, you should keep him on your radar. And there are some quotes in here about, you know, 10 plus years ago, when Alibaba really stopped thinking like a platform and started. just sort of adopting ecosystem strategy across the board. And I thought he had some great quotes about this. Like he said, this is a quote from Ming. We realized, quote, we realized our abilities were so limited compared to the potential of the market as well as the task facing us. They basically learned to stop being a middleman or stop being a bottleneck. And this is not the quote. And to sort of surrender control to your partners far more than you were doing before. It’s like, okay, we’ve got three platforms and we’re really controlling them pretty tightly. This one’s doing transactions. At a certain point, you just sort of step back and you let all the partners in your platforms start to work with each other beyond your control. And the number of interactions you have, the collaborations. explodes exponentially. It’s no longer, look, I’m helping sellers connect with buyers and that’s it. And then I’m helping viewers connect and watch content creators and that’s it. At a certain point, you just let everybody connect with everybody. That’s kind of the difference in my mind between a platform business model and an ecosystem play because the number of connections goes up dramatically, the number of collaborations, experimentation, all of that. And so… He talks about how they learned to sort of stop being the middleman and to surrender control that they were used to having to their partners. And they said, look, you want new people to enter. You want your business to go in different directions that you didn’t necessarily plan. And your goal is sort of to provide building blocks and tools to everybody else and then they just do what they do. And you watch it of course, and if there’s some bad behavior you may have to step in as a type of governance. It’s almost like you’re a private government, like running a small city. But you don’t, you know, you get out of that business. And now what Alibaba does quite well, which I respect, is within all of this they never compete with their partners. So they’ve really thought about their roles and responsibilities within all of this. not just what we’re gonna let people do, but what things we’re not gonna do because yes, we could make money doing that if we decided to sell the same product as this person, but we’re not gonna compete with our users and our partners, and we’re gonna draw that line. Now, Amazon doesn’t do that. They compete with the merchants on their platform as they see fit. So it’s really kind of an interesting transition in Alibaba. I haven’t really thought about it that much before this. But yeah, they’ve definitely changed their strategy more broadly from sort of complimentary platforms to a broader ecosystem strategy. And you let lots of users explore new ideas, exploit new opportunities, find new directions, let the sellers work with the other sellers, let the consumers work with the other consumers, let them all work with specialized service providers outside. You just want all the interactions and collaborations to grow, and then you just take a small piece of an ever expanding volume of interactions. You know, that’s Peter’s language. I thought that was great. And as this happens, you get to sit at the center and you get to gather all the knowledge, not just the data, knowledge, business insight. You are continually learning because this ecosystem is continually changing. It’s adapting, things are growing. you can see problems, you can, there’s really two advantages to this. If you’re the ecosystem orchestrator, if you’re at the center, number one, you are continuously learning about behavior and what people are doing, and this is continually changing. Also, any ideas you have, you can continually test things in real time because you orchestrate the ecosystem. You can put merchants doing things on there. You can offer bonuses, you can throw up products. And you can see what people do. So it’s almost like you become an experimentation platform where you’re constantly running tests all the time to see what works and what doesn’t. So it’s like you’re this massive laboratory. And these companies like Facebook does this and Google does this. I mean, I don’t know how many tests they run. It’s like 30,000 every month or something like that. They’re continually testing and learning and gathering knowledge. And that’s really kind of a fascinating thing. But even within this, the value created in the ecosystem is dramatically more than the value captured by Alibaba. And similarly, the knowledge of the ecosystem is dramatically more than what Alibaba itself actually knows. Which for those of you, someone told me I did a talk on Frederick Hayek, one of these podcasts, and this idea of local knowledge. And that the reasons marketplaces are so effective versus centralized control is that most knowledge is local. And it exists between entities and businesses and people in real time. The information is the interactions themselves that are always changing. That’s local knowledge. It’s very hard to know all this. The Alibaba ecosystem has tremendous local knowledge that exists between parties. So it’s really interesting to think about that. Well, I think it’s interesting. So that’s example number two, Alibaba’s ecosystem strategy. It’s fascinating. Let’s do a little bit of theory. Now, Boston Consulting Group had a paper which was called The Art of Ecosystem Management. I’m sorry, The Emerging Art of Ecosystem Management. Very good thinking. And I think they are struggling, just like Peter and just like Michael, and like me a little bit, on the IE. of an ecosystem and strategy and how you compete and what it is and what it isn’t. And these are sort of the first past thinking of this. I think it’ll look much different in five years. I think people will slowly put it together. So this is sort of the first slice of these questions. And they’re important questions. But they do some good work on this. So I thought their paper was very good. I don’t agree with half of it. I think about half of it I’m on board, the other half I’m like, I like my frameworks better. But I’ll tell you what they say and you can decide for yourself. Okay. Now if I’ve argued that ecosystems is not the right word, even though I keep using it over and over, that it’s really about collaboration based business models. That’s really what we’re doing. If platform businesses are kind of mostly about interactions and transactions, although some of them are based on collaboration like… I know Ding Talk and these Slack and Dropbox. But these are much broader systems for collaboration. So I kind of sort of call it the new business models and industries based on collaboration. Why is this so important as an idea? Well, because the whole world’s getting connected. The whole world’s getting smart and connected. And everything is interacting with everything else in a way that it never used to. And that just means ecosystem questions are just. coming up more and more than they used to. Like, one, I mean, it used to be you buy an iron or something, it was just a product. Had some steel, you know, they might have some suppliers, they might buy the thing and put it together and sell it to you. But, you know, the iron wasn’t digital, it wasn’t smart, it didn’t have electronics in it, it didn’t have semiconductors in it, it didn’t have AI in it that could tell if it was too hot. it didn’t connect to your refrigerator and then to your smartphone. I mean, it’s getting all this tech in it and software and then it’s connecting to other things. And so, you know, your typical iron maker, they don’t know how to do AI and semiconductors and integrate in with your smart home. So naturally iron manufacturers, I’m talking to like home irons for iron in your clothes. I mean, they had to start to collaborate with. people who make software and people who make smart home stuff and people who make mobile apps. I mean it’s just kind of as things are getting more connected and more sophisticated with greater capabilities, things are just getting more complicated and most companies can’t do everything themselves. Things are getting more customized, more personalized. The technology keeps changing. So even if you do do something like, oh, we made our own iron in-house and we did our own. software. Well, it’s changing so fast. You can’t keep up with that. The software keeps advancing. So there’s the changing technology. There’s tons of ongoing innovation, which is pretty much beyond the scope of most any single company anymore. And what consumers are getting or customers are getting, which is awesome, is we’re getting more and more robust and complicated solutions to our problems in life. You know, our phones can do everything. our irons can do everything, we can control things, our cars can do everything. You know, they’re just much more robust solutions that are built not from one company, but multiple companies collaborating. That’s how you get these fantastic solutions. So, okay, this is just kind of the wave of the future is interactions and collaboration and all of that. I mean, think about like, you know, the Android example, the smartphone. How many companies had to collaborate for you to have that smartphone in your pocket or your purse? I mean, it’s thousands of companies. There’s the IP people, there’s the chip design, there’s the foundry, there’s the movable parts within the phone, there’s the camera, there’s, you know, the screen, there’s the glass on the screen that you can touch, there’s the software, I mean, it’s crazy how many people had to work together at a very technical level. to make that device. And then you look at smart cars and autonomous vehicles and it’s like, you know, if the iPhone smartphones are kind of the beginning of this era, I mean, isn’t everything gonna become smart and overwhelmingly impressive going forward one day? I mean, this is just the beginning. So that kind of makes sense. And, you know, that’s a change for a lot of people, including myself, because a lot of incumbent companies and people like me, We’re used to kind of going it alone. Like, you know, this is my company, this is my project, I’ll work on it. And the questions you face running that type of company is, well, should I build it in-house or buy it and bring it in? Well, what really should be thinking about is, okay, who do I need to connect with and collaborate with? I mean, that should almost be question number one. This idea of, you know, a standalone company, I mean, we all need to start thinking connections and network first. And then, you know. in-house capabilities second, not the other way around. Ecosystems also sort of tend to emerge over time. You start to link businesses, you start to have platforms that are complimentary, you put in place contracts and partnerships, and the API start changing data. Now, so this is if you’re, how do you build one of these? Should you build one of these, or should you just be focused on how should I join a network that exists? What can I bring to the table for this existing collaboration network and ecosystem? Maybe that’s how you start a company. Now what BCG says, they had some good language. This is their exact language. You need radical connectivity. I like that word radical. Radical connectivity, that’s a good phrase. You need radical connectivity, an open mind and a wide range of players. That’s a nice description. And they basically in their paper, they asked three questions and then they answered them. Which I’ll just summarize for you. Now question number one, how are the new ecosystems and collaboration business models different than previous types of collaboration? That’s not their exact language, the collaboration thing is mine. But how is this type of collaboration different than previous? Because there’s always been collaboration, this is just newer and bigger. That’s a question. Question two, what types of these ecosystems are available and which are suited for incumbents? Because most of us are gonna be incumbents. or we’re gonna be trying to put our content or merchants or whatever on someone else’s platform. Most of us are not gonna be ecosystem orchestrators, unfortunately, because it’s probably super fun. And question number three, how can you gain a strategic advantage by the use of ecosystems? Okay, those are pretty good CEO type questions. You can tell who they’re speaking to because they sell management consulting services. Not bad. I thought the answers to one, number one and number two are quite good. Well, number one was really good. So the first one was how are new ecosystems and collaboration business models different than previous types of collaboration? And they have a chart here, which is the one I showed you in podcast 56, which shows how the auto industry used to collaborate versus today. And it’s in the show notes, you can click on it, but I’ll describe it to you. Cause I think we all enjoy when I verbally describe pictures, this is such a bad thing to do. I don’t know why I keep doing this. Anyways, it’s about basically how the collaboration model of the auto industry has changed. And the way they describe it in the past, because people have been making cars for, what, 80 years, 90 years, they called it bilateral intra-industry partnerships. And basically OEMs, car maker, has a contractual relationship with suppliers. You buy your engine, you buy your tires, you buy your chassis, whatever, and there’s some degree of design partnership and working. but there’s a limited number of suppliers that you deal with. There are several, I mean there’s a lot of them, but it’s not thousands. And then you also have joint ventures between OEMs. So car makers may have joint ventures on certain aspects. But generally the number of partners you have might be two, three, five, 10, 15, something like that. The number of industries you’re dealing with, just one. The number of deal types you’re dealing with, maybe one or two. Countries, one or two. So it’s collaboration, but it’s fairly small and focused, and they call it bilateral intra-industry partnerships. Now, on the right of this chart, they have a multilateral cross-industry partnerships, which is what carmakers look like today. They deal with app platforms, hardware technology companies, services, IOT and cloud platform businesses, software and operating systems, insurance companies, telecommunications companies. I mean, they have over 30 partners. And they’re not just in one industry, they’re in multiple industries, four, five, six different industries always working together, lots of deal types, lots of countries. And as I’ve said kind of many times, as you increase the number of partners or nodes in a network, the number of connections go up more or less exponentially, not exactly, but close. So you’re just getting lots of interactions between all of those partners all the time. So their argument was these new ecosystems, or what I call these new collaboration business models, are different than other forms of collaboration in the past because there’s a lot more connections, a lot more types of players. It has cross-industry focus. If you’re gonna make a smart vacuum cleaner, you just don’t buy your supplies like in the past, the people who make the bag, or the people who do the iron, or whatever they’re made of. When you’re dealing with software, you’re dealing with sensor companies, you’re dealing with AI companies. The Nespresso company I mentioned before, they have a couple machine makers they work with. You’re working across industry as opposed to within one industry. You’re doing a lot more partners. You’re probably dealing with more geographies. In their study, they looked at 30 plus ecosystems and they said 90% of the ecosystems we looked at had people or partners in more than five countries. Ant Financial is a great example of this. Like Ant Financial, you know, they’re building platforms with their kind of heading ecosystem-ish. Now they were doing cross-border platforms everywhere. They have deals everywhere, Myanmar, Thailand, Australia, Japan. I mean, they’re putting in deals everywhere of various types to try and connect all of this. Another factor they said, shorter and more flexible deal structures. You have contracts, you might have minority investments, platform interfaces, APIs. But if the whole goal, one of the goals of an ecosystem is high agility, high adaptability, then you want shorter and more flexible deal structures. Not like we’ve got a 10 year partnership. So I know these things are gonna have to change quickly so that the thing can keep adapting. And the last one which I like, they called mutual continuous value creation. You have to create value for everybody. People don’t like to stay in an ecosystem when one party’s taking all the value. You know, it’s the collective good versus self-interest question. You have to make sure everyone else does well, continually for them to stay in there and keep investing in the partnerships and relationships. So that could be something like revenue sharing. We all go up together. Profit sharing, although people play a lot of games with profits and bottom line. And if you ever sign a book deal, which I did once, you’re going to get part of the profits. Oh, and big surprise. The whole thing never makes any profits because they take out their entire cost structure and it always takes it to zero. There’s a lot of that games. I think Hollywood is famous for that. And you can look at companies like, you know, Nokia tried to launch an operating system, Symbian, in competition with Android. And you know, they just didn’t give their partners enough benefit and people just didn’t play. You know, it’s too much self-interest by the party in charge. So you gotta think about continuous mutual value creation. And they have a good chart for this, which I’m gonna put in the notes. Exhibit two, the changing characteristics of collaboration. And they basically have the factors I’ve just mentioned. It’s a pretty good chart. I think this is some solid thinking. And yeah, I don’t think anyone’s figured this out entirely, or even mostly, but this is definitely some solid steps in that direction. Okay, what I think about when I think about this stuff, I like Peter Williamson’s language. He says, you need to think about bringing more capabilities and competencies into whatever business you’re doing. You need to dramatically expand capabilities and competencies. And based on that, you can get smart integrated solutions that let you achieve innovation leadership and speed to market with your innovations. So you can innovate faster. larger than anyone get to market faster which matters in this stuff and you basically go for adaptability instead of tightly managed rigid supply chains an example of this DD DD Chuxing. 2018 ish they launched DD Auto Alliance. I remember when they did this they said we’re gonna have the DD Auto Alliance they’ve since renamed it the Xiaoju automotive solutions or something but you know and they brought together 30 plus companies to work on autonomous vehicles, smart vehicles, electric vehicles, ride sharing, integrated mobility, all of these questions, they brought together automakers, BYD, FAW, Toyota, Volkswagen, Renault, Mitsubishi. They brought together trading companies, leasing companies, fleet operators, energy supply companies, maintenance, finding, I mean, they brought together just a huge number of players. And that’s easy to do when you are effectively the monopoly in China ride sharing, because you’re the only and probably the biggest game in town. So and that’s not just China. That’s kind of everywhere. I mean, they dwarf Uber in terms of volume. So they put together the who’s who in the auto sector and beyond and other related industries. And they created this auto alliance to basically do an ecosystem strategy and to investigate, learn, innovate, adapt. And that’s what they’re kind of working on. I haven’t seen much from it, but I’m keeping an eye on it. Anyways, that’s question number one. What’s the difference between this sort of new collaboration business based business models and old types of collaboration? I thought that was a really solid answer. Question two, which is the only, I’m not gonna go through the third one. Question two, what types of ecosystems are available and which are suited for incumbents? I like that question, which ecosystems are suited for incumbents. I think that’s a common question people are dealing with. They basically laid out three, I don’t really agree with this, but I’ll tell you what they said. I think these are simplifications. I think my framework’s better to tell you the truth. But they use three phrases. They say digitizer networks, platforms, and super platforms. Okay. We’ve talked about that, that’s fine. The digitizer networks, this is basically a very simple type of collaboration where you take an existing product that’s out in the market, the vacuum cleaner I just talked about, and you make it smart and connected. So it’s a very simple, small collaboration business model built on an existing product with presence in the market. So if you’re a regular company, this is an easy first step. It doesn’t take a lot of work. You don’t have to work with 30 or 50 companies. You’re dealing with a handful. You’re mostly gonna partner with some other company in order to get IT and technology. That’s gonna get you up to speed. There’s not a lot of managerial complexity in managing the ecosystem, which these companies probably don’t have. So you’re still mostly a product company. With 20%, you’re a bit of an ecosystem player. And the partners, you might have 20, 30 partners, but very simple. So they call that the digitizer network, which I don’t really like that term, but I think that’s not a bad, simple base case. Okay, then they say the other type is platform. smart homes, marketplace models, I’ve talked a lot about those. And then they call super platform, which I. I think that’s some combination. Yeah, I don’t like that one. I like linked businesses. I like complimentary platforms because I can map them out. And I like my collaboration based is business model better. So anyways, going to skip over that because it’s my podcast. I’m getting punchy and I’m getting a little arrogant as I go along here. Okay, that’s basically it. And then they say, they give an example, Alexa, which is obviously Amazon, is all three. It’s a digitizer for hardware because you can sort of put this smart AI assistant in anything, your speaker, your fan, whatever. So that’s digitizer network for hardware. Fine. Then there’s the platform because you can add developers. So you can basically build what I would call an innovation platform or an audience builder platform. You bring all the developers, they start to write. And then it’s also a super platform because you can connect to YouTube and e-commerce. It’s fine. Okay. I think that’s enough theory for today. The good stuff that I like out of this, and I’ll put the link to this article, I think it’s worth a read. I think they tee up some very good questions about why this is happening, why it’s gonna keep happening. I think they give a good answer to one of those questions of why is this new type of collaboration different from what we’ve seen before? I think that’s pretty good. And the Digitizer Network, I think that’s a pretty solid, use, you know, solid sub case, let’s say. The question I really wanna know the answer to, which I don’t know yet, is how can you be a powerful complementer? If you are a content creator on YouTube or LinkedIn or whatever, how can you be a powerful content creator on a platform you don’t control? And it could be the same, you’re a merchant on Matwan, you’re a merchant on Lazada, how can you be a powerful player within that type of thing, what’s the strategies there? And then at the higher level, how can you be a powerful partner within an ecosystem? So that’s kinda taking it from chess to 3D chess. I think that’s a pretty cool question. I don’t have an answer to it yet. But that’s kind of the question I’m struggling with. Well, I’m not struggling with, I’m thinking about a lot because I think it’s valuable to a lot of people. Okay, that is it for today in terms of content. And that’s a little bit on Android. Cool story, I think. Halibaba, always worth thinking about. And then some thinking about the emerging art of ecosystem management. I’ve called it ecosystem orchestration and management. That’s just terminology. And this all goes under learning goal 30, ecosystems versus platforms. The two learning goals are the smile marathon for ecosystem orchestration and management, and ecosystems versus digital platforms. Or you can just look at my strategy pyramid, and it’s right there. You can find the bullet points. And if you’re not a subscriber, please go over to jeffthousen.com and sign up. There’s a 30-day free trial. So. Try it out, see what you think, join the class. I think we’re having a lot of fun. We did have a good meeting here in Bangkok yesterday where we had several hour discussion about JD, which is great. I’m basically working with a great group here in Bangkok, I sort of had the privilege to get to know a bit. And when we’re doing meetings on weekends every couple weeks, taking apart companies and using a lot of the frameworks, I always get really, I always like when people start using my terminology. And I think it’s been great. And, you know, I’m also sort of prototyping and seeing what might work and what could we take out to everybody, either through live streaming, maybe hosting events in other cities, maybe, you know, doing this everywhere. I don’t know. It’s just a little bit of experimentation, but we did do a session. It was, I thought it was great. What I really like about it is, is the, um, attendees they present. So one team takes apart the company. They put together a presentation. They did a great job, really took it apart. You learn so much more by doing that than listening to me. I mean, it’s just dramatically more. And then other groups have to sort of answer key questions. So everyone’s kind of, we’re trying to get everyone to have an active role. And then I mostly sit there and drink coffee and maybe chime in a little bit, but it’s, yeah, it gives me a lot of satisfaction to see people sort of, you know, talking about this and getting better at it and sort of moving their thinking up. You know, that’s the point of being a professor. is having your, I wouldn’t say students, I don’t consider anyone listening to this a student, but let’s say colleague. You know, when you see your colleague surpass you, that there’s a lot of satisfaction in that. And yeah, definitely people are, because people get good at stuff. This is all new emerging thinking, so you can become an expert in this stuff very quickly, because it changes so fast. People who were experts 10 years ago, they don’t. they don’t understand the current stuff. So there’s a lot of room to sort of, you know, great at this. And I enjoy seeing people sort of move past my thinking on this stuff. Anyways, when we saw some of that yesterday, it was great. So thank you for those of you who came out, I really enjoyed that. As for me, I’m back from Phuket. I was down there seeing if there was a bargain to be had in condos with nice views. And I basically decided that was a bad idea. Looked around, it was a lot of fun. Zoomed around on a scooter. Saw a ton of apartments. I really like it. It’s obviously it’s Phuket, so it’s beautiful. And I decided the real estate market made me too nervous. Too many people who sell only to foreigners who fly in and out. I like sort of domestic real estate. I like when there’s a local market I can understand on the demand side and then the supply side. When it’s, you know, when half the ads seem to be in Russian or Chinese or Japanese, I think, okay, this is a funky market and I don’t. I don’t really feel like I understand it. So anyways, I kind of put that idea on the back burner, but it was fun. And then I came back here to Bangkok and was teaching some students at China Europe International Business School over the weekend. I teach a digital strategy course there with Jonathan, who is my old friend, colleague, co-professor, co-author from McKinsey. So that’s great. Having a lot of fun for any of you. from Shanghai who are listening in. Thanks for a fun class on Friday, Saturday. Really enjoyed that. And I’ll be listening in this weekend while Jonathan’s teaching. So I’ll be sitting up in the Zoom call somewhere. Anyways, I guess that’s it for me. And thank you so much for listening. I appreciate it. I hope everyone’s doing well. And I will talk to you next week.