The Six D’s of Internet EcosystemsPosted: July 27, 2009
Like all living things, companies thrive and prosper when they’re part of a diverse ecosystem that provides the right infrastructure for sustained growth and development.
Internet and software ecosystems are interesting because they are usually formed around the initial success of a single company that emerges from a highly competitive environment. If this company can nurture and grow this initial ecosystem, they enjoy a significant competitive advantage that eventually leads to market domination.
For example, Microsoft became a monopoly due to their success with the Windows software ecosystem. Google is effectively a monopoly with their AdWords/AdSense SEO ecosystem enabled by their successful search engine algorithms. We’re now starting to see companies like Facebook and Twitter parlay their initial success into the development of ecosystems around social applications.
Therefore, it’s important for companies to pay attention to developing ecosystems instead of just focusing on improving their own products and services. When it comes to Internet ecosystems, there are Six D’s that have a big impact on the development and success of the ecosystem:
You cannot have an Internet ecosystem unless you have developers. It’s obvious, but many companies never prioritize the importance of developers. Internal groups that advocate on behalf of 3rd party developers usually have limited influence and cross-functional visibility over divisions. To ensure a thriving ecosystem, companies must ensure that critical internal organizations have an important role and stake in the growth of the developer community.
Once you have developers, you need development platforms and tools that are aligned with the needs of the developer community. This means opening up the right set of APIs, providing development environments and tools that enable high developer productivity, and an online community for sharing best practices. This also requires Internet companies to balance their need to protect their core intellectual assets and user base against the need to open up their platform to 3rd party developers.
With Internet services, many developers face challenges in building out a solid deployment infrastructure that can be scaled, secured, and evolved over time. Since many developers face similar challenges and issues, this provides a perfect opportunity for Internet companies to take a leadership position in facilitating or even developing deployment and scaling infrastructure solutions that are tailored to the needs of the ecosystem.
Dependability is critical for an Internet ecosystem because it is the trust that binds the ecosystem together. Companies that anchor an ecosystem need to provide clear community leadership with guidelines for acceptable behavior and engagement models for all parties involved, including themselves. They also need to provide a dependable platform that will perform and scale with the growth of the ecosystem.
An ecosystem with a thriving distribution channel that ensures discovery of great applications by end users is the critical growth engine behind an ecosystem. Internet companies must take a proactive leadership position in creating and investing in a distribution channel for 3rd party developers. This is a critical area where even a small investment can pay huge dividends for everyone in the ecosystem.
Ultimately, the success of an ecosystem will depend on the ability to deliver real value to end users and meaningful revenues for developers in the ecosystem. Many Internet companies take a sink of swim approach to revenue for others in the ecosystem and solely focus on growing their own revenues. Instead, they need to focus on creating a synergistic revenue stream that focuses on growing revenues for the entire ecosystem.
Given these Six D’s, it’s interesting to use this model to examine how some of the leading Internet companies are building the next great ecosystem:
Out of all the companies, Facebook stands out because of their innovation in development tools and distribution channels. The Facebook platform provide an easy entry point yet it has enough power and flexibility to enable developers to take full advantage of the viral distribution channels enabled by a social graph. Also, the Facebook ecosystem is starting to generate meaningful revenue for top developers without much support from Facebook. With investments in revenue generation infrastructure and further innovation in distribution channels for 3rd parties, Facebook is well positioned to create the next great Internet ecosystem.
Twitter has the beginnings of a great ecosystem. Despite the simplicity, or maybe because of the minimalism of Twitter, there is a lot of excitement and creative ideas on expanding the platform from 3rd party developers. Twitter has great potential but they are being held back by the lack of a clear strategy that addresses Distribution and Dollars. To ensure the long term success of Twitter as an ecosystem, they must develop a viable distribution channel and foster the development of revenue streams for themselves and for 3rd party developers.
Google shows great promise because it has products and services that cover all the Six D’s. The only thing missing is a top down strategy that ties all these elements together. Also, given their highly monetizable search and advertising ecosystem, their innovator’s dilemma does present challenges in expanding into new areas. Despite these challenges, Google financial resources and engineering prowess means that they have great potential to evolve their current ecosystem into an even more dominant Internet ecosystem.
Microsoft is the most hampered by the innovator’s dilemma because they have the most to lose with the transition from software products to Internet services. They have had some success in building out their Internet ecosystem with developers and development tools but they lack a strong Internet presence that can form the basis of an Internet ecosystem. To catch up with others, Microsoft will need to take an M&A approach to building out an Internet ecosystem.
Yahoo is a great example of a company that is paying the price for not leveraging their initial success and building out a robust ecosystem. Yahoo focused on becoming a destination site and never made a serious investment in any of the Six D’s. To their credit, Yahoo still has a tremendous online presence and they will make an attractive acquisition target for others looking to build out an Internet ecosystem.
These are just some of the companies that have the potential to build the next great ecosystem, but there will be others. We’re still in the early stages and it will be exciting to watch these companies deal with changing market conditions and new startups that challenge the status quo.
Personally, I think we’re at a very interesting point in the evolution of the Internet. Companies like Google and Amazon are currently leading the way in monetizing the Internet revolution enabled by companies like Netscape. These companies all succeeded via business model innovation enabled by product and technology innovation.
With the emergence and initial success of Facebook and Twitter, we’re seeing the next wave of innovation. The next wave will be based on innovations around social and business interactions enabled by the mapping of personal and professional relationships in a Social Web. The winners in this wave will not be determined by product and technology innovation per se, but by the creation of rich and diverse ecosystems around the Social Web.