Why ecosystems rock and how that matters for IT strategy
by Koen Verduijn.
Driven by emerging technologies and a new customer-centric approach, the insurance landscape is changing. In this series, Koble experts look at the state of digital insurance today and beyond. In part three, Director of API Integrations Koen Verduijn examines how ecosystems impact the IT strategy of insurers and distributors, and whether it makes sense to buy the technology or build it in-house.
Ecosystems are trending, a buzzword that — given their current rate of growth — electrifies boardrooms. While there are several types of ecosystem, the one we want to talk about here is the platform-based app store model deployed by the likes of Shopify, Atlassian, Hubspot, and Salesforce. What characterizes these ecosystems is technological inclusiveness: they enable a whole community outside of the platform provider to build integrations on top of the platform. In a nutshell, it is software built on software.
By now, three out of four big SaaS players have established their own app stores. There are many reasons for this rise in popularity, depending on whose perspective you take. But the real beauty of ecosystems is that their network effects and synergies can benefit everyone, especially companies like insurers whose core business has nothing to do with software. They get access to countless solutions that spur digitalization, innovation, and the integration of other applications.
And for insurance, the time is now. The demand for solutions that can address changing business needs and customer expectations while being compatible with heavy-footed legacy systems is growing fast. The pressure to innovate is mounting.
At the same time, more and more solutions are flooding the market, putting IT strategy firmly in the spotlight. Should you buy into one large ecosystem like Guidewire, Duck Creek, and Co., or go for multiple small applications with ecosystems of their own and tie everything together yourself? Either way, it’s worth taking a look at the advantages other industries have gained from ecosystems.
Mix and match integrations
When a company purchases Salesforce’s CRM platform, they don’t just get a vast ecosystem of applications. They also get the keys to a global network of service providers and Salesforce’s trained and qualified staff.
In the Salesforce AppExchange catalog, customers can expand their CRM with simple extensions like LinkedIn plug-ins and e-signature tools, and highly specialized vertical providers for financial services and other industries. AppExchange has some 5,000 apps to choose from. The ecosystem around it is flexible enough to reach across verticals and scales with each individual business.
Atlassian is another example of an increasingly versatile platform. Its growing ecosystem accumulates ever more functionalities and integrations. Just like Salesforce, Atlassian has developed its ecosystem with interoperability in mind using a unified standard. This guarantees that everyone speaks the same language. Every plug and play app seamlessly integrates with all other apps, be it a solution for the modeling of P&C insurance products or the automation of the applications process. As a result, ecosystems can drastically reduce time to market for a product or service — a major advantage in times of accelerated change.
The ecosystems community
The success of ecosystems has led to a hype that is around for a while now. But what makes an ecosystem truly great is its community of supporters and participants that provide business solutions, great UI, and technical improvements. Given a certain level of adoption, the ecosystem attracts an ever-growing number of skilled talent that keeps adding value by building more and better integrations.
Much of Stripe’s success, for example, comes down to a vigorous developer-first approach, some even call it a developer cult. The payment solution provider has built an outstanding developer experience and API documentation. As a result, their reputation amongst developers is off the charts. They have become promoters of the brand; fanboys that push adoption where they can.
This kind of talent is an extremely scarce resource, particularly for companies outside the tech space. Yet by joining an ecosystem, insurers and distributors can seamlessly tap into the valuable output of an army of experienced developers. Not least, being part of a popular ecosystem makes it easier for an insurance company to hire excellent talent to bolster its own IT team.
APIs drive innovation
The interoperability of modern ecosystems is achieved by the use of openly documented APIs. Application programming interfaces and microservices are en vogue, no doubt. But for good reason. They are the building blocks of a modular architecture that allows for rapid IT changes. Using API platforms with a large ecosystem around them boosts the speed and flexibility of each building block.
APIs enable the ecosystem to connect with any number of services and companies. Since the bulk of complicated programming was done when the platform was set up, it often only takes weeks — and not months or years — to build a bespoke solution that fits the ecosystem and the business like a glove.
Unsurprisingly, APIs are seen as a major driver of digitalization, innovation, and ultimately growth. Studies have shown that companies adopting APIs saw increases in sales, net income, and market capitalization. Fiscal results improve as the amount of data passing through the API increases. With its myriad of specialized third-party providers, ecosystems let you tap into this innovative potential and use it to your ends.
All this comes with a handy app-store interface that most users are familiar with. With ever more solutions on the market, the convenience factor shouldn’t be underestimated. That is why many SaaS users settle with a bunch of main software (e.g. AWS, Azure, and Google suite) that they use as hubs to consume other apps.
Buy vs build
More often than not, the decision to build or buy digital technology is a tough one. Buying into an ecosystem solves a lot of problems at once. You get access to fantastic app stores, a dedicated community, and modern software architecture. However, this is not to say that it’s impossible for companies other than Slack or Atlassian to excel in project management and communication integration.
Some businesses have fared well with a greenfield approach. But it’s far more difficult and costly to develop and nurture an equally strong ecosystem with a thriving community and elegant integrations if software isn’t your core business.
With this series of articles, we aimed to shed light on little-discussed aspects of IT strategy that have serious impacts on insurers and distributors, including the growing need for speed and the war over tech talent. Ecosystems complete our series, but just like speed and talent, this topic will continue to play an important role in the insurance business.
