Ecosystems Creating New Business Models for Procurement
The fourth season of “Narcos” is on its way, and I can’t wait. It’s a compelling drama with terrific acting, and I highly recommend it. Between seasons, I’ve also gotten hooked on “El Chapo.” But I only learned of the latter series because Netflix, employing remarkably sophisticated algorithms, predicted I’d like it. Aware of the shows I’ve watched previously, as well as those I’ve flipped past, Netflix gains uncanny insight into my personal tastes. The more it learns about me as a customer, the more I explore. The longer I binge. The closer I get to requiring an intervention!
By fostering an environment where content creators and consumers can discover each other, Netflix has given rise to an ecosystem so complete that millions of viewers have opted to cut the cord with traditional cable. The cord-cutting phenomenon disrupts other businesses too. For example, when was the last time the average iTunes user purchased an audiocassette? Or that a digital camera owner bought film? Or that nearly anyone with access to a browser booked a vacation through a travel agency?
Many innovative businesses, particularly those powered by cloud technologies, aspire to create ecosystems conducive to commerce or collaboration among their stakeholders. But the degree to which a business succeeds in extending competitive advantage, for itself and for its trading partners, depends on the completeness of the ecosystem it builds. To what extent does an ecosystem provide for the full range of its participants’ needs, such that few if any vital resources lie beyond its confines? In other words, can participants cut the cord with incumbents rendered superfluous by the completeness of the ecosystem poised to replace them?
Consider the ecosystem emerging in the digital procurement space. When buyers and suppliers engage cloud-based networks to match supply with demand, they benefit not only from real-time visibility into each other’s interconnected operations across borders both geographic and organizational, but also from the opportunity to automate the entire procurement process through a single software platform. Replacing the previously manual tasks associated with sourcing, contracting, invoicing and payments, digital networks present a holistic, end-to-end picture spanning them all, marshaling vast troves of underlying operational data to reap efficiencies and fuel growth.
The totality of the procurement process brought under a unified cloud-based platform is very attractive to buyers and suppliers for reasons not unlike those drawing audiophiles to iTunes, bibliophiles to Kindle or cinephiles to Netflix. Yet the parallel runs deeper than ease of commerce between platform and customer. These ecosystems also succeed because they welcome — and indeed rely on — third parties to enhance the customer experience. Just ask the many successful podcasters whose medium iTunes has popularized. Or the authors who publish exclusively (and, increasingly, lucratively) to Kindle. Or the filmmakers, televised content creators and stand-up comics who have found a comfortable home on Netflix.
The same holds true for the growing community of software developers whose applications reside on procurement networks and create value for buyers and suppliers. For example, an application might help to navigate the intricacies of cross-border taxation or to streamline attendant compliance. Through application programming interfaces (APIs), developers gain a portal into an existing digital platform through which to market ancillary services. With the proliferation of API-enabled applications and add-ons, digital networks transform into ecosystems where participants thrive in pursuit of mutual value. Through open-sources architectures, nearly anyone — whether a legacy software behemoth or a coding whiz in a dorm room — can participate in such an ecosystem. Just imagine if the real-life narcotraffickers depicted in the Netflix crime dramas to which I’m addled had directed their considerable gifts at building commercial networks toward lawful purposes…
