Building Ecosystems is a Heavy Lift
With digital transformation disrupting many industries, companies are increasingly looking to build innovation ecosystems. Ecosystems can foster collaboration resulting in:
- leverage for product and service platforms,
- enhanced customer experiences, and
- strategic and technological insights
Industries such as retail, manufacturing, health care and technology are reliant on a network of customers, partners, suppliers and other stakeholders to build and maintain platforms. Successful innovation within complex, established markets requires a dedicated effort, and an ecosystem approach can be key. Ecosystem development requires that internal and external stakeholders work together towards a common goal of creating value for customers.
Building an ecosystem of companies to leverage a platform typically requires dedicated organizational resources and clear strategic objectives. The introduction of a corporate venture capital (CVC) program can provide a vehicle to conduct market development activities to generate commercial relationships and strategic investment opportunities necessary for successful ecosystem development “on top of” existing platforms. CVC funds may be uniquely positioned to work collaboratively with internal business unit or product leads to understand strategic priorities, while making connections externally to start-ups, investors, analysts and other market influencers. One of the primary benefits of a CVC fund is to examine key market trends and emerging technologies that are impacting the corporate businesses and platforms. Identifying and engaging start-ups in ecosystem building activities can deliver learnings and commercial relationships for the organization.
A good starting point might be to define the strategic objectives of a company’s product or service platform and examine how to extend these capabilities to address a broad set of customer use cases, to truly achieve digital transformation. A critical step in this process is to develop a platform roadmap that includes key features and functionality to deliver value to customers, partners and other key stakeholders. Through the identification of product feature or resource gaps in the platform, companies will be in a better position to determine the internal development and external innovation required to deliver transformational value.
As a next step, ecosystem stakeholders including startup partners, developers and customers, can design, build and deploy value-added products or services on top of strategic platforms to drive systemic extensibility. To build and develop such ecosystems, companies must carefully consider the engagement model and incentive structures needed to foster collaboration. Examples of proven engagement models might be commercial partnerships, such as reseller, co-sell, co-marketing, licensing, customer contracts and other similar structures. Incentives play an important role in motivating external innovators to build on top of strategic platforms. Examples of such systems might include companies providing software developers with data or application connectors to leverage specific capabilities of these platforms into new use cases while providing valuable insights and learning.
Successful ecosystem development also requires dedicated resources to identify, engage and connect external innovators back into the mainstream organization. Establishing a CVC program provides a formal vehicle to pursue these commercial activities while evaluating select partner companies for strategic investment. Building commercial and investment pipelines allows companies to generate insights and learnings on market and technology trends that may better inform an organization’s strategic decisions. External innovation activities may also be extended into collaborative programs such as technology accelerators, product testing sandboxes, and solution marketplaces designed to catalyze ecosystem building activities.
Salesforce, an industry bellwether in ecosystem development, built its cloud-based customer relationship management (CRM) platform as an open system to attract a community of partners and developers. With its strategic focus on customer engagement and collaboration, Salesforce believed that a vibrant ecosystem of independent software vendors (ISVs), developers, consultants and partners would provide a marketplace extending the capabilities of its CRM platform. These partners provide products and services with new features and functionality that leverage the Salesforce platform to enhance its utility and deliver value to customers. Salesforce Ventures, the company’s CVC fund, has played a critical role in seeding a start-up community of ISVs and developers, while prioritizing commercial opportunities to drive sales and marketing activities.
Amazon, through its Alexa Fund, focuses on building an ecosystem of developers and technology partners with voice and artificial intelligence innovation that leverages the Alexa platform. The overall strategic vision for the Alexa ecosystem is to expand the boundaries of voice platform capabilities across consumer and enterprise markets. Alexa’s utility and value can be enhanced by partners developing new products and services to drive novel use cases where voice becomes a central component to productivity and workflow automation.
T-Mobile, a wireless operator, has built its high speed 5G network as a connectivity platform to offer new applications and services that connect people, devices and machines. With its transformative capabilities, 5G serves as a next generation platform with clear potential to impact many industries such as manufacturing, transportation, logistics, healthcare, and oil & gas. To achieve this vision, T-Mobile recently announced its 5G innovation T-Mobile Ventures fund to drive to bring new applications and services to market. This corporate venture capital fund is designed to help T-Mobile build new businesses, extend capabilities and conduct ecosystem development activities. The T-Mobile Ventures team identifies and evaluates start-ups for commercial engagement and prospective investment to generate insights, learnings and ecosystem collaboration. Our firm, Touchdown Ventures, works hand-in-hand with T-Mobile executives to manage this ecosystem CVC fund.
In summary, modern digital transformation activities are disrupting markets in ways that create strategic value for consumers and businesses alike. Companies with product and service capabilities are actively seeking to leverage their platforms to extend their utility by building ecosystems of start-ups with new applications targeted at innovative use cases. Successful ecosystem development requires a dedicated team that is connected within the organization while extensively networked into the broader market. Corporate venture capital funds can provide a formal vehicle for companies to foster market and ecosystem development activities to generate the strategic insights required to build, maintain, and extend their leadership.
Dan Deeney is a Venture Partner with Touchdown Ventures, a Registered Investment Adviser that provides “Venture Capital as a Service” to help corporations launch and manage their investment programs.
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