Business Ecosystem

Updated on March 7, 2024
Article byWallstreetmojo Team
Edited byRaisa Ali
Reviewed byDheeraj Vaidya, CFA, FRM

Meaning of Business Ecosystem

A Business Ecosystem is a network of different entities that are dynamic and interact with each other to create and exchange sustainable value. Productivity, robustness, and the ability to develop niches and opportunities for new firms are key success factors for ecosystem models.

In the ecosystem model, different participants, like organizations, create value for each other compared to the traditional business model, with one participant delivering value for the customer. Furthermore, the survival and flourishing of the organization or other ecosystem participants are considered the biggest challenge.

Key Takeaways

  • Business ecosystems are networks of different entities that come together to accomplish something beyond the effective scope and capacity of any independent entity. Examples of significant types are the digital ecosystem and industrial ecosystem.
  • The participants and processes continually evolve to sustain the competition and meet the growing needs of the target market.
  • Examples of participants in the system are producers, suppliers, competitors, consumers, and government agencies.
  • Some of the categorizations of the system are solution ecosystem, transaction ecosystem, and hybrid ecosystem.

Business Ecosystem Model Explained

A business ecosystem is an ecosystem where the main players facilitate an economic community by utilizing the resources in the habitat. The prime resources are raw materialsRaw MaterialsRaw materials refer to unfinished substances or unrefined natural resources used to manufacture finished goods.read more and technology. The main players are producers, suppliers, consumers, competitors, and government agencies. These organisms in the ecosystem interact, producing goods and services.

Business Ecosystem

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Similar to a biological ecosystem, the participants and the processes in this business environment continually evolve to increase and maintain efficiency. Therefore, the system is dynamic, constantly remaking since it reacts to forces like innovations, technological advancements, and competitions.

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Example

Let us consider subscription streaming services like Netflix, Disney+, etc., for interpreting the business ecosystem example.

In the online economy, an ecosystem with participants that rely on each other to exist and prosper, along with their competitors and authorities who set the regulations for streaming services, has grown in size and importance. They are the potential source of significant revenuesRevenuesRevenue is the amount of money that a business can earn in its normal course of business by selling its goods and services. In the case of the federal government, it refers to the total amount of income generated from taxes, which remains unfiltered from any deductions.read more. Streaming service providers benefit economically from their interactions with other ecosystem participants. Consumers, investors, and competitors are examples of various actors in a streaming service ecosystem.

The value proposition by the streaming service company is the entertainment content. They provide a huge content library, on-demand video streaming, and personalized recommendations, cater to customers from a plethora of taste communities. To be ahead of the competition, they have to understand the competitors like other streaming service providers, cinemas, and cable TV networks. Streaming services interact with many different entities like studios, content producers, cloud service providers for storing content, Internet Service Providers (ISPs) for streaming, and banks for payments. These different entities participate in the ecosystem to develop, provide, and collect value for one another, including the consumer since doing so helps them survive and thrive.

Types of Business Ecosystem

There are different types of business ecosystem models. The categorization can be based on the structure, purpose, success factors, value creation mechanisms, etc. Furthermore, the business environment might be local or operates in a small community, or global, focusing on the worldwide market. They are further divided into macro and micro business ecosystems. The former is credited to the ecosystem established by gathering entities with similar interests. On the other hand, the latter represents a company-wide picture of the entire system.

 Let’s look into the brief description of categorization as a solution, transaction, and hybrid ecosystem model. 

  • Solution Ecosystem: The ecosystem that generates and distributes an output, such as a product or service. Furthermore, the involvement of other ecosystem participants is important in the value generation process.
  • Transaction ecosystem: A digital platform integrates players in a two-sided market to establish an ecosystem.
  • Hybrid system: The environment that combines features of a solution ecosystem with a transaction ecosystem.

Digital Business Ecosystem

Another significant type is the digital business ecosystem. The digital environment enables the digital species such as APIs and cloud infrastructure to behave like species in the natural world where they interact and evolve. The digital environment consists of factors that are related to applied knowledge and have an impact on the business model of an organization. It include internal parties to an organization like functions and external entities like suppliers, third-party providers, customers, developers, regulators, and competitors. Examples of network manifesting customers are retailers making developers build apps and services that support business strategies and logistics companies making location and shipping applications available to others across the supply chainSupply ChainA supply chain refers to a process beginning with the procurement of raw materials and the production of finished goods and ending with their distribution and sale.read more.

Frequently Ask Questions (FAQs)

What is meant by business ecosystem?

The business ecosystem definition describes it as a business arrangement formed by the interconnection of different entities. These entities cooperate or compete to deliver goods and services to a target market. The model portrcompany’sarticipants/organisms in the ecosystem, their relationships, and how they create value.

What is an example of a business ecosystem?

Consider the example of a company producing consumer electronics. The actors in their ecosystem will comprise their suppliers, consumers, competitors, investors, etc. Therefore, the company’s survival in the ecosystem depends on several factors like cooperation from suppliers and understanding the competitors. 

What is ecosystem strategy?

A business ecosystem strategy focuses on a larger horizon inclusive of suppliers, makers of related products, competitors, technology providers, and a host of other organizations. It provides satisfying social, economic, and technological value. Hence it is about focussing more on the entities outside the business, primarily customers, and satisfying the customers requires continuous innovation and marketing.

This is a guide to What is Business Ecosystem and its Definition. Here we explain how business ecosystem models work along with their types and examples. You can also take a look at some of the useful articles: