Innovation

By cultivating its ecosystem, did Airbnb just show Uber how to run a platform?

Uber dominated business news last week with its President quitting after only six months and a growing sense that the company is dysfunctional culturally. Meanwhile Airbnb has launched its new experiences programme. It is clear which of the two is getting something right but what exactly is the secret sauce?

March 20, 2017

Despite conflicts with regulators and local authorities around the world Airbnb is growing and diversifying in interesting ways that speak to an ecosystem that has been gradually well cultivated.

To date, in platform business theory, commentators have not given a whole lot of bandwidth to the concept of an ecosystem. So what is this thing called ecosystem? Is it just a group of companies selling through the same channels? Is there a cultural homogeneity in ecosystems that make them somehow all part of the same phenomenon?

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The Business Ecosystem

The early literature on business ecosystems emphasised what, then, seemed to observers to be a new development. Instead of competing, companies seemed to be cooperating more. So, for example, Intel and Microsoft cooperated in nurturing the WINTEL ecosystem, a grouping that ended up with around 75,000 Value Added Resellers (VARs) or Independent Service Vendors (ISVs) enlisted as part of the sales, marketing and implementation of Windows/Intel solutions.

From Intel’s point of view the WINTEL partnership kept a high pace of innovation in the software industry and that, in turn, justified and drove the release of new chip designs.

For Microsoft, the ecosystem was the perfect sales and implementation channel. VARs and ISVs would offer unique solutions to customers that they knew or had easy access to, thereby providing Microsoft with an unprecedented level of market penetration.

But what makes this an “ecosystem” rather than just a channel?  These companies were not cooperating with each other. In fact they were often competitors. For the most part they needed some formal Microsoft qualification in order to belong, so there was a good deal of formality that acted as market organising principles.

In The Elastic Enterprise, Nick Vitalari and I contrasted this with the more highly scaled ecosystem that grew up around the iPhone (over 1 million developers) and Android (migrating from mobile phones to embedded devices).

These ecosystems seemed to be more spontaneous and free flowing and more organic.

Still, you have to ask what is it that makes them an ecosystem rather than just a grouping?

A different point of comparison can shed a little light: the ecosystem around the mobile chip designer ARM Holdings.

ARM never entered in to silicon manufacture and choose instead to be at the heart of a community where design excellence could be nurtured. Every company in that community contributed know-how to the centre (ARM) and in turn benefited from the augmentation of ARM’s know-how. Yet many of the companies in that ecosystem were keen competitors in areas like smartphone design and sales.

Here, it seems, is a true ecosystem where there is a degree of cooperation and mutual advantage, even across competitor.

The idea of an ecosystem

To get at the unique of ecosystems it is worth recalling what Nobel laureate Elinor Ostrom had to say about them. The fundamental principle is that they are in some way self-organising. There tends not to be an authority setting rules and giving permissions. It is the absence of centralised direction that creates uniqueness. But that uniqueness is dependent on good knowledge of the tipping points that lead from sustainability to dearth. Knowledge or information is a key to good human ecosystems.

Some types of ecosystems also scale efficiently. They do not add proportionally more cost as they grow. This is a characteristics of economic ecosystems. Complex systems theorists have shown it to be true of cities for example. And there has been some interest shown in the CERN large hadron collider, a collaboration between 3000 scientists, with no boss or organisational umbrella. It certainly became true of business platforms, especially as Cloud computing took hold.

CERN

The idea of self-governing and self-organising ecosystems would preclude the Wintel community. After all, here was a community that was very much controlled by Microsoft.

In comparison, there is a community at the heart of the software vendor SAP that is more self organising and more highly scaled. SAP’s online community numbers are close to 3 million members and its activities really reflect the one unique element of an ecosystem – the information layer.

Look at ARM Holdings and what you see is the development of a unique collective asset – the information it takes to design and apply mobile chips. The distinctive nature of the ecosystem lies in information production.

Look at Apple’s developer ecosystem and again, information is the single asset that stands out. Developers do not have a bilateral relationship with Apple. There are no negotiation or legal agreements other than terms and conditions. But what they do have is a shared information space.

Information is provided in Apple’s SDK and support forums but also through a plethora of websites that are not run by Apple but are good at providing information about where Apple is headed with its products, what apps are rising and falling, how to market apps, how to develop in-app revenues and so on.

Ecosystems and marketplaces

So back to Uber and Airbnb.  To date these marketplaces have lacked some of the qualities of the true platform and ecosystem.

Until the launch of its experiences programme, both Airbnb and Uber were simply bringing two sides of a market together. I think now Airbnb has moved on to a new stage. It is nurturing a true ecosystem, which is developing the information space separately from Airbnb in a way that should grow and grow.

The first signs of that are independently organised conferences on how to maximise Airbnb income. These add information to that provided on the Airbnb site (which is primarily restricted to rental reviews) and is organised by Airbnb.

But the real potential lies in Experiences. Airbnb has moved beyond its simple marketplace model to include people who want to provide an authentic experience of life in a destination.

I was lucky enough to participate in the proof of concept. My own experience was joining a group of people from around the world at the home of a French chef who taught us about French eating customers and taught us how to cook a typical French meal.

The scope for increasing knowledge about these experiences should readily extend beyond the Airbnb platform. Experiences are in essence knowledge and that is what Airbnb is now adding to the mix.

I can imagine new products coming into the marketplace to document the world of Experiences.  These will be largely content products at first: Travel writers who do a year of Airbnb living or who capture the essence of a particular type of experience; people who share information on how best to set up an Experience; more exchanges between hosts and visitors on the value of the experience.  

It should be said too that by opening up access to local people Airbnb vastly extends the value of a trip. But Experiences stands or falls on the quality of information it generates and how far it permeates. Like all ecosystems knowledge/information is key.

In contrast Uber has done little to move beyond the experience of getting from A to B. There are people who will swear by Uber but my own experience is that conventional taxi firms are catching up: providing flat rate fares (e.g. Manhattan to JFK in Yellow Taxis), making payment easier (even London cabs now take credit cards at no extra cost), and making business receipting of the ride slightly less cumbersome (though they have a way to go here).

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While both Airbnb and Uber both have their problems only one is on the cusp of becoming a true ecosystem where revenue diversification and growth will become less costly. It’s not Uber.