How ecosystems can make or break your business

This article is based on Jay Nakagawa’s brilliant talk at the #Demand24 Summit in Denver. Members can enjoy the complete recording here.

Ever wondered why some companies dominate their industries while others fade into obscurity? 

I’m Jay Nakagawa, Director of Competitive Intelligence at Dell Technologies, and I’ve seen how ecosystems can make or break a business. So, in this article, we’ll explore how to leverage ecosystems for maximum growth and success. Here’s a peek at what we’ll cover:

• The fundamentals of ecosystems: Why they matter and how they’ve evolved beyond traditional competitive models.
• Key case studies: Lessons from Zume Pizza, Kodak, Apple, and CVS to uncover what works – and what doesn’t.
• Practical insights: Tips for building and managing ecosystems that generate value and avoid common pitfalls.

Whether you’re building partnerships or reinventing your business, these insights will help you navigate the challenges and opportunities of ecosystem strategy. Let’s jump in!

The traditional approach to value creation

Let’s start with the basics – how do you create and capture value? For anyone who’s been to business school, the diagram below might look familiar. For those of us who zoned out during those classes (myself included – I was too busy playing music all night!), let me break it down.

Traditionally, value creation revolves around managing key forces, as outlined by Michael Porter’s model. The idea is to balance your suppliers, buyers, substitutes, new entrants, and competitive rivalry to determine the intensity of competition in your industry.

For instance, in the airline industry, suppliers are limited to Boeing and a few others. Airlines, as buyers, don’t have endless choices either. Similarly, substitution options are limited; you can’t exactly replace a 737 Max with a smaller plane without losing capacity. 

High barriers to entry, like massive startup costs,  also make it tough for new players to join the market. These factors create an environment where only a few players compete fiercely.

Let’s take the gaming world as another example. If Xbox improves its functionality, the perceived value of PlayStation goes down, and vice versa. This rivalry fuels competition, but it’s a zero-sum game – one’s gain is the other’s loss.

Moving beyond rivalry: The ecosystem approach

While Porter’s model has its merits, it’s a bit outdated. Today, businesses like Dell are focusing on partnerships and ecosystems to deliver value in a way that benefits everyone – customers included. 

Ecosystems shift the game from rivalry to collaboration. Instead of fighting over pieces of the pie, we’re working to make the pie bigger.

For example, when Dell partners with companies like Nvidia, it’s not just about building cool solutions internally – it’s about ensuring those solutions make sense for customers. Ecosystems allow us to deliver value in a way that feels seamless and intuitive.

Disruption: More than just a great idea

Building an effective ecosystem often means disrupting the status quo. Of course, we all want to be disruptors. But here’s the thing – disruption doesn’t start with a great idea. A great idea only matters if your customers care about it.  A groundbreaking concept that doesn’t address their needs is just noise.

Even the best idea won’t succeed without great execution. Venture capitalists always ask “Can you execute on your vision?” Because if you can’t, no amount of funding will save you. 

A good friend of mine used to say, “Vision without execution is called delusion.” This holds especially true for ecosystems, where success depends on managing all the moving parts and ensuring they work in harmony.

The danger of imitation and the importance of playing the right game

Another key question when creating value is this: can your great idea be easily duplicated? If it can, its value diminishes because someone else can imitate it. 

This happens all the time in tech. A company releases a groundbreaking product, and competitors immediately rush to imitate it. But here’s the kicker – they rarely stop to ask critical questions like, “What are the customer requirements? What insights drove this product? What’s behind this behavior?” Instead, they focus on imitation for the sake of keeping up.

In ecosystems, this boils down to understanding competitor or complementor effectiveness. Are you winning the right game? Are you even playing the right game? Sometimes companies assume they’re competing in the correct space, but they’re not – and what they don’t see can absolutely take them down.

The power of ecosystems to make or break your brand

Let me share four stories that show just how powerful ecosystems can be – both for better and worse. From Zume Pizza’s flop to Kodak’s missed opportunities, Apple’s game-changing innovation, and CVS’s bold reinvention, these examples reveal what it takes to build a thriving ecosystem and what can happen when things go wrong. 

A cautionary tale: When automation missed the mark

Let’s start with Zume Pizza, a company that burned through nearly $500 million before collapsing. The idea sounded futuristic: pizzas cooked on the go in vans equipped with GPS-tracked automated ovens. Robots would handle everything from mixing dough to applying sauce, with humans adding toppings like cheese.

The concept promised fresh, hot pizza delivered right to your door – but the execution was a disaster. Based in San Francisco, Zume faced a major challenge: its pizzas were cooking while vans navigated the city’s steep hills. 

The result? Melted cheese and sauce sliding off the pizzas mid-cook, leaving customers with messy, unappetizing meals. And to make matters worse, the pizza itself wasn’t particularly good.

When the delivery concept flopped, Zume pivoted. They parked their pizza-making machines and switched to scooter-based delivery. But this move killed their “green” pitch, and customers still didn’t care. What initially seemed innovative no longer stood out or solved a meaningful problem.

The lesson: Make sure you’re playing the right game

In the end, Zume failed to play the right game, leaving investors with massive losses. The takeaway? Bold ideas mean little if they don’t address real-world challenges or deliver true value. Sometimes, failing to see the flaws in your ecosystem can spell disaster.

The fall of Kodak: A lesson in understanding ecosystems