On Marketplaces & Ecosystems

I am often asked what the difference is between marketplaces and ecosystems.

A marketplace is technically a monolithic ecosystem—meaning an ecosystem with a single large player at the center. A clear example of this is Amazon, which sits at the heart of a large marketplace of sellers and buyers. Other examples include Apple’s App Store, Google Play or the Microsoft Azure Marketplace.

These are all examples of a large player that sits in the middle of an ecosystem as a dominant “market maker”.  As one type of an ecosystem, marketplaces have some unique attributes, including:

1. The dominant player creates the market and sets the rules, which for all intents and purposes are imposed on the market as commandments. The recent spat between Apple and Epic (Epic were kicked out of the ecosystem because they wanted to use a different payment system than Apple Pay) is a clear example.
2. The marketplace ecosystem is generally single tier. Sellers list on the marketplace. Buyers discover and purchase on the marketplace. There are no downstream reseller agreements, strategic alliances, or consortiums. It must all happen on the marketplace.
3. The relationship of both buyers and sellers depends solely and must ALWAYS go through the marketplace. In the case of Airbnb’s marketplace, listers who solicit from Airbnb renters’ outside deals may be penalized and/or banished from the marketplace.
4. All the marketplace technology and all the transaction and user data is owned by the marketplace owner. API connectivity is limited to feeding the marketplace data.
5. The marketplace branding and transactions are generally that of the market maker.

So how do marketplaces stack up against other types of ecosystems?

First, ecosystems are not necessarily monolithic, but pluralistic. In fact, the monolithic ones are in the minority, but because of their technological reach, they tend to make more noise and be more visible than all other types of ecosystems, which for the most part are democratized and not owned by anyone. An example of a pluralistic ecosystems network is that of telephone operators. While each operator might have their own ecosystem, they are all connected to a pluralistic telephone ecosystem network, allowing users to call one another regardless of the operator ecosystem they are on, and in fact they can switch operators with ease.

Pluralistic ecosystems serve a multitude of industries in being much more prevalent than the monolithic ones. Healthcare is another example of pluralistic ecosystems, banking and finance are others, the car and electronics industry, retail and more.  All these industries run on democratized ecosystem models. The auto industry ecosystem has powerful upstream suppliers to the car companies, the car companies themselves, the dealer networks, as well as parallel supportive industries such as consumer reporting and insurance companies. No single car company can pretend to own all of this—although it seems Tesla is giving it an attempt in its monolithic ecosystem. The big difference here of course, is unlike Apple, Google, and Microsoft, Tesla barely produces 2% of all cars sold in the US. Compare this to Apple and Google Android, who together account for 100% of the global mobile ecosystem app market.

Of course, the most significant of all democratized ecosystems is the Internet itself, which as an ecosystems network has tens of millions of individual ecosystem connections. This type of pluralistic ecosystem also has some unique attributes, which differ from its monolithic counterpart:

1. Pluralistic ecosystems scale pre-existing relationships and represent much more of a B2B approach than the monolithic approach, which tends to be more B2C-oriented. Yet the participants (organizations) connect to the network and one another without the need to have a dominant player at the center. It all occurs on an ecosystems network that provides business and connectivity standards.
2. Because there is no single dominant player, pluralistic ecosystems can go in any direction- upstream, sidestream, and downstream. It is the choice of the ecosystem owner who to connect to, when, and how.
3. Pluralistic ecosystems who connect to one another set their own rules, be it in terms of data interchange or ownership of data.
4. The branding of pluralistic ecosystems does not belong to any single player but rather the respective owner of each connecting ecosystem—meaning each ecosystem owner can brand their ecosystem as they wish. The network limits itself to a “Powered by” or to no branding at all- as is the case for the Internet.
5. Unlike marketplace ecosystems, no single player owns all the technology in pluralistic ecosystems. Different technologies can connect to democratized ecosystems through accepted standards.

In summary, Marketplaces are one type of ecosystem that relies on a dominant market-maker. However, that vast majority of global ecosystems do not actually rely on, or need, a dominant market maker but rather benefit from an ecosystems network that allows standardized connectivity, ecosystem peering, branding, customization, data insight, and protection. Pluralistic or democratized Networks ecosystems networks that provide this will see amazing growth in the next decade, not unlike the Internet achieved in the 90s.