A PYMNTS Company

Digital Ecosystems – a New Economic Paradigm?

 |  January 29, 2021

By: Harry Hong (OECD On The Level)

What are digital ecosystems and what are their characteristics? 

The most successful digital companies in recent years have increasingly been building their business model around large ecosystems of complementary products and services centred around their core service. These digital ecosystems offer access to their consumers to a line of products and services with a technological linkage increasing the complementarity between them. For example, Google, in addition to its search engine, has a strong position in browsers, operating systems and video streaming. Also, Facebook, from its origins as a social network, has expanded into messaging, devices, gaming and retail.

There are several key characteristics of the digital economy that facilitate and encourage the development of digital ecosystems. As Marc Bourreau suggests, among others, large economies of scope and scale across markets, and network effects play important roles on the supply side, while consumption synergies due to technological linkages are crucial on the demand side. The complementarity of services on offer may be seen as advantageous by some customers, who then become locked in to that particular ecosystem. Also, by collecting, analysing and aggregating large amounts of data, digital ecosystems can generate significant benefits and a comparative advantage against competing firms that cannot access the data. Moreover, the value created from data and the information it incorporates is reinforced through the data feedback-loop, which is enabled through machine learning and AI technologies…