Platform ecosystems and innovation orchestration

Platforms and ecosystems are interlinked (de Reuver et al., 2017). However, the definition of ecosystem is often ambiguous among the practitioners and aca-demics alike (Han et al., 2017). Platform value creation and evolution requires an ecosystem of users and developers. Ecosystem can include one or more competing or collaborating platforms. There can even be overlapping and in-terdependency between platforms within their ecosystem. In future, platform cooperation and integration are likely to increase. For instance, Facebook is

primarily a social media platform, but also a technology platform that enables third-party service innovation. APIs play a key role in platform innovation and integration of services and resources. (de Reuver et al., 2017).

Han et al. (2017) have conducted a systematic literature review on ecosys-tems and their definition. An ecosystem can be defined as a set of companies that co-evolve and work both cooperatively and competitively to create new products and to provide value to their customers through innovation. An inno-vation ecosystem can be defined as “sum of technology interdependence among the focal firms, upstream components, downstream complementors, and end-users”. The boundaries of business and innovation ecosystems are often fuzzy.

The major difference is that business ecosystems focus on value capture and innovation ecosystems on value creation. (Han et al., 2017).

Furthermore, the study on seminal works on ecosystems by Han et al.

(2017) revealed various roles, such as keystone and niche players, of ecosystem actors. Each role has a different objective and ecosystem strategy. Digital plat-form owners are keystone players who seek to co-create value. Dominators pur-sue capturing maximum value. Niche players are typically application provid-ers and developprovid-ers who co-create and co-capture value and complement the ecosystem offerings. (Han et al., 2017). Another role typology is presented by Smedlund and Faghankhani (2015). It includes end-users as demand side role of the multisided market, platform owner who controls the platform core, an in-termediary platform provider who mediates the platform delivery, comple-mentors as supply side role of the multisided market, and orchestrator who fos-ters the value co-creation between the ecosystem participants. The platform owner typically assumes the role of orchestrator as a secondary role. (Smedlund

& Faghankhani, 2015).

The ecosystem structure and roles define how power and influence are distributed within the ecosystem and what are their conceptual boundaries.

Loose coupling of roles is required for the balance and self-organization of in-dividual agendas and activities. Technological relatedness and heterogeneity within the ecosystem create and maintain resource-based hierarchies that have influence on decision making and responsibilities. A moderate hierarchy is needed to reduce and manage ecosystem complexity and increase coordination within it. Modularity enables open-ended structures that enable generativity and combinatorial innovation opportunities. In addition, control mechanisms are needed to enforce interoperability and shared vision for boundary-spanning business models and ecosystem co-evolution. (Han et al., 2017). Platform-based networks, i.e. ecosystems, have two trajectories. A goal-directed ecosystem has a common goal the ecosystem actors collaboratively aim for. Serendipity, on the other hand, has no shared goal and instead relies on evolution-based innova-tions. (Smedlund & Faghankhani, 2015).

The platform owner has a focal role in platform ecosystem and is typically responsible for ecosystem orchestration (Smedlund & Faghankhani, 2015; Han et al., 2017). The platform owner is sometimes termed as a sponsor or a key-stone player. It is not mandatory for the platform owner to become the

orches-trator. However, the owner controls platform’s technologies, interfaces, and core, and thus has an advantage in the role. Orchestration can be defined as promotion and facilitation of processes that lead to activities among platform participants and as influencing the multisided markets in the platform ecosys-tem. However, orchestration does not automatically mean centralized control in the ecosystem. (Smedlund & Faghankhani, 2015).

Platform orchestration increases and fosters platform innovation, devel-opment, and efficiency. Based on the firm literature, innovation is a core task of any company and mandatory for sustained competitive advantage. Different orchestration modes can be utilized as per platform strategy and the platform type which are internal, open, closed, and leading platforms. Leading platforms are best suited for innovation. Each orchestration mode has their benefits: the mode of efficiency is best suited for internal platforms, and mode of develop-ment fits open and closed platforms the best. (Smedlund & Faghankhani, 2015).

Leading platforms enjoy positive network effects, are attractive for partic-ipants and likely include a wide variety of end-users and complementors.

However, platform and ecosystem complexity are higher than in the other three platform types. Orchestration in leading platforms focuses on co-creation of novel offerings within the platform ecosystem. Value co-creation logic is chaotic but self-organizing and competencies are continuously created and renewed.

Orchestration in leading platforms must facilitate ad-hoc interactions and the emergence of new knowledge and offerings. Interdependencies and relation-ships are trust-based. Growth is based on innovation activities and increased platform diversity and reach. Orchestration logic for innovation can be de-scribed as a self-reinforcing loop where the creation of novel offerings attracts more platform participants who interact with each other. The interactions and transactions between the participants call for facilitation. Over time the partici-pants get locked into the platform and create more novel offerings continuing the loop. (Smedlund & Faghankhani, 2015).

The development mode of orchestration fits best open and closed plat-forms. Value co-creation logic is organic and based on dialogue between the platform participants who pursue incremental improvements and co-elevation of their capabilities. The orchestration processes facilitate mutual long-term in-teractions, refining of knowledge, and increased platform robustness. Platform openness is defined by the amount of control platform owner retains on plat-form entry and participation. Closed platplat-forms have well-known participants and value is typically created through front-end development. Open platforms do not limit interactions or participation and enable stronger combinatorial val-ue co-creation and innovation potential. In both cases the orchestration mode must be tailored based on the needs and business model of the platform. Inter-nal platforms are completely controlled by the platform owner. OrganizatioInter-nal boundaries limit participation and the focus is on mechanistic transaction-based value creation and efficiency instead of innovation. (Smedlund & Faghankhani, 2015).