From Platform Strategy to Ecosystem Strategy: STEP Model

With the development of digital technology, the economic form of human society has undergone several transformations. The information technology revolution has propelled the traditional economy into the network economy, and today we have entered the era of digital economy. The transformation of economic forms has led to the upgrading and adjustment of corporate strategies.

In China, many internet companies have begun their transition from platform to ecosystem, with Meituan Dianping being a typical example. Initially, Meituan developed as a group buying platform connecting restaurants and diners, but now it has expanded beyond the traditional platform’s role of connecting supply and demand, and has begun to build a diversified business integration ecosystem, encompassing core businesses such as dining, entertainment, tourism, and transportation, as well as many supportive services like logistics and mobile payments.

The Rise of New Economic Forms

Before the information technology revolution, the main strategy of enterprises in the traditional economy was product strategy, relying on a vertical supply chain model for economic activities. With the rapid development of information and communication technology, enterprises implemented platform strategies, no longer focusing solely on products, but instead creating a bilateral market that matches a large number of product or service providers with consumers.

Today, driven by technological innovation and data, information and digital technologies have further exploded, with significant breakthroughs and widespread applications of emerging technologies such as cloud computing, the Internet of Things, and artificial intelligence, pushing society into a comprehensive digital transformation process. In the future, we will gradually move towards an intelligent era of interconnectedness.

It can be said that the arrival of the digital economy requires enterprises to transition from platform strategies to ecosystem strategies. Currently, we can see that many platform companies are implementing ecosystem strategies, including internet companies like Google, Apple, Baidu, Alibaba, and Tencent, which are expanding their ecological footprints based on their original platform models, gradually involving more diversified and complete businesses, covering shopping, social networking, entertainment, information, and high-tech sectors.

We believe that ecosystems consist of two parts: the value network and embedded resources.

The value network of the internet ecosystem is generally based on the platform, where the interactions and transactions of various participants are completed. The embedded resources refer to the additional resources generated by the ecosystem based on the value network, mainly including: user data—such as personal information, user preferences, and consumption behavior retained and produced by users; commercial credit—credit relationships established by users through transaction behaviors in the value network, such as the Sesame Credit system which measures commercial credit; and social trust—trust generated through the establishment or strengthening of social relationships during interactions. The value network and embedded resources of the ecosystem maintain dynamic updates and interactions, promoting each other and growing in synergy.

Ecosystem Strategy Upgrade STEP Model

The STEP model for upgrading ecosystem strategy refers to the strategic upgrade of enterprises from four aspects: user structure (S), transaction levels (T), business empowerment (E), and model performance (P).

Different enterprises have different user structures. Traditional enterprises implementing product strategies have a singular user structure, meaning they only need to provide products and services to consumers, focusing on economies of scale. In contrast, platform enterprises, due to the expansion of user structure, experience network effects; however, the network effects of platform enterprises are limited to the platform itself, with the types of participating entities remaining largely unchanged, and the motivation mainly coming from the growth of bilateral user numbers.

In contrast, the user structure of an ecosystem is richer, with complementary effects extending beyond the original platform, both in variety and strength. The growth motivation comes from two aspects: one is the increase in user numbers, and the other is the increase in the types of participating entities. For example, when Alibaba went public in the US in 2014, the bell-ringer was not Jack Ma or other executives, but participants in the Alibaba ecosystem, including online store owners, American orchard farmers, telecom service providers, cloud customer service agents, internet models, and consumer representatives.

Therefore, to achieve ecosystem transformation, enterprises need to focus not only on the network effects among participants within the original platform but also on how to generate complementary effects with participants outside the platform, breaking the boundaries of the original platform to achieve user structure diversification.

Transaction levels are triggered from the perspective of the supply chain, looking at how many transaction links on the supply chain are included in the business system of the enterprise.

Under the platform strategy, transactions focus solely on a specific transaction within the supply chain, usually at the distribution stage at the end of the supply chain, such as e-commerce platforms and group buying platforms that address how to connect the final producers of products or services to consumers.

When enterprises implement ecosystem strategies, they will build on the original transaction levels and further engage with their upstream and downstream, incorporating other links of the supply chain into the enterprise’s business system. For example, original sellers can establish new trading relationships with suppliers, and original buyers can transact with new sellers, leading to a second-level transaction. Today, around new participants, transaction levels can be expanded to third, fourth levels, etc., and the business scope of enterprises can extend to multiple links of the supply chain, looking at the entire value chain.

Why are various entities willing to participate in the ecosystem and establish trading relationships? We believe it is because the ecosystem possesses strong business empowerment capabilities for external diverse entities.

Business empowerment here refers to enterprises utilizing advanced technologies and abundant data to attract external entities into the ecosystem by providing services such as demand analysis, transaction matching, management tools, and financial support, thereby establishing new transaction levels.

Overall, compared to platforms, ecosystems have rich embedded resources, including user data, commercial credit, social credit, etc., which will endow ecosystems with comprehensive empowerment capabilities, surpassing the boundaries of the original value network, which we term ecological empowerment.

The performance of an enterprise’s model can be evaluated from three aspects: transaction scale, transaction variety, and sustainable growth. Transaction scale reflects the size of the enterprise, while transaction variety measures the degree of diversification of the enterprise’s business. These two indicators reflect the operational status of the enterprise; the third indicator, sustainable growth, can be used to judge the enterprise’s future sustainable development capability.

In contrast, the growth of ecosystems encompasses both transaction scale and transaction variety dimensions. When a market reaches saturation, the ecosystem can leverage its rich embedded resources to attract new participants to join the ecosystem, entering another new market and creating innovative value growth points, thus achieving sustainable growth. A healthy ecosystem should achieve comprehensive and balanced development in transaction scale, transaction variety, and sustainable growth.

Author: Rong Ke, Wang Yong, Kang Zhengyao

Source: Harvard Business Review (with edits)