Business models designed for ecosystems are substantially different from business models that don’t involve an ecosystem. In the ‘typical’ business model clear lines exist between the seller and the customer. When resources are spent by the business, there is an expectation that the business determines the nature of the expenditure and the benefits they choose will accrue directly to them.

By contract an ecosystem can involve multiple participants, some if not all acting as independent agents with their own agenda, goals, budgets, expenses, capabilities and risks that drive their participation. Articulating the desired end state in terms of participation is an important first step in determining an appropriate business model.

A ‘business’ in this context need not be a business in the traditional sense of a shop owner or service provider. We can for example contemplate a government-sponsored digital identity ecosystem or an employee authentication system as a business in terms of the steps taken to layout a plan such that an ecosystem can be developed, deployed and sustained from a financial perspective.

Ecosystem Characteristics

The framework below is good way to structure the conversation about the nature of the ecosystem being planned as the first step in crafting a business model. The focus is on the ongoing users of the system. For the sake of simplicity, considerations concerning suppliers and vendors are left out even though they are very important factors. In practice, that framework categories can and will overlap and evolve. The defining characteristics shown should be viewed as a starting point rather than as hard definition.

Primary Ecosystem Characteristic: Shared Problem to Solve

Consortium of Peers: Each party is more of less equal in terms of the utility they receive from the solution, and how much data, time and money they contribute. Examples: Trade finance settlement.

Supply Chain: Each party plays a different role across a shared ecosystem with different utility, value and cost. Examples: Tracking prescription drugs, digital advertising.

Primary Ecosystem Characteristic: Initiated by Benefactor

Not For Profit: Organizations whose charter prioritizes distribution of benefits over generation of revenue. Able to invest time and money into systems without the same expectation of financial ROI and competitive advantage as for-profit organizations. Examples: Healthcare, philanthropic foundations, government, public/private organizations

Primary Ecosystem Characteristic: Directed Solution

Business Network: Dominant industry player(s) uses their position to drive adoption of an ecosystem among network participants. Participants can’t afford to opt out of participation. Examples: Auto manufacturer supply chain, financial networks

Internal Enterprise: Company mandates use of system by employees, devices and partners. Examples: Password less access, vertically integrated healthcare network

In addition to the entities that participate as users within the ecosystem, there needs to be an entity that operates at the level of the ecosystem itself to ensure requisite trust and governance is maintained, operations run smoothly, there is orderly evolution of the ecosystem and that conflict among participants is managed effectively. The ecosystem-level participant can be a user participant, an external entity, consortium, etc. but the role must be sustainably funded and be incorporated into the business model.

Costs and Value

Participants in each of the different ecosystem models engage in different ways and have unique ability and needs. It is necessary to look at each one and ask:

• What are the incremental costs required to participate?
• What is the ongoing value the participants hope to receive? From where and in what form?
• What will it take to sustain, grow and/or meet the objectives of participation?
• What are the risks of, and impediments to participation?

Once resources start to be applied it quickly becomes crystal clear how much is being spent, where income is coming from, how much income is coming in and if you are making or losing ground. Being as accurate as possible identifying and estimating these numbers in advance, while difficult, is the best way to reduce risk.

Costs tend to be easier than benefits to identify. An assessment should include both the costs to get participation up and running as well as the ongoing costs to sustain participation. Direct and indirect cost should be identified and include:

• Direct Costs: software development, acquisition of hardware, user support, vendor services, legal, transaction or usage-based costs, etc.
• Indirect Costs: Time associated with training, change of business process, program management, etc

Broadly speaking, income can be realized through credential issuance activity and credential verification activity (including supporting products and services). There certainly will be creative income opportunity for credential holders but those ideas are not as fully developed.

Revenue may be realized in the form of direct payment for transactions (issuance or verification activities) but it may equally be realized through indirect means such as advertising and sponsorship. Revenue can also be viewed through the lens of generating net new efficiencies and reducing existing costs. Each should be considered when developing a sustainable business model.

Market and Customers

A ToIP ecosystem can exhibit many characteristics of a two-sided market and so it is useful to examine these when considering the business model. Network effects dominate in that the value realized by participants tracks closely to the number of participants and the amount of participation. The net of this fact is that building participation to a level that ensures financial and functional sustainability is not only difficult and extremely important but is a multiplier of both the risks and rewards in play. Any ecosystem business model must carefully consider what the addressable participant size is, how much of it needs to be captured or developed to sustain the anticipated business, how long it will take to get to critical mass and what techniques will be applied to reach it.

Without a customer there is no business as the saying goes. In an ecosystem, there is unique opportunity to identify many different types of customers that can benefit in different ways from the same environment. Customers can be internal and ‘pay’ for the service through increased work efficiency. They can be a traditional external customer and pay for a service based on usage. They can be partners, benefactors and advertisers. Ecosystems are rich with monetization opportunity. The downside is that any participant, who by definition must commit resources and or money to participate, needs to sort through the sea of possibilities and evaluate which customer or set of customers will enable them to sustain their portion of the ecosystem business.

It is tempting to look at this wide range of customer types and simply add up the potential revenue to demonstrate that a business model is viable. The cost associated with taking on, promoting and managing disparate revenue streams however can be significant and it accumulates with each new revenue stream. It is always more straight forward to start by identifying a single customer type and making a determination of whether or not the goals of the business can be met with them alone. Additional streams can be considered after the fact and evaluated on the basis of incremental cost and benefit.