Fundamentals of strategic leadership of the digital ecosystem business model

Nikolaev Pavel Viktorovich Master, Faculty of World Economics, Higher School of Economics 127221, Russia, Moscow region, Moscow, ul. Polyarnaya, 32 doci-99@mail.ru Other publications by this author

Introduction

The rapid pace of technological change and digital transformation has led to a major restructuring in the way businesses operate on the world stage. One of the key challenges facing businesses in this new digital era is the development and implementation of effective leadership strategies in today's rapidly changing environment. This research project is aimed at studying the factors determining the strategic leadership of the digital ecosystem as a business model in the global market.

 Signs of the digital ecosystem as a business model

In order to most accurately identify the features of the digital ecosystem as a business model, first of all it is necessary to understand what a business model is. To do this, we can use the classic definition from one of the authors of the Harvard Business Review, which states that a business model is a way by which a company generates income and makes a profit from its activities ^[1]. A more detailed description can be found in A.Osterwalder and I. Pinier, they believe that a business model is a concept that serves to describe the basic principles of the creation, development and successful operation of an organization ^[2]. In their work "Building Business Models", the authors identify nine components of each business model: 1) consumer segments (PS), 2) Value propositions (CP), 3) sales channels (CS), 4) customer relationships (VC), 5) revenue streams (PD), 6) key resources (CR), 7) key activities (CD), 8) key partners (KP), 9) cost structure (SI).

After we have decided on what a business model is, it's worth getting a better understanding of what a digital ecosystem is.

Gartner considers a digital ecosystem to be an interdependent group of businesses, people and/or things that share standardized digital platforms to achieve a mutually beneficial goal ^[3]. According to Accenture's definition, a digital ecosystem is a dynamic and interconnected network of organizations, people and technologies that jointly create and provide value through interaction when using digital technologies ^[4].

All this makes it possible to identify the features of the digital ecosystem as a business model.

First of all, it is the ability of the digital ecosystem to create and link new business models within one organization that disrupt traditional industries and stimulate innovation. This is achieved primarily through the use of advanced technologies such as artificial intelligence, blockchain and the Internet of Things. These technologies allow companies to create new products and services that more effectively meet the needs of customers, which leads to an increase in revenue and market share. A striking example of this is Amazon, which combines the business model of a digital platform (Amazon marketplace), free business models (Amazon Web Services), as well as classic business models - razor and blade, long tail, direct sales, supermarket and the like ^[5].

Another feature is the wide reach of customers and extremely accurate personalized offers for them, which is achieved by the ability of the digital ecosystem to use big data and analytics to obtain information about customer behavior and preferences. Thanks to the huge amount of data generated through various digital channels, companies can extract valuable information about customer behavior and preferences. By applying advanced analytics techniques, they can identify patterns, trends and correlations in data, leading to a deeper understanding of customers. With the help of data analysis, companies can determine their preferences, purchase patterns and specific needs. This knowledge allows companies to adapt their products, services and marketing strategies in accordance with the individual needs of consumers. By personalizing the customer experience, companies can increase customer satisfaction and loyalty. Moreover, big data analytics in the digital ecosystem can provide real-time information, allowing companies to quickly respond to changing customer behavior and market trends. By tracking and analyzing data in real time, enterprises can make decisions based on data, optimize their activities and meet needs in advance. To use big data effectively, companies use various methods such as data mining, machine learning and predictive analytics. These methods help identify consumer segments, predict customer behavior, and develop targeted marketing campaigns. In addition, sentiment analysis and social media monitoring allow companies to assess customer sentiment and receive feedback, contributing to better interaction with them and better service delivery. It is worth noting that the use of big data and analytics within the digital ecosystem raises important issues related to data privacy, security and ethical standards. Companies must ensure compliance with regulatory requirements and implement responsible data management practices to maintain customer trust and protect confidential information. Also, such customer orientation requires very large infrastructure costs, the creation and operation of data centers. Amazon has its facilities in 31 regions of the world and is represented by more than 450 points of presence around the planet ^[6].

Another sign is high adaptability and a propensity for cooperation rather than competition, because cooperation and partnerships are fundamental aspects of digital ecosystems. Unlike traditional business models, which are primarily focused on competition and isolated operations, digital ecosystems thrive through collaboration and synergy between different companies (especially within the same group of companies) and stakeholders. This collaborative approach brings many benefits, including increased efficiency and innovation. Within the digital ecosystem, companies are aware of the value of shared resources, information and expertise. They actively seek partnership and cooperation to exploit complementary strengths and opportunities. By pooling resources, companies can achieve economies of scale, optimize operations and reduce costs. For example, one company may share its expertise in data analysis, while another provides a reliable technological infrastructure. Such a joint exchange of information allows each participant to benefit from the combined capabilities, which leads to increased efficiency. Collaboration within the digital ecosystem also promotes innovation. Working together, companies can use different points of view, experience and ideas. This collaboration encourages creativity and promotes the joint creation of new products, services and business models. This encourages open innovation, where companies actively seek information from the outside and collaborate with partners, customers and even competitors to ensure continuous improvement and breakthrough discoveries. Moreover, partnerships within the digital ecosystem allow companies to gain access to new markets and customer segments. By joining forces, companies can expand their reach and engage the customer base of their partners. This joint expansion increases market penetration and increases the overall competitiveness of the ecosystem as a whole. It is important to note that cooperation within the digital ecosystem goes beyond the traditional partnerships between companies. This extends to ecosystem-wide collaboration involving multiple stakeholders, such as governments, academia, non-profit organizations, and even individual users. This inclusive collaboration encourages a holistic approach to problem solving and solves complex social challenges. A good example of such cooperation is Google with its Android operating system. It is thanks to the strategy of creating a partner market with other companies that the Android system has become one of the most popular in the world ^[7].

Of course, when considering the features of a digital ecosystem as a business model, it is impossible not to note the ability of any ecosystem to create network effects. Network effects occur when the value of a product or service increases as more individuals or businesses join and participate in the ecosystem. This phenomenon is especially noticeable in digital platforms and social networks, where interactions and connections between users determine the overall value and usefulness of the system. In the context of a digital ecosystem, network effects are enhanced by the interconnected nature of its participants. As more businesses, customers, and other stakeholders become involved in the ecosystem, opportunities for collaboration, sharing, and value creation expand exponentially. For example, a trading platform like Amazon benefits from the network effect as more sellers join the platform, attracting a large customer base and increasing the variety and availability of products. This, in turn, attracts even more customers, creating a favorable growth cycle. Facebook Instagram and Twitter social media platforms are classic examples of network effects in action. As the number of users on these platforms increases, so does the value of each user. More users means more connections, interactions, and content sharing, resulting in a richer and more engaging experience. This, in turn, attracts additional users, creating a self-developing cycle of network effects. As the user base expands, these platforms become increasingly valuable not only for individuals, but also for companies that seek to reach a wider audience. The presence of network effects in the digital ecosystem has profound implications for businesses operating within it. This highlights the importance of acquiring and retaining a critical mass of participants to create a thriving ecosystem. By attracting more participants, enterprises can fully unlock the potential of network effects, which will lead to increased customer engagement, increased opportunities for cooperation and, ultimately, to a competitive advantage in the market. To illustrate the impact of network effects, empirical studies have provided evidence of a positive relationship between the size of the user base and the value of digital platforms. For example, a study of social networks has shown that platforms with a large number of active users, as a rule, demonstrate a higher level of user engagement, longer duration of visits and enhanced monetization opportunities through advertising and partnerships ^[8]. It is worth noting that network effects can also create barriers to entry, as companies that are late in establishing a presence in the digital ecosystem may struggle to overcome the advantages enjoyed by early entrants. This highlights the importance of strategic timing and effective execution when using network effects to achieve business success ^[9].

 We have established that the main features of the digital ecosystem as a business model are: a combination within one company and/or a group of companies of different business models in their functionality, whose joint functioning increases the overall well-being of all participants. A wide reach of customers and the most personalized offers, which is achieved by using new technologies in their activities. A high level of adaptability and a tendency to build partnership, which allows you to quickly and flexibly respond to new challenges. This leads us to the main feature of any ecosystem – the ability to generate a huge number of network effects when literally everyone wins (company/partners/customers/society/state), which makes building a digital ecosystem so desirable, but also such a difficult task for any company.

 Assessment of innovation activity and digital transformation of companies 

For the most accurate determination of the success factors of the digital ecosystem business model, consider the experience of Amazon and Alibaba. To do this, we investigate their R&D projects, intellectual property and the technologies used. 

Investment in R&D: Amazon's commitment to R&D is evident, thanks to its regular investments in this area. According to the company's financial statements, its R&D expenses have been steadily increasing over the years. Amazon's research and development expenses for the quarter ended March 31, 2023 amounted to $20.450 billion, an increase of 37.78% compared to the same period last year.

Amazon's research and development expenses for the twelve months ended March 31, 2023 amounted to $78.821 billion, an increase of 34.95% compared to the same period last year.

Amazon's annual research and development spending in 2022 amounted to $73.213 billion, which is 30.62% more than in 2021.

Amazon's annual research and development spending in 2021 amounted to $56.052 billion, which is 31.15% more than in 2020.

Amazon's annual research and development expenses in 2020 amounted to $42.74 billion, which is 18.95% more than in 2019 ^[10].

 Amazon's significant investment in research and development is driven by its focus on innovation in many sectors. The company explores advances in e-commerce, cloud computing, artificial intelligence, robotics and other new technologies. Amazon's research and development efforts play an important role in building and improving its technology infrastructure. This includes the expansion of the Amazon Web Services (AWS) cloud computing platform and the development of new AWS capabilities such as artificial intelligence, machine learning and data analytics. This investment enables Amazon to provide scalable and reliable solutions to businesses of any size.

Consumer-oriented Innovation: Amazon's research initiatives are based on a customer-oriented approach. The company focuses on understanding customer preferences, anticipating their needs and providing an excellent user experience. Through research and development, Amazon strives to develop innovative features, improve product functionality, and provide personalized recommendations to increase customer satisfaction and loyalty.

Logistics and Delivery Services: Amazon's core business also includes a powerful logistics and delivery network. The company has invested heavily in the creation of a comprehensive supply chain infrastructure, including order fulfillment centers, warehouses and transportation capabilities. This allows Amazon to ensure efficient and timely delivery of goods to customers around the world. In search of innovative delivery solutions, Amazon has explored the possibility of using autonomous vehicles and unmanned aerial vehicles. The Amazon Prime Air initiative aims to develop unmanned aerial vehicles for delivery purposes, while Amazon Scout is an autonomous delivery robot designed to navigate sidewalks and deliver packages home to customers. These initiatives demonstrate Amazon's commitment to using robotics to revolutionize the "last mile" delivery process.

Automation: Amazon operates numerous fulfillment centers around the world and has implemented advanced robotics technologies to optimize its warehouse operations. The company uses robotic systems such as Amazon Robotics Automated Guided Vehicles (AGV) and robotic manipulators to automate various tasks such as collection, sorting and packaging. These robots work together with human workers, providing faster and more accurate order processing.

You should especially pay attention to the fact that Amazon owns a total of 30,473 patents worldwide. These patents belong to 17188 unique patent families. Out of 30,473 patents, 26,859 are active ^[11].

Alibaba's research and development expenses for the quarter ended December 31, 2022 amounted to $1.960 billion, which is 20.49% less compared to the same period last year.

Alibaba's research and development expenses for the twelve months ended December 31, 2022 amounted to $8.025 billion, which is 12.58% less compared to the same period last year.

Alibaba's annual research and development spending in 2022 amounted to $8.749 billion, which is 0.15% more than in 2021.

Alibaba's annual research and development spending in 2021 amounted to $8.736 billion, which is 43.57% more than in 2020.

Alibaba's annual research and development expenditures in 2020 amounted to $6.085 billion, which is 9.09% more than in 2019 ^[12].

Alibaba is trying to invest significant funds in its R&D projects in order to remain in a leading position in the world. A significant place in this is given to the company's own institutions:

Damo Academy, short for "Discovery", "Adventure", "Momentum" and "Prospects", is a global research initiative of Alibaba. It focuses on breakthrough technologies, including artificial intelligence, machine learning, data analytics, cloud computing and more. The Academy strives to study advanced technologies, develop cooperation with global research institutes and promote breakthrough innovations.

Alibaba's Cloud Intelligence Research Quantum Laboratory specializes in research and development in the field of quantum computing. Alibaba recognizes the potential of quantum computing in solving complex problems and strives to be at the forefront of this evolving technology. The laboratory explores various applications of quantum computing and collaborates with industrial and academic partners to develop this field.

Alibaba Security Laboratory specializes in research and development of technologies in the field of cybersecurity. It aims to improve the security of Alibaba's platforms and services, and also seeks to contribute to the broader cybersecurity ecosystem. The laboratory conducts research on topics such as intrusion detection, threat analysis and secure computing, and collaborates with leading experts and institutions in this field

Alibaba-Nanjing Joint Research Institute of Advanced Technology - Alibaba has created this joint research institute to focus on artificial intelligence, intelligent manufacturing and Internet of Things technologies. The Institute brings together Alibaba's academic expertise and industry expertise to drive innovation in these areas in order to contribute to the development of a more advanced technology ecosystem.

Alibaba has a total of 51,752 patents worldwide. These patents belong to 3,2005 unique patent families. Of the 51,752 patents, 28,717 are active ^[13].

After analyzing the innovation activity and digital transformation of Amazon and Alibaba, we can conclude that both companies operate with approximately the same set of technologies, while Alibaba manages to do it more efficiently, as evidenced by a larger number of patents with a smaller budget.

Digital ecosystems of Russia

Considering the topic of building a business model of the digital ecosystem and its leadership in the market, we cannot ignore the experience of Russian companies. 

The possibility of building a digital ecosystem in Russia is a complex and multifaceted issue. There are a number of factors that make it difficult to achieve this goal, but there are also a number of reasons that incline to cautious optimism about the future of this type of business building companies.

In particular, one of the problems is the lack of a clear definition of what a digital ecosystem really is ^[14]. There are many different interpretations of this term, which may, among other things, make it difficult to develop a consistent strategy for the development of the digital ecosystem.

Another problem is the need for significant investments in digital infrastructure. However, a number of programs already exist in Russia, including the National Digital Economy Project, which sets goals and objectives for the development of the digital sphere in the country. As part of this strategy, it is planned to develop communication networks, including high-speed Internet, next-generation mobile communications (5G) and digital infrastructure projects ^[15]. 

However, as in many other countries, the development of digital infrastructure can require significant investment and time. Depending on financial resources, technical complexity and other factors, the process of infrastructure development can take a long time.

Finally, there is a shortage of qualified workers in the digital sector. In particular, the shortage of personnel in the digital sector worsened after the start of a special operation on the territory of Ukraine ^[16]. Russia needs to invest in education and training to create a workforce capable of managing the digital economy.

Despite these problems, there are a number of factors that inspire optimism about the future of digital ecosystems in Russia. The government has committed itself to developing the digital economy, and more and more startups and entrepreneurs are working in this sector. In addition, Russia has extensive experience in the field of innovation. The country has established some of the world's leading companies in a number of sectors, including technology, space and energy ^[17].

There are currently several significant digital ecosystems in Russia, two of which are the most well-known and successful: Yandex and Sberbank. They develop in different spheres, but both provide a wide range of services and products, creating links between different business areas within their ecosystems ^[18].

Yandex:

Business areas: Yandex is the largest Internet company in Russia, providing a wide range of services, including a search engine, online advertising, e-commerce, media services such as video and audio streaming, maps and navigation, taxi, food delivery, financial services and much more.

Yandex Ecosystem:

1. Search engine: Yandex is the largest search engine in Russia, providing information and search results in different categories.

2. Advertising platform: Yandex provides advertising services, including contextual advertising and advertising in search results.

3. Yandex.Market: It is an online platform for comparing prices and buying goods from various sellers.

4. Yandex.Drive: Car rental service with the possibility of renting by the hour.

5. Yandex.Taxi: A service for ordering a taxi through a mobile application.

6. Yandex.Food: Food delivery service from various restaurants and cafes.

7. Yandex.Maps: A map and navigation service that provides location information, routes, etc.

8. Yandex.Music and Yandex.Radio: Music and radio streaming services.

9. Yandex.Money: An electronic payment system that allows you to make payments and transfers.

Connections within the system: Many of these services are interconnected and form an internal link in the Yandex ecosystem. For example, Yandex.Market allows users to find products, and Yandex.Delivery ensures their delivery. Payments for goods and services can be made via the Yandex electronic payment system.Wallet. All services are combined with a single Yandex account – Yandex ID. 

Sberbank:

Business directions: Sberbank is the largest bank in Russia, which is expanding its activities and turning into a technology company. The Bank offers a wide range of financial services, including banking products, investment services, insurance, mortgage, pension services, etc.

Communication within the system: Beac is building its digital ecosystem using the Sberbank Online platform, which combines various services and products. Sberbank online provides access to financial services and products of Sberbank, as well as to products and services of partners, including e-commerce, food delivery, communication services and much more.

The Sber ecosystem:

Banking services: BEAC offers a wide range of banking products, including accounts, loans, mortgages, investments and insurance.

Sberbank Online: It is a digital platform of Sberbank that allows customers to access various banking services and products through a mobile application or Internet banking.

Sberbank Investments: An investment platform that provides access to various financial instruments and portfolios.

Sberbank Insurance: Insurance services, including automobile, life, property, etc.

SberMegaMarket: An online platform for buying goods of various categories, including electronics, household appliances, cosmetics and more.

Connections within the system: Beac builds its ecosystem around the Sberbank Online platform, which combines various services and products. For example, customers can use Sberbank Online to manage their finances, invest through Sberbank Investments and make purchases through the Savings Bank. This allows customers to receive all the necessary services in one platform.

In both cases, Yandex and Beber use the main business (search engine and banking services, respectively) as the core of their ecosystems, they strive to create a network of interconnected business directions. Such ecosystems allow companies to keep users inside their platforms and provide them with a wide range of services, meeting various needs.

Conclusion

Considering all of the above, the fundamentals of strategic leadership of the digital ecosystem business model are: 

- The ability to combine a large number of diverse business models and effectively implement their strengths

- Institutional flexibility and adaptability to respond quickly to market signals

- A propensity for partnerships and alliances that allow all participants to increase their benefits

- Reliance on both leadership in the field of technology and innovation, and on high-quality human capital

- Generation of system effects, which, thanks to all of the above, multiply the results multiple times

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