The following is an excerpt from chapter nine of Smart Rivals: How Innovative Companies Play Games the Tech Giants Can’t Winwritten by Feng Zhu and Bonnie Yining Cao and published on August 20, 2024.

In today’s global digital and technology business landscape, traditional companies may find it difficult to adapt to the ever-changing ecosystem strategies. In his book Smart Rivals: How Innovative Companies Play Games the Tech Giants Can’t WinFeng Zhu provides principles to help companies change their strategic thinking about technology giants and their evolving relationship with growing business ecosystems.

Extract from Chapter 9: Principles for Growing Ecosystems

Traditional companies, often accustomed to a more standalone and linear approach, may find it difficult to adapt to the open, dynamic and interdependent nature of ecosystem strategies. Therefore, this transition requires a paradigm shift in strategic thinking.

Change the perspective: Your ecosystem, including the tech giants

Traditional companies often see themselves as mere participants in the ecosystems of tech giants when they partner with them. However, it is important to remember that these tech giants are also working to create value for you in these relationships.

“Thanks to these technology giants, a significant portion of your ecosystem is already established and easily accessible.”

Changing that perspective and viewing these tech giants as participants in your own ecosystem allows you to more proactively leverage their resources, such as data and infrastructure, for innovation and growth. In today’s digital age, leveraging resources from tech giants to drive innovation is not daunting. Companies can tap into a wealth of available resources – be it Amazon’s countless product reviews, a vast collection of free videos on YouTube, or Google’s open-source algorithms. Thanks to these tech giants, a significant portion of your ecosystem is already established and easily accessible.

Anchor: Charge your ecosystem.

Anker was one of Amazon’s original brands. Founded in 2011 by former Google employee Steven Yang, the company sells digital accessories – batteries, cables, chargers and more. These products are also offered by hundreds of other manufacturers or retailers. In addition to well-known branded items such as Apple’s cables, Amazon sells a wide range of digital devices under its own brands at competitive prices.

Yang attributed the company’s success to Amazon. In addition to Amazon’s established infrastructure, which helped the company save on retail and logistics costs, “the key to developing high-quality and innovative products is listening to customers. Amazon reviews are actually the most important input to our new product development process. We make sure that our new products are based on the needs that customers express,” Yang said in a 2016 interview.

“Traditional companies should adopt the mindset of proactively considering technology giants as potential participants in their ecosystems.”

Taking advantage of the momentum and good reviews on Amazon, the company started selling its products through its direct-to-consumer websites and also entered other sales channels. For example, Anker also sells its products in Apple’s official direct-to-consumer stores, selling similar products there alongside Apple’s own products such as charging cables. Anker has also managed to form partnerships with offline retailers Best Buy, Costco, Target and Walmart and sell its products through their channels. This strategy has enabled Anker to build an ecosystem that includes several giants, including Amazon and Apple, further cementing its position in the market.

Traditional companies like Anker should adopt the mindset of proactively considering tech giants as potential participants in their ecosystems. Rather than just using these giants as channels to expand their reach, traditional companies should leverage these tech companies to increase their own innovation capabilities. This improved innovation capability not only gives traditional companies a competitive advantage over tech giants, but also attracts multiple tech giants into their ecosystems. This, in turn, strengthens their negotiating position with each of these tech giants.

Hub or no hub: How to expand your ecosystem

When building an ecosystem, companies have a choice: they can be a hub or a non-hub. Both have advantages and disadvantages.

A hub in an ecosystem is a central organization that provides key services, technologies, or connections used by a large number of other participants. Orchestrating an ecosystem as a hub can be a significant undertaking. Often, a company must make risky investments up front in the hope of reaping the rewards at a later date. For traditional companies that are not used to acting as a hub and are not willing to invest time, energy, and resources, such an undertaking can pose significant risks.

Anker’s journey shows that you don’t necessarily have to be a hub to build an ecosystem. Anker doesn’t aim to become a hub for the participants in its ecosystem, nor is it essential for the survival of the participants in its ecosystem.

Although it may seem disadvantageous for non-hub actors to depend on other participants to meet various needs and not have the same power as ecosystem hubs, the companies can significantly reduce their downside risks and quickly begin to benefit from the ecosystem.

The ecosystems of Ping An.

Ping An began as a small property and casualty insurance office with thirteen employees in the southern Chinese city of Shenzhen in 1988 and grew into a conglomerate with 1.4 million sales employees at its peak in 2017.

Over the years, Ping An has implemented its Financial Plus ecosystem strategy in three steps.

First, the company used technology to strengthen and increase the competitiveness of its core business, financial services. Second, it used technology to create five new ecosystems. In building each ecosystem, Ping An first developed scenarios, built traffic, generated revenue, and finally hoped to make a profit. After building the ecosystems, the company also hoped to use these ecosystems to expand its financial services.

Ping An chose these five ecosystems because the business opportunities in each of them were large enough: they created many touchpoints for Ping An to better understand customer needs and they were able to leverage Ping An’s strength in financial services.

“For companies entering an ecosystem late, adopting an acquisition strategy can be an effective way to establish themselves as a hub.”

Even for resource-rich companies like Ping An, developing an ecosystem as a hub in a competitive environment presents significant challenges. Most traditional companies lack the resources of a company like Ping An, so starting as a non-hub player can be beneficial even if you want to become a hub. This approach allows companies to support others while gaining valuable experience, understanding the needs of customers and partners, and building the capabilities and resources needed for future hub status.

For companies that are late entrants into an ecosystem, the acquisition strategy can be an effective way to establish themselves as hubs. Ping An successfully used this tactic in its car services ecosystem. Similarly, Adidas entered the digital fitness market—a field that Nike had already penetrated—by acquiring the running app Runtastic in 2015, which had seventy million users at the time. This acquisition quickly became a cornerstone of Adidas’ digital strategy. Today, over 170 million people use Adidas Running to follow more than ninety sports and activities.

Firm footing: Build your ecosystem on a solid foundation

Successful ecosystems are often based on solid and successful products. To ensure sustainable growth of an ecosystem, a company must make the defensibility of its product a top priority.

In Anker’s case, the company was able to convince industry leaders like Apple and Costco to join its ecosystem thanks to its tireless efforts to identify customer needs and implement appropriate R&D efforts to bring successful products to market.

The Nike ecosystem.

One of Nike’s first forays into fitness was the launch of the FuelBand in 2012, a wrist-worn fitness tracker with social features. Its key feature, NikeFuel, was designed to provide a universal metric for tracking various activities. This was part of Nike’s strategy to integrate digital technology with its physical products, fostering a fitness and wellness ecosystem. However, Nike soon realized that its market position was indefensible with the FuelBand. The wearable technology market was evolving rapidly with competitors such as Fitbit and then-Jawbone UP, as well as the emergence of smartwatches, particularly the Apple Watch, which offered more comprehensive features. Nike realized that hardware innovation was not its strong suit and stopped production of the FuelBand in 2014 to focus on software. Its digital products Nike Run and Nike Training Club, which better aligned with its core strengths in branding, content creation and community engagement, became linchpins of its fitness and wellness ecosystem.

Reprinted with permission from Harvard Business Review Press. Adapted from SMART RIVALS: How innovative companies play games that tech giants can’t win

from Feng Zhu and Bonnie Yining Cao. Copyright 2024 Feng Zhu and Bonnie Yining Cao. All rights reserved.

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