A DIGITAL ecosystem is an interconnected set of offerings that fulfils consumer needs in one integrated experience. It comprises businesses across different sectors, collectively offering a broad range of products and services.
In a new study by EY, a multinational professional services network, participating in digital ecosystems is a game-changer venture that can create long-term value and competitive advantage.
The report, titled Building successful digital ecosystems in Southeast Asia, highlights that collaborative consumption and the sharing economy have been on the rise in Southeast Asia. This is driven by the region's average internet penetration of 63 per cent and a growing tech-savvy middle-class population that is rapidly moving up the socio-economic ladder, paving the way for sharing models across different sectors such as mobility, travel and hospitality, as well as real estate.
During a virtual briefing recently, EY Asean's regional managing partner, Liew Nam Soon, shared how the current consumer-focused digital ecosystems are forming across Southeast Asia to deliver value at unprecedented speed and scale, in response to industry digital disruptions and accelerated by the pandemic.
TECHNOLOGY TRANSACTION GROWTH
Between 2016 and 2020, Southeast Asia witnessed technology transactions worth a total of US$408.5 billion (RM1.7 billion) mobile applications, cloud computing, artificial intelligence, big data and analytics, blockchain and Internet of Things (IoT) were the technology areas that saw the most investments.
"There is rapid growth of start-ups and digital natives. Some of the leading digital natives in Southeast Asia are transforming into super digital platforms, by delivering interconnected services through an integrated experience – from ride-hailing, food delivery, grocery, logistics, through health, lifestyle and financial services.
"Today's consumers expect speed, responsiveness and access with a hyper-personalised experience. Digital ecosystems help companies create value through revenue growth, gain new market access, decrease customer acquisition costs, and ultimately strengthen and retain customer relationships," said Liew, adding that the super apps are attracting the attention of investors with investments worth US$43 billion between 2016 and 2019. The growing digital ecosystems in Southeast Asia too, has the potential to generate revenue opportunities of US$23 billion by 2025, from about US$4 billion in 2019.
CREATING DIGITAL ECOSYSTEMS
Recognising the opportunities, traditional market players are leveraging partnerships and strategic alliances to share resources, data and capabilities to create digital ecosystems to compete with digital natives.
"While the established, traditional firms – given their large user base, reach and capital assets – are well-placed to orchestrate a digital ecosystem, they are often outpaced by the emerging digital natives that are ahead in digital adoption. Most traditional firms have been focusing on their core business and may be hesitant to build a platform-based business due to legacy systems and corporate culture. Thus, traditional firms are turning to collaborating with e-commerce and last-mile platforms to offer digitalised, streamlined and omnichannel experiences to their customers," said EY-Parthenon's Asean leader, Joongshik Wang, at the same event.
The report also highlighted three key areas organisations should consider when navigating digital ecosystems - evaluate organisation's digital ecosystem (DE) maturity, defining the business model, and implementation of the ecosystem.
There are three DE's maturity levels. The first one is the DE adaptor. This is where the transformation is at a modular level and limited to a particular business unit or geographic market. Next, the DE accelerator, where the organisation scales the transformation to a company and industry level; and the third one is DE attacker. At this level, organisation drives large-scale transformation across multiple industries through cross-sector collaborations and leverage technology capabilities across different parts of the value chain.
"Being part of a digital ecosystem allows businesses to leverage the network effect to create a competitive advantage. However, to do so, companies must get their strategy and capabilities right. The question is whether they should design or join a digital ecosystem, and there are three strategic choices that businesses can undertake: buy, build or partner," said Wang.
Based on different parameters, such as the nature of the ecosystem, the second aspect organisations need to pay attention to is the scale of industry partnerships and the revenue model where organisations should make clear definitions to the business model it will undertake as a DE participant.
According to Liew, a partnership model can provide significant momentum for organisations' digital transformation journeys. More importantly, he said, "...companies must be clear of their strategic objectives, whether it is to achieve core business growth, to enter new market segments through new or digital offerings, to optimise operations or a combination. This will help them chart their roles in a digital ecosystem effectively".
Once an organisation has identified a DE opportunity, which is the third key aspect, organisations need to follow a stepwise process to design an ecosystem. This step includes identifying the most suitable role to undertake, which consists of identifying the nature of the ecosystem, product market fit and monetisation model; and the key enablers of the DE before defining the evolution roadmap.
"Digital interactions in both B2B and B2C activities are expected to stay and gain ground even after the pandemic, and enterprises in Southeast Asia will be seeking to transform their business digitally to drive profitable growth as well as work with partners to provide solutions leveraging technology to address value gaps," said Liew.