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#ecosystems
#strategy
December 25, 2023
4 min

Open, Closed, and Hybrid Digital Ecosystems: Choosing the Right Type for Your Business Goals

To ensure that an ecosystem meets the desired goals, businesses need to choose the right ecosystem type before the actual development. In our previous article, we talked about horizontal, vertical, and multidirectional ecosystems. In this article, we will focus on open, closed, and hybrid digital ecosystems.

The first classification helps companies determine what user needs the ecosystem will cover and what services it will have to incorporate. The open, closed, and hybrid classification explains how the ecosystem is going to add and manage these services.

Let’s consider these three types in more detail and see what business goals they are best fit for.

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Open ecosystems for fast launch and growth

Key principle: adding new services through partnerships and acquisitions

If quick start and fast development are a top priority, a business can launch an open ecosystem. Such an ecosystem joins forces with any interested third-party business or merchant and incorporates their services into its platform instead of developing extra services from scratch.

For example, it can invite third-party vendors and give them tools to develop and place their services on its platform. Or buy off a prospective company and add its services to the core business.

The most typical examples of such ecosystems are online marketplaces, app stores, and super apps.

Example: Amazon grew into “The Everything Store” by launching an open ecosystem

The Amazon marketplace is an open ecosystem of merchants and buyers. Its core is an online sales platform. Merchants join the ecosystem by starting their own shops on the marketplace, and buyers access the website by creating a special account with Amazon.

To propel further growth and drive more user activity, Amazon, a well-established online bookshop, opened its platform for other merchants in the year 2000. Rather than competing with other companies, Amazon was benefiting from the fees that they paid for selling their goods on its marketplace, and the new customers they attracted. Using the open ecosystem approach helped Amazon make great strides: in just one year after launch, it scored 25 million customers and grew its revenue by 13% to $3.12 billion.

Open ecosystems pros and cons for businesses

Fast to create. Instead of developing new services, the parent ecosystem buys already existing companies or invites third-party vendors to develop their own solutions for the platform.

Cover more user needs. Open ecosystems are fast to add new businesses and services to their core offering. For users, it translates into greater service variety, and for ecosystems—into covering more customers.

⛔️ Require stricter quality control. The core business will have to impose stricter control over its partner services to ensure the desired level of quality.

⛔️ Higher privacy concerns. An ecosystem with third parties might not be the best choice for high-security businesses or government agencies. When privacy is a top priority, a closed ecosystem is a safer option.

Closed ecosystems help bolster expert status and ensure maximum control

Key principle: developing and growing own ecosystem services from scratch

Instead of inviting third parties or partnering with other independent companies, closed ecosystems develop all services on their own.

Such structures retain all the characteristics of a typical ecosystem: one core business, multiple extra services, and a single account to unite them into one digital environment. The point is that such ecosystems do not allow outside vendors or developers, thus keeping the platform more private and mendable for different goals. Closed ecosystems can be developed by retailers, banks, service providers, or governmental agencies.

Example: a closed ecosystem helped a sporting goods retailer compete with marketplaces

Sportmaster wanted to set itself apart from marketplaces as an expert supplier of sporting goods and services. To do that, it created a closed ecosystem with user-relevant offerings: online workouts, equipment rental, medical check-ups, activity tracker, and media for athletes.

To build the ecosystem, Sportmaster researched its target audience and what other needs their customers had. After that, it started developing the services one by one and placing them in the Sportmaster super app. This strategy worked. Unique ecosystem services increased user engagement by 11% and overall sales conversion by 12%, helping the company strengthen its brand and gain an edge over marketplaces.

Closed ecosystems pros and cons for businesses

Easy to supervise. As all subsidiary services are gathered under one brand, the parent company can ensure that they are delivering the desired quality and keeping in line with its priorities.

Better security. Closed ecosystems do not allow third parties and outside vendors, which creates a safer and more private environment for companies that deal with high-security data, products, or services.

⛔️ Long to create. It might take longer for closed ecosystems to fully develop into a working business structure, as the parent company will have to spend some time growing its services from scratch.

⛔️Take more resources. Creating all extra services on its own also means spending more resources on development in terms of money and qualified labor.

Hybrid ecosystems to support the core service

Key principle: controlling key service vertical and engaging third parties for subsidiaries

Hybrid ecosystems combine the characteristics of the previous two types. In such ecosystems, the parent company keeps control over the key vertical and engages partner companies for ancillary offerings. This way, it creates an ecosystem with a reliable signature and diverse partner services to drive in new customers and support the core.

Example: a neobank launched a hybrid ecosystem to bolster its core business

IZI is a neobank targeted at younger audiences. To promote its offering, it created a super app with an ecosystem of lifestyle and banking services. The banking core consisted of its own financial solutions such as money transfers, credit cards, and online payments that powered all in-app transactions.

For lifestyle subsidiaries, IZI researched the needs of its target audience and partnered with companies that could satisfy them. This way, it integrated the most user-relevant services: restaurant booking, food delivery, movie ticket booking, and appointment scheduling. Partner companies added their customers to the ecosystem, and promoted IZI’s financial services by using them for in-app payment.

Hybrid ecosystem pros and cons for businesses

Control over core competencies. In hybrid ecosystems, the core business belongs to the parent company, which guarantees quality service in critical verticals. The company can be sure that its signature service is working properly and sets the tone for the whole ecosystem.

Balanced growth and expansion. Hybrid ecosystems allow companies to simultaneously focus on perfecting their core service and expanding their offering with extra services from partners without losing on quality, privacy, or development speed.

⛔️ Require careful consideration. The main point of a hybrid ecosystem is to support the core business. So companies have to carry out thorough market research to determine which services they can use to best promote their main offering.

Key takeaways

There are three types of ecosystems that businesses can develop:

1. The open ecosystem model is great for companies that don’t want to lose time and would like to get to the ecosystem stage with minimum spending.

2. Closed ecosystems are a long-haul solution that will require more time and resources to fully develop, but in return, provide full control and privacy to the parent company.

3. Hybrid ecosystems are a perfect blend of these two strategies. They allow companies to bolster their core business without spending much time on development and sacrificing their privacy or control.

To choose the right approach, set your business goals and evaluate your resources. If you would like to consider this matter in more detail, give us a call and we will look into your case together.

Head of Business Development at HeyInnovations