By now, you should have started to appreciate the value of intercompany relations in the digitalization of finance. You should also be able to recognize how digitalization makes relations increasingly complex. In this lesson we're going to further our exploration of relations in digital innovation ecologist. Examine what powers mean to these relations. We're going to look at where power comes from, what responsibilities it brings and how to effectively take care of those responsibilities. Although everyone in an ecosystem are dependent on the common success of the ecosystem, not all players in an ecosystem are equal. Some positions are more powerful than others. Control of a platform core, as discussed previously, is a particularly critical and power generating resource. But it is not only resources that can give a strong ecosystem position. Power can come from a particular important technology, a strong customer base, a brand name, Or some other valuable resource that is fundamental to the ecosystem. With the control of a critical ecosystem resource comes the power to influence the rules of the ecosystem and the task of ecosystem governance. Understanding the approach to ecosystem governance is important both for the center organization managing the ecosystem, but also the current and potential members of the ecosystem. It gives possibilities to understand the climate in this ecosystem. In governing a digital business ecosystem, a company can use its power to become either a keystone organization or a value dominator. A keystone organization is what makes the ecosystem prosper. A value dominator everyone should stay away from. What is then a keystone organization? And how does it create value for the ecosystem? A keystone organization is the organization that uses its power to find a healthy balance between growing the pie and eating of the pie. In practice, Apple app, as a keystone organization, when it provides new iPhone features, API's and development kits for app developers to build new apps. And allows app developers to make a healthy profit. According to Apple, 3rd party developers have made over $60 billion in revenues since the first iPhone was released. Apple could, in theory, write rules so that it claimed a larger portion of the revenues. But if no one gets rich writing app, fewer will continue to do so. So this is pretty straightforward. Sharing revenues is good for the ecosystem, and in the long run good for the dominating firm. But can you think about other times when this sharing is more questionable? Apple, for example, does of course not share everything. There are many types of apps you're not allowed to develop because they would compete directly with Apple's own services. Another example is Twitter that's been accused of acquiring innovative complementers Then to turn of the external APIs and make their recent acquisition having a monopolic position in that specific niche. The other complimenters in the same area gathered business. In the short term this pushes Twitter's revenues. But how do you think this impact the likelihood to attract new developers? This behavior is called value domination. Value dominators munch on too much of the ecosystem pie to push their profit. They use their power to extract value from the ecosystem, and make the ecosystem grow weak. So I think we all can agree to the public owns the [INAUDIBLE] obligation to set up structures, for the ecosystem to work efficiently. But how do we do that. Here it's important to remember that the reason why we care about ecosystem in the first place, is because it is essential to cocreate digital innovations. Remember, in the digital financial industry, it's true innovation that companies compete. It's true enabling innovation that keystone organization also enables the ecosystem to pass. At the heart of the challenge lies the seemingly conflicting goal of evolution and stability. Evolution refers to the fostering of unforseen creativity and innovation that leads to technological progress and a variety of niche solutions. Stability on the other hand it's critical for compatibility and quality of the combined output of the ecosystem. Why these calls are contradictory is because too much unrestricted innovation can make it difficult to integrate and consolidate the products produced by the ecosystem. But on the other hand, too much stability isn't good either because it restricts innovation what you really want is to find that magic formula that allows the ecosystem to produce just to write a man of innovation, so how do we do that? To answer this question, we have to dig deeper into what leads to evolution and stability. Under the surface we have three different tensions forming the dynamics of an ecosystem. Output tension, this is standardization versus variety in offering to what extent does an ecosystem require that products and services are standardized? Act attention, this means control versus autonomy. To which level do the keystone actors decide the behavior of other actors, for example, how to price products. Identification, this is collective versus our individual identification. You'll ecosystem be branded at ecosystem level where should every company develop it's own brand. If we pull too much to the left, we get stability but no innovation. If we pull too much to the right, we get evolution, but no integration. We want to stay somewhere in the middle, to find that healthy balance, that gives integrated innovation. This is taken care of in the Partner Program. A Partner Program consists of both positive, and negative steering mechanisms both sticks and carrots. Broadly, a partner program works in two dimension. One is to regulate the degree of involvement of an actor in that ecosystem. Here you have the partner method, which basically means that the more value you provide for the ecosystem, the more the ecosystem benefits you should be granted. The other dimension is that the behavior rules and enabling resources that are in place to encourage some type of desirable innovation and at the same time, discourage unwanted innovation. Let's consider MasterCard again, to make this a little bit more concrete. Where do we place the masterpass ecosystem? Masterpass has the ability in that the core technology for payment transaction cannot be altered with. This is basically a standarized service. Partners are not allowed to tamper with this service for a whole set of reasons. Which regions, do you think? Well, security, of course. It would be devastating for the whole ecosystem with security loopholes, but also, interoperability. Terminals should be able to handle all types of master power connections. Just because some clever guy finds a setting in the NFC protocol that was suboptimal does it mean that it is a good to innovate in this one. But you use an embed master path in many different ways. This kind of innovation is encouraged. Can come up with new context of payments with your MasterCard. In fact MasterCard has provided extensive documentation for how to embed a Masterpass service, including a reference library of available APIs. But are all of Masterpasses APIs available to all partners? Probably not. Banks such as Citibank are platinum partners. That are probably the most equal among the equals. With it's extensive costumer base, Citibank brings more business to the MasterPass ecosystem. In turn, Citibank should be rewarded by the possibility to a more closely integrated MasterPass in the bank's other products. So the CitiPay becomes something more that just a MasterPass with another logo. So, now we'll talk a lot about the relations between companies. In digital technology systems, but as you probably also have noticed, the relationships between technologies are also important here. They sort of go hand in hand. Business ecosystems are important, just because the little technologies exist in complex ecosystems. This will be the topic of the next lesson
