Joining the dots

19 December 2014 By Una Galani

Short on strategy? Maybe you need an “ecosystem”. Technology giants are using that word to justify building sprawling internet-based conglomerates out of a mish-mash of assets, often with few obvious synergies. Asian companies like China’s Alibaba and Japan’s Softbank are among the most avid fans of this unhelpful term.

An ecosystem, strictly speaking, is a group of interconnected elements, originally referring to a community of living and non-living organisms interacting. The tech world uses it more liberally. Facebook stresses the specific importance of a “developer ecosystem” and its advertising “ecosystem of agencies”; others use it to describe their entire business.

At Softbank, Chairman and Chief Executive Masayoshi Son articulates a desire to “create a comprehensive ecosystem that other companies will never be able to rival” using its mobile platforms. Chinese e-commerce giant Alibaba used the word “ecosystem” 160 times in the final prospectus for its initial public offering in September, using it to describe everything from companies it invests in to customers and suppliers.

It can be a struggle to see the connections or synergies between the parts. Does owning part of a football team help Alibaba’s core e-commerce business? Does Softbank stake in U.S. mobile carrier Sprint fit with its minority stakes in Alibaba, a South East Asian taxi-hailing app and a Hollywood movie production company? Not obviously.

Some have found ways to join the dots. In Japan, the diverse parts that comprise the “Rakuten Ecosystem” are connected by a loyalty scheme. Members earn points when make use of the retail group’s online malls, e-books and credit card services. A customer can earn points if they send messages on mobile messaging app Viber. Bonus points are awarded when the Tohoku Rakuten Golden Eagles baseball team wins a game. Yet a membership model isn’t quite the same as creating financial synergies that lead to lower costs.

When used to describe a broad array of investments, “ecosystem” really looks like a way of saying “keeping our options open”. Large tech companies dabble to stay alert to future trends as well as satisfying the whims of eccentric leaders. Investors are so far supportive. But they should see these newly-crafted empires for what they are: conglomerates by another name.

 

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