News from Google (buying Motorola) and HP (selling its mobile and PC business) shows that there are huge shifts taking place in business models. And the key word is ecosystem.

So what is an ecosystem? Well, much like the ecosystem that plants, animals, and humans live in, an ecosystem in business is a collection of parts whose complex interconnection enables a company to thrive in their environment.

Google bought Motorola because it had parts of an ecosystem. It owns search, has a big presence in email, and has Android, its mobile operating system. What it lacked, to achieve control, was the other piece of the ecosystem, hardware. Buying Motorola gives it that missing piece, meaning that it can control every aspect of the Android experience: this would give it more control of the marketplace for apps, music, video and other content. It also gives it an alternative revenue stream, from handset sales, should it choose to take advantage of it (although there are some who believe that Google may build phones to give away for free).

HP announced the sale of the PC business because it saw it as a burden on the ecosystem rather than a benefit: even as market leader, it couldn’t make money from a business which had become commoditized, and there was little recurring revenue. It is telling that it is sticking with enterprise computer sales (with their fat, recurring support contracts) and printers (making more money on ink sales than the printers themselves). Its acquisition of Autonomy, and enterprise services company for USD10 billion, helps extend the reach into contracts and recurring revenue.

So where are other large companies in terms of ecosystems?

Apple. Pretty much invented it in the tech sphere. iTunes and iPods started it. Phones brought the App Store. App Store then was ported over to the Mac itself. And don’t forget the value in having all those stunning retail stores to showcase products. All of these provide an end-to-end experience for customers, and constant revenue for Apple.

Amazon. Has it, with all those accounts with credit cards. Now has more services, like music and streaming video. Kindle has been a great success, but it needs to extend its hardware business to lock in customers.

Facebook. Has the beginnings of it. Needs hardware (phones and computers?) and serious monetization to succeed.

Microsoft. Doesn’t have it. At one stage had it through the hold it had on computing, but now there are credible alternatives. Maybe a solution in what’s happening with Xbox, a well run and profitable division (crucially with recurring license revenue) that shows what can happen when talented people are given free rein. Possibly needs to buy Nokia (to control the mobile experience in the way that Apple does) or do something else bold.

What about outside tech?

There are plenty of examples. In travel, low cost airlines are also pioneering complex ecosystems. Instead of getting their money purely from ticket sales, as with traditional carriers, but instead receives money from a mix of supplementary fees for checking bags, credit cards, inflight refreshments, as well as advertising, sales of customer data and many others.

Being the market leader is not enough — an ecosystem is necessary. We should all look at our own businesses, and the models that they are founded on, to examine ways that the ecosystem can be embraced. One thing’s for sure, the old world of simple buying and selling of products and services is fast disappearing.

Anthony Green — August 2011