Profiting from innovation when digital business ecosystems emerge: A control point perspective

Abstract

The digital transformation of industrial-age sectors changes product architectures and industry architectures, influencing how value is created and captured in emerging digital business ecosystems. In the industrial era, products were designed around modular architectures and complementary assets, and bottlenecks determined who profits from innovation. In the digital era, products emerge on a layered modular architecture, and profiting from innovation is shifting to those who own control points. Despite the centrality of the interplay between the product architecture and industry architecture for value creation and value capture in the digital age, the effects on competitiveness and industry dynamics remain unclear. To fill this void, we draw on the concept of control points, a novel lens to reflect bargaining positions on a layered modular architecture in digital business ecosystems. Based on a case study of 19 companies, industry associations, and consulting firms in the digital business ecosystem of smart farming, we identify strategic control points, technical control points, generic control points, and institutional boundaries as instrumental in determining value creation and value capture positions. We find that actors (i.e., incumbents, diversifying entrants, and new entrants) in emerging digital business ecosystems follow a seesaw pattern in setting control points and acquiring bargaining positions, and propose a framework that allows to analyze the dynamics within digital business ecosystems. Our study offers managerial implications for firms seeking to optimize their ecosystem strategy and policy makers to support the effective development of the institutional context.