Digital ecosystems are often concentrated around specific geographic areas where they form a bubble of digital life, with digital platforms being part of such digital ecosystems. As digitalization now touches upon very different aspects of life around the globe and digital platforms have become giants, the rules matter even more than ever – said Meelis Kitsing, Rector of and Professor of Political Economy at the Estonian Business School and author of “The Political Economy of Digital Ecosystems” to Economania blog. He also highlighted that the Estonian ecosystem can be seen as a source of inspiration rather than concrete lessons to be learned. Inspiration in the sense that even small and relatively poor countries can leapfrog technological development if they are willing to do it in their own way.
Kolozsi Pál Péter (KPP): Your research connects political economy perspectives with scenario planning for mapping out future trajectories of digital ecosystems which encompass economic, political and social contexts on a global, national and local level. How could you define the „digital ecosystems”? What is the concept behind that notion? What is the importance and role of platforms in that context?
Meelis Kitsing (MK): Often a digital ecosystem is seen as a complex network of interconnected services, products and/or companies operating within one platform. This begs a question of why it is called „ecosystem” and simply not „system”. If we borrow the analogy of ecosystem from natural sciences, then interactions between organisms and broader environment is crucial. I like the definition by National Geographic where ecosystem is seen as a geographic area where organisms, weather, landscape and other factors work together to form a „bubble of life”. Similarly, different businesses, universities, public sector agencies, non-profit organizations and many other actors can work together by complementing each other in an institutional environment. This can be seen as an ecosystem. Particularly, if the development of the ecosystem is organic and modular. For me it is a bottom-up process where intended and unintended consequences of various actions are both important for the evolution of ecosystem. I would see it as a spontaneous process.
Digital platforms are part of such digital ecosystem – even though they are eager to engineer their own „ecosystems” in a top-down fashion. For me digital ecosystems are often concentrated around specific geographic areas where they form a bubble of digital life – be it Silicon Valley, Estonia or some other place in the world. Obviously, they have also strong connections and extensions to other geographic areas.
KPP: What is the importance and the role of digital ecosystems in the global economy nowadays? How can we measure that importance?
MK: If your definition of digital ecosystem is something that is built around a particular platform such as Apple or Google, then it is relatively easy. We can look at their market capitalization, their revenues and span of their global value chains. For instance, Apple’s market cap is 2.8 trillion USD while Google/Alphapet’s market cap is 1.75 trillion USD. The US GDP is about 20.4 trillion USD. The world GDP is 112.6 trillion USD. Apple is dependent on China as 20% of revenues are generated there and assembly is still predominantly there while Google left China already in 2010.
If we want to measure digital ecosystems in a broader sense, then it is a more difficult task. We can look at contribution of specific areas to GDP, for instance Silicon Valley and San Francisco together contribute about 19% to California’s GDP. More than 80% of Unicorn and Decocorn companies in California are founded there. If California were an independent country, it would be the 5th largest economy in the world. These are limited and highly imperfect measures which do not capture the extensity and intensity of digital ecosystems.
KPP: In your book „The Political Economy of Digital Ecosystems: Scenario Planning for Alternative Futures” you emphasize that even if „internet is a global technology, […] digital ecosystems are not aspatial but spatial. As digital ecosystems develop differently over time, they are not ahistorical but historical. In other words, history matters for how digital ecosystems develop over time with different extensity and intensity in different locations.” Why do you consider digital ecosystems as an important factor in political context as well? Why is this not just an operational issue?
MK: Political context matters because it creates the rules of the game. Digital ecosystems have emerged in particular areas because the rules have been favorable. For instance, Estonian reforms and emphasis on digitalization in the 1990s was fundamental for the evolution of digital ecosystem. In many places digitalization has been insufficient because the losers from digitalization have blocked the expansion of digital business models through political system. The regulation of ride sharing would be the case in point.
As digitalization now touches upon very different aspects of life around the globe and digital platforms have become giants, then the rules matter even more than ever. Many people have started to pay attention to the politics of digitalization now in the context of tech wars between China and US. However, Google left China already in 2010 because of internet censorship. Investigations of Google’s anti-competitive behavior in the European Union as well as more recently in the United States have to some extent also a political dimension. US president Donald Trump attacked Apple already 5 years ago because of China connection in its global value chain. Now we see that the Chinese government entities are effectively banning the use of Apple products.
KPP: There are several types of platforms – from social media and communication to search, sharing economy, payment and matching platforms. Which ones are the most relevant from the point of view of your research and narrative? Do you agree that platform based business model is a new level of intermediation which can replace the classical linear model in the process of value creation?
MK: Platforms are different from regular businesses by replacing the linear model of value creation. These platforms are characterized by network effects, two- and multisided markets, use of boundary resources, ability to exploit both mainstream and niche markets. All these features are common to all platforms to a greater and lesser extent depending on their particular business model.
Usually, consumer and social media platforms receive more attention from scholars, experts and policymakers. I find more hidden parts of platform business more interesting. For instance, Amazon does not offer only a large online store but also has a significant role in business-to-business infrastructure. Tencent is not only focusing on online gaming but has invested in healthcare platforms as well as building up a network of data centers in Europe.
KPP: In your book you mention several times the Chinese and American technology competition. The importance of that competition has always been trivial but was made clear at the beginning of September when all leading newspapers reported that Huawei Technologies and China’s top chipmaker SMIC released that they have built an advanced 7-nanometer processor to power smartphones which are capable of download speeds exceeding those of top line 5G phones. How do you see the rivalry of the US and China from that perspective? Don’t you fear that this rivalry can go beyond the technological sphere and become a wider conflict?
MK: It has become a wider conflict already because it is not only about specific technology issues but has impact on trade, climate negotiations, political relations and number of other issues. Assuming that both sides maintain a degree of rationality, the full-blown conflict should not be very likely. However, very dark scenarios cannot be ruled out. Last year we did with 17 experts scenarios about the geopolitics until 2030 which ranged from limited, selective cooperation in some fields such as climate to conflict – in between decoupling as well as de-risking options.
KPP: You say that „often visions about the future of digital ecosystems suffer from a lack of imagination and confirmation bias. Scenario planning teams around the world have applied a collective imagination to show how future trajectories can be radically different from the current trends”. Your book outlines meta-scenarios for alternative futures of the political economy of digital ecosystems. What are these meta-scenarios? What does it depend on, which scenario will realize?
MK: Meta-scenarios are groupings of scenarios from different sources which have similar characteristics. I looked at scenarios developed all over the world and asked what is common about them and categorized them accordingly. I found that scenarios developed in Finland, Singapore, United States and other countries by different organization can be grouped into three categories: Private Platform Ecosystem. Government dominated ecosystem and Decentralized Ecosystem. In rough terms, this is how the foresight organizations see the possible, plausible and probable futures. Obviously, it is a simplification which assumes many nuances away.
I would not expect any scenario to be realized completely because essentially all scenarios are ideal types. The goal is to clarify thinking and focus on core elements. The future development will be characterized by all these scenarios. However, we can ask to which scenario is current trajectory more similar. For instance, China has certainly moved even more strongly towards government ecosystem approach as private platforms do not operate anymore only in the shadow of government policy, but the government has directly taken stakes in platforms. When I published a book in 2021, then generative AI solutions such as ChatGPT were weak signals at best. Now they are strong signals. With the emergence of OpenAI and new firms as well as open source developments in AI, the decentralized ecosystem scenario does not seem anymore as unlikely as it was few years ago.
KPP: You are from Estonia which is a leading country in digitalization. What is the secret of Estonia? What would be your advice for other similar countries if they want to catch-up? What lessons can the world learn from Estonia?
MK: To understand digitalization in Estonia we have to trace it back to the mid-1990s when many innovative companies such as banks launched internet banking and Estonian government started to focus on digitalization in public sector. Since then private and public actors have both contributed to digitalization because it has been mutually beneficial, provided incentive compatibility, and complementarity. I see it as evolutionary development where through the interactions of key actors and surrounding environment has worked together to form a “bubble of digital life” which touches upon almost every aspect of everyday life.
Since institutional contexts are different, it is difficult to offer direct lessons in the form of policy transfers to other countries. However, I would say that constant experimentation and flexibility are important. Estonian ecosystem can be seen as a source of inspiration rather than concrete lessons to be learned. Inspiration in the sense that even small and relatively poor countries can leapfrog technological development if they are willing to do it in their own way. Obviously, concrete Estonian solutions such as X-Road, digital ID, internet voting and/or e-residency have been and can be exported to other countries. Similarly, many Estonian unicorns such as Skype, Bolt, Wise, Veriff and many others already operate in different countries. But they have to adapt to local environment.
Kolozsi Pál Péter
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