Tending Your Industry’s Ecosystem

Organizations never exist on their own; they’re part of an ecosystem, a web of relationships that make it possible for things to get done. Your decisions affect the ecosystem, and the decisions of others affect you.

This has always been so, of course, but the internet has made ecosystems more visible and susceptible to disruption. Transacting has become easier and faster. Changes are often immediate, have more impact, and lead to greater network effects. The balance of power shifts: organizations can leverage connections to go straight to consumers. Alternatively, intermediaries can create new roles for themselves, becoming purveyors of information as much as goods.

There are great opportunities for organizations that can affect system dynamics. But there are also risks — to themselves and to the ecosystem. For example, in a recent interview with economist Tyler Cowen, music critic Ted Gioia talked about the impact internet streaming has had on the music industry:

If you go back a few years ago, there was a value chain in music — started with the musician, worked for the record label. The records went to the record distributor. They went to the retailer, who sold the record to the consumer. At that point, everybody in that chain had a vested interest in a healthy music ecosystem in which people enjoyed songs. The more people enjoyed songs, the better business was for everybody.

That chain has been broken now. Apple would give away songs for free to sell devices. They don’t care about the viability of the music sub-economy. For them, it could be a loss leader. Google doesn’t care about music. They would give music away for free to sell ads. In fact, they do that on YouTube.

The fundamental change here is, you now have a distribution system for music in which some of the players do not have a vested interest in the broader musical experience and ecosystem. This is tremendously dangerous, and that’s the real reason why I fear the growth of streaming, is because the people involved in streaming don’t like music.

In fact — and this is amazing — the CEO of Spotify said, “We’re not in the music business. We sell subscriptions. We don’t sell music; we sell subscriptions.” That’s very dangerous, and that tells you that you have parties here that are going in completely different directions, and it’s not going to be good for the health of our music culture.

You can disrupt an industry for one of two reasons: you’re either looking to create value or to extract value. The latter is always a short-term play. Sooner or later, prioritizing profits over value will lead you to optimize value out of the ecosystem. The internet may allow you to upend system dynamics in new ways, but extraction isn’t a new play at all. There’s even a 2,700-year-old cautionary tale about this idea.

Questions for organizational leaders: How might we use the disruptive power of technology to generate real value for all parties? How might it help us become better stewards of our ecosystem? Real, long-lasting value — and profits — will follow.

Ted Gioia on Music as Cultural Cloud Storage (Ep. 79)