Limits of innovation ecosystem strategy: A demand-side view

Increasing product variety enables a firm to better address the heterogeneous preferences of customers in a market, but a firm’s ability to economically develop and manage coherent variety on its own is limited. An ecosystem strategy addresses this duality by distributing to ecosystem participants the generation of an increased variety of complements integrated by customers, who are axiomatically considered as highly heterogeneous.

We discuss assumptions about demand heterogeneity and identify demand-side mechanisms which may affect customers’ selection and integration ability, hence the realization of an ecosystem value proposition. We clarify the boundary conditions and delimit the domain of viability of an innovation ecosystem strategy based on a firm’s innovation, orchestration, and integration capabilities, on customers’ ability to integrate, and on varying degrees of demand heterogeneity.