Digital Ecosystems Have Become too Messy
One key feature most any investor in a technology startup will ask about is how is the app or device set up to connect to other apps and devices? They’ll also look the “ecosystem” in which the startup’s app plays in, such as FinTech, InsurTech, AgriTech and so on. And of course, that key question of “what problem are you solving?” These are valid and important considerations; for the startup and the investor. But it has also created a rather large mess. And it’s getting messier.
The pandemic hasn’t helped, although it might seem so. As people started to work increasingly from home, technology solutions from video conferencing to messaging and project management apps started to pump out new features. And they all found ways to connect with more and more other apps. This interconnectedness isn’t so much the problem. As one does not have to connect with everything.
The problem rests within the various ecosystems and the rise of multiple apps within that ecosystem. Take HealthTech and InsurTech as examples. Before a consumer buys insurance today, they may well encounter multiple apps along the way; rate comparisons, policy comparisons, various payment app options. By the time the consumer actually gets to the point of making a purchase, they’ve left a long trail of personal data on multiple apps. For the app companies, they have massive amounts of rather messy information and they’re using the interaction data of the consumer to make marketing decisions on monetizing those interactions.
In the MarTech sector (marketing technology) the ecosystem of apps just five or six years ago was around 200 or so companies. Today it is over 3,000 and still growing. Multiple analytics apps, thousands of social media management and content management apps.
In the health sector, a consumer might use ZocDoc for appointments, OneMedical for personal care and Reimbursify for claims, a drug pricing app and well, you get the picture. So many apps within an ecosystem or market vertical / industry can create a complexity nightmare for the consumer.
The result is not more valuable information, but rather more complexity and less valuable information. While the apps maybe very good, they’re focused on one problem in the overall process in the ecosystem. Consumers seek simplicity and are inherently lazy. The solution provider looks at the problem they solve, rather than the overall situation.
The app developer may do reasonably well in monetizing various problems along the consumer journey, but the overall ecosystem ends up seeing more wastage of data and decreased productivity as the end provider, such as a hospital, specialist or insurance provider, has to deal with multiple channels, policies and options a consumer may select on their journey. This adds significant complexity to the final provider.
So the ecosystem that rests over top of the system becomes incredibly complex. What we know about systems is that the more complex they become, the more feedback loops within a system, the greater the chance of systemic failure. What does this mean then, in terms of a myriad number of apps and technology solutions within an industry ecosystem? At some point, things will begin to break. The app providers will see less users, consumers will reject many technologies / apps because they become confused and it takes too much work to solve the problem and the system itself sees significant drops in the quality of service they can provide, employee productivity and the value of the industry suffers.
One way this sometimes gets addressed in the market is through consolidation, or M&A activities. Many startups will fail as the market becomes saturated and businesses look at their technology stacks and start cutting back while consumers start deleting apps. A sort of market correction occurs.
While there is plenty of room for companies to grow in areas such as FinTech, InsurTech and HealthTech, where trouble may lay ahead is in so many apps solving just one problem but not systemic problems. That’s going to lead to market consolidation and may lead to consumer rejections as complexity grows.
Another looming issue for technology startups that deal with consumer information is impending regulations for technology companies on everything from privacy to human rights and data verification for issues such as fake news, conspiracy theories and disinformation.
But there is always opportunities. For ecosystems this may will be for those companies with a war chest to acquire smaller startups (often the desire of many a startup too) or to provide data and information aggregation services to the primary service deliverer at the end of the supply chain.
Any investor or startup technology company looking to solve a pain-point within an ecosystem / industry vertical, would do well to consider what is coming down the pipe; massive market corrections and government regulation. Things have become messy and will get messier yet, but eventually, systemic pressure will force corrections. Occam’s razor is always at work.
