Building Web3 Services With Ecosystem Design – Tomorrow Explored Podcast

2022-11-16

Tomorrow Explored Podcast ventures into the decentralized discussion space. In this episode, we will discover the basics of ecosystem design and how it can be used to create Web3 services.

In this episode, our guest speaker is TX’s Senior Designer Markku Nousiainen, who utilizes these tools and principles on a daily basis.

Listening to this episode will help you understand:

1. What do ecosystems mean in Web3
2. How to design a Web3 ecosystem
3. What are the main challenges in an ecosystem design process
4. How does ecosystem design differ from service design

Watch the video podcast on Youtube, or simply listen on Apple Podcasts or Spotify.

Transcript of the “Building Web3 Services With Ecosystem Design” episode

Ari Ojanperä (AO): Welcome to a new season of TX – Tomorrow Explored. The Web3 podcast where we will be looking into the utility of building decentralized services. I’m your host Ari Ojanperä, and today we will be exploring the topic of ecosystem design. The approach used for designing decentralized platforms and joining us today is Senior Designer Markku Nousiainen, welcome! 

Markku Nousiainen (MN): Thanks Ari, thanks for the invitation.it’s really a joy to talk about this topic which I’m working on on a daily basis here at TX. 

AO: So going straight into the topic. You’re a senior designer, but Web3 hasn’t really been around that long to have many senior designers, so I’m guessing you have quite a long and extensive background in design. You want to just talk us through a bit of what you’ve been doing in terms of design work. 

MN: Yeah, I’ve been working for around 25 years in different design tasks, mostly in UX design and service design. And of course, the digital media field has changed quite a lot during this time. So, when I started, we were still working on Web1 services. So basically websites. Then we started doing web platforms and apps. I would say Web2 services and now the last couple of years I’ve been focusing mostly on Web3, which is about decentralized services and different crypto tools for creating those services. 

I think the last couple of years have been the most interesting time of all this. Because of this new area and a new paradigm where we are jumping and the need to sort of regenerate and recreate. Our approach to it. So, in the sense it feels a little bit like in the early days of Internet or web where we were creating completely new things and doing many things for the first time. And I feel the same thing now with Web3. 

[2:05] 

AO: So, I’m quite aware of ecosystems in the nature context of where we are living in and different people here, and hopefully we are living here for the next hundred years and so on. But how would you define an ecosystem in this context of decentralization? 

MN: Yeah, it’s a great analogy. So, we talk about ecosystems traditionally in the nature context and if we think about ecosystems in the product and value creation market context, then, it has some characteristics that are similar. 

So, it consists of different actors that are interconnected that are dependable on each other. A little bit like different plants and different animals in nature are dependent on each other. So, in the market context, ecosystems are defined as a set of layers that create shared value together. So, the difference between networks and ecosystems is such that in networks the different players are interconnected, but they mostly do their own business and create their own value. So basically, they have their own value proposition whereas in ecosystem the different players create a shared value proposition for the client. 

For that reason, the level of connectedness in ecosystems is higher than in networks. We have been talking about networks for quite a long time, and it’s a standard term for many things. We live in the world of networks. 

The term ecosystem has been trending in the last couple of years. It’s clearly becoming a sort of standard term in many contexts. We understand that many business concepts are, for example, more complicated than before, so different services are being composed of elements that are very tightly connected, and those elements could not survive without each other. Then we can talk about an ecosystem.  

If we think about where and when the concept of ecosystems became mainstream, I would say that when the App Store and the Google Play Store came to the market around 15 years ago, that was a time when I heard the first time someone talked about ecosystems in this context. So, we were talking about the App Store as an Apple ecosystem of services. And in that case, we are talking about a very centralized ecosystem where there’s a central player that dictates the rules and takes a very big cut of the sales and so on. However, in the Web3 context, now, in our time we are talking about decentralized concepts where the business is a little bit more fair in the sense that there is no centralized body that would dictate the rules. It should be more equal and fairer to each of those ecosystem members. 

[5:24] 

AO: So the fairness is like one key topic or key term when it comes to ecosystems and decentralization. 

MN: Yeah, definitely. In the Web3 context, it’s a very central term and it’s one of the value promises of Web3 that after Web2 which is now, everybody knows that it’s very centralized. There are big players that take the profit. They take our data and they use it for their own purposes. The normal, ordinary end users don’t have very much say in this. Whereas in Web3 in the decentralized economy, the promise is that we should be having the control ourselves. So, control over our data. Control of the value that we create with that data, for example. And the ecosystems should be, yeah, and in practice are also built on top of these principles in many cases, at least in those projects where we are working. So, for example, the fairness of data is one of the key concepts that we are operating with. 

[6:32] 

AO: Yeah, and with everybody being the more or less same level as an actor in ecosystems, I guess compared to, going back to nature again, on the news when there’s one species is threatened, it’s always the collapse of an ecosystem at that point or something happened because of the balance tipping one way or another a bit too much and that’s when you have nothing at hand. Do you see it the same way here also in the decentralized Web3 ecosystem? 

MN: Yeah, it definitely could happen if you eliminate one player or if you have a very big disturbance in the ecosystem then it could collapse in the sense that the same value cannot be created anymore. Although, I would also say that ecosystems need to be sustainable in the sense that they can regenerate themselves. And if there’s a disturbance or some tragedy to some of those ecosystem partners, it would somehow be repaired and the ecosystem could go on. Based on its own principles and its internal logic.  

We haven’t gone very far in this crypto ecosystem development yet so we haven’t seen how it will actually go. But I would say that if ecosystems are based on some fairness and some actual value that is created to different partners and not some, let’s say artificial value and centralized players, then it will definitely have better chance of surviving also in some difficult times and through some disturbances. For example, having a governance and value sharing, which is fair to different players, so that the different players in the ecosystem actually want to stay in the ecosystem, they want to be part of it. And if there’s a disturbance or some problem, then they will probably start to look for some way to repair it instead of just escaping the ecosystem. 

[08:45] 

AO: So now that we’ve gone through networking and the unique value and compared to ecosystems and the shared value. How do you bring ecosystems into Web3 and decentralization? 

MN: Yeah, that’s a good question because basically decentralized systems and services are naturally speaking ecosystems because they consist of different players working together, different components. And component typically is, it could be a company or it could be some individual or some target group or some external actor. For example, some regulator or something like that. So, each of these actors needs to get their own value from the activity, otherwise they would not be participating in the ecosystem.  

And to create that value there needs to be some kind of value flow that brings the value to them. So basically, in ecosystem design we try to map those value flows and we try to ensure that every player gets some value. Then the ecosystem will keep going, otherwise it will, sooner or later, die because of missing values and missing incentives. But yeah, I would say that Web3 decentralized services are by nature also ecosystems. 

The other way around, it doesn’t apply, so there are lots of ecosystems which are not Web3 and they are not based on any crypto assets or anything like that. 

[10:23] 

AO: And that’s more of the Web2 and an Apple and the other ecosystems that we kind of know at the moment and use quite a lot. 

MN: Those ecosystems are controlled by some central player. For example, in the app stores it’s Apple or Google setting the rules. Doing the governance and curating the value flows, I would say so. Basically, everything goes through that platform and through that central player. Which is quite OK in the sense that it will or it could be an ecosystem that keeps going and in this thriving. It’s just that it might not be a very fair ecosystem to many players. So, for example, in app stores you know that Apple is taking a quite a big cut from all the sales and you can’t really negotiate about that. It’s a rule which is dictated by the central player. 

[11:20] 

AO: So the fairness comes into play when we talk about ecosystems, especially in the Web3 context. 

MN: Yeah, that’s definitely so, because in Web3, if we make it an ecosystem that will be sustainable in the long run, there needs to be value for all players. And they need to be voluntarily there. So, they could just decide to not participate in this ecosystem. They might want to do their business in some other way. But, they want to be part of it because it it’s better to be in than out of the ecosystem.  

So what we want to do in the ecosystem design is to make sure that all players get their value and there is sustaining incentive to those players to participate. And of course, it needs to be fair in the sense that all those assets that people or the players have, will be controlled by the same players, not by some central player or some authority. 

[12:26] 

AO: So now that we’ve been talking about the ecosystem and how it relates to Web3, what do we actually need to get started with building an ecosystem or designing an ecosystem? 

MN: Yeah, we have a process that we call the bootstrap process which is consisting of different phases and we typically start with ecosystem modeling and designing. So, I would say that it’s a little bit like stakeholder analysis, in the traditional sense. Except that it’s a little bit kind of extended. So when we talk about stakeholders, we might be thinking about some centralized service where the stakeholders are different actors affecting the service. Whereas in ecosystems the service is created by all these actors together, more or less. 

The methodology for ecosystem analysis or modeling is, such that we map out first which are the different players in the ecosystem. We create a profile and understand the characteristics of those different actors. And then we model the value flows between those factors. So, we try to understand which value is given to each of those ecosystem members by which other players. And we try to make make sure that the value proposition to every member in the ecosystem is sufficient as such. Then we would say that we are in a situation where we have natural incentives or natural value flows occurring in the ecosystem that will keep it going and thriving. Otherwise, we would need to create some artificial incentives or value flows and they could be in the form of crypto incentives. For example, crypto tokens. 

[14:28] 

AO: I mean compared to services that I might be using right now with different users, let’s say just regular social media and the people who are influencers and the companies in there and organizations and other users or friends and family and whatnot. It sounds quite complex if I start to draw value flows between these different actors, does it usually get messy if you’re doing the same stuff with ecosystem design? 

MN: It’s true it quite often gets a little bit messy in the sense that when you try to map the different value flows between the actors in an ecosystem, there are many value flows. Let’s say if you have 10 different players in the ecosystem, 10 different stakeholders, so to say. The connections between these 10 players would be around 100 already, so it could be 100 connections where you have different value flows going one way and the other way round also. And if you want to make sure that the ecosystem works as such, then it could be already quite complicated. 

So one challenge in ecosystem design is to keep it simple. So, starting the ecosystem modeling and design, we already need to start focusing on the most important relationships in the ecosystem. The key players, the core interaction. And then, from focusing on that we can do the modeling all the way until the very smallest details. But then we have to, I wouldn’t say ignore, but push them a little bit outside the players that are not so central to their actual value creation, and this could be for example, some players who are just using the ecosystem resources. They are not really contributing to it. They might be competitors or regulators or some outside players who are not so essential to the actual value creation.  

The question where to focus needs some careful analysis and of course you might go wrong also. You might start focusing on something which is not that essential for the core concept, and then you might realize later that this was not going the right way and then you need to come back and iterate so it’s a little bit sort of iterative process also. 

[17:00] 

AO: Yeah, now that you mention the iterative process, what are the main phases that we think about when you’re approaching designing an ecosystem? 

MN: So, having done this initial analysis to some point, you arrive in the concept and the incentives and maybe some tokenization for the Web3 and the crypto part of it. And then you can see if the concept works as such. So, it can be evaluated in different ways, and you can also make user prototype to be tested by actual end users or different stakeholders. And then you probably get some feedback that will help you to change the concept so that it will be more suitable, or it will be correct and then you could make the next round and test it again. Basically, until you get it ready. 

I think it’s in most cases enough to do just one iteration and then at the end of this process you usually need to document it some way so it could be a deck for investors or it could be a white paper writing that you do. Anyway, some kind of documentation that the client is usually requesting. 

[18:30] 

AO: How long does it usually take to go through the whole process of designing? 

MN: It depends quite a lot about the complicatedness and the amount of knowledge that you already have when you start the process and so. But it could be somewhere between one month and up to three months, typically speaking. And depending also on what needs to be produced as an output. So, if it’s a white paper, it does take some time to actually write that white paper and all the details so it could be a little bit of extra time for that. 

[19:11] 

AO: If I were to start now doing an ecosystem. What kind of material should I be looking for to actually get myself going in the process? 

MN: Yeah, that’s a good question. So, we usually do the ecosystem design in the co-design fashion, which means that we invite some representatives of the client and the end users to join the process. Typically we have it as a co-design workshop with the client or several persons from the client organization, who bring their knowledge and their understanding of the concept to the workshop and we facilitate the creation of the ecosystem modeling based on that knowledge. 

However, quite often the knowledge from the client is not sufficient as such, and we probably need some further understanding about the concept and we might want to do some, let’s say expert interviews or end-user interviews. So basically getting some first-hand knowledge from those ecosystem members or the stakeholders and to understand their needs and ideas. And quite often the concept changes when we do this, so when we get some first-hand knowledge, we understand something better and then we can further improve the concept. 

And then the third source of knowledge I would say is, is of course reading about that industry and the subject matter and understanding it better. So typically we are dealing with different industries and we can’t really understand all the specifics of all industries that we are working on. But to some extent, we also need to understand the substance and basically read about that industry and its characteristics and that business using typically different Internet sources. 

[21:15] 

AO: So there’s still a lot of outside knowledge that you really need to get going in the whole process, even though it’s probably getting quite standardized, I guess at some point, but still unique in many ways. 

MN: Yeah, definitely we need to do our background research and whatever idea we create, we need to reflect it with the existing market and competitors, the market situation. Sometimes the market is there already, so it might be a product idea which is entering a market where there are lots of competitors. Maybe the competitors could be more traditional ones so they could be Web2 services but now we are bringing a new idea or new concept which is Web3 concept to the same market. Anyway, it will compete with the web two or traditional companies that have been in the market quite a long time and who already have a user base and so on. And in that case, we need to do some competitive analysis to understand the competitive situation and unique selling points that this new concept is going to have. 

Otherwise, it could be a completely new market which we are creating and there the situation is quite different in the sense that we are probably not so much focused on competition, but more like about how to create and how to grow the market as pioneers in that field. 

[22:48] 

AO: It’s always exciting to be the first one at pretty much anything. 

MN: It’s exciting, but it can be also frustrating because you might be right, but it really depends on the timing. So you need to have a proper timing to enter the market. Not too late, but not too early either. We know quite a many different examples of, for example, social media platforms that were really great and interesting and ahead of their time, but they didn’t make it because they were too early. Trying to understand what is the right moment when is the hype actually turning into actual utility services and when would people actually start buying and using something and not just hyping It around it. 

[23:33] 

AO: Yeah, well, how do you feel? It’s a bit of a sidetrack question here, but now that you mention it about the utility and hype and such. Where do you think we’re on the hype curve in terms of decentralization and cryptos and Web3 and everything. Do you think we’ll be shifting towards utility? 

MN: I think it’s definitely shifting toward utility now. So in Web3, and if you think about blockchain hype, I think it was highest a couple of years ago. Blockchain was the key concept and it was like there was there wasn’t very much about blockchain around, but many companies were and many clients were talking about it. And we were also talking about blockchain consulting as such. So basically explaining and creating concepts and making clients understand what blockchain is and what are the possibilities of blockchain. 

Now that’s pretty much over in the sense that now blockchain is something that we already are using and we are creating services for. So, nobody is hyping about blockchain anymore. And I think the same development that has happened to blockchain in the couple of in the last couple of years is probably going to happen to many of those concepts that now we are talking otherwise in Web3. For example, DeFi services. So, the utility is going to be very much more important for the success of different services in the future than it’s now. So basically, in the future I think Web3 services will need to create utility just in the same way as Web2 services. If there is no utility, then any tokenomics or token incentive or any other thing that you can do with some crypto assets will not work or make it better in the sense that it would thrive and sustain in the long run. 

So, what we are focusing on is services that create utility for their owners and for their clients and for different ecosystem members. This is the way to create Web3 ecosystems that really sustain until the future. 

[25:56] 

AO: One last topic that I want to just touch upon with you. We’ve talked about service design and web two and user experience and how does ecosystem design then differ from the service design principles that we’ve known for the last 10-15 years. 

MN: Yeah, I think ecosystem design is very much related to service design. And when talking about service design, I think well, it’s been around as you said about 15 years more or less. I mean, in the sort of mainstream context. Before that it was more like a university or academic term, so it started from some more marginal or some non-commercial context and then became mainstream. And interestingly speaking it became mainstream more or less at the same time as we started getting those Web2 platforms so big social media platforms and different other services on the web. 

[27:00] 

AO: So it’s kind of the same right now. Also, when you mentioned previously that it’s the Web3 is getting more and more and suddenly ecosystem design is also popping up at the same time. 

MN: I think there is a connection between them, even though it’s not very, you know one to one, but I definitely, I would say that the world is going toward more of sort of ecosystem style services and then the tools that we use for creating those services are also evolving. So the same service design tools that we have been using for centralized platforms during the last 15 years are not exactly so relevant for all situations that we have in Web3. 

So, for example, you have different tools like customer journey maps that you use in service design, but customer journeys are usually related to some service experience that you get from some service. So, for example an app or a platform. Typically a digital Web2 service. In Web3, the value flows might not be going through some centralized platform, but instead they might go directly from one ecosystem member to another, and in that sense using those same tools, for example, the customer journey maps as such is would not be very productive. 

I would say that the ecosystem design usually starts with some specific ecosystem design tools, and then once we have some idea about how the service goes and probably there is some platform or some user interfaces for different ecosystem partners. And then we can have a detailed look at those platforms and UIs using more traditional tools that come from service design. 

So, I would say service design is still relevant, but its scope or its use is a little bit more limited nowadays in these decentralized services, and then you also need to understand what are the limits of these tools and not try to solve the new problems with their old tools. 

[29:15] 

AO: So, service design would be part of the ecosystem design process, I guess. But instead of being a rival, it’s more of a family member. 

MN: Yeah, I would say that it’s not the revolution of tools and approaches. It’s more like an evolution. So we are dealing with decentralized services, but in fact they are partly decentralized, so the world is not changing overnight. It’s evolving and for that reason. The tools are also partly the same tools that we have been using until now and partly new ones. 

AO: Now I think evolution is maybe a better analogy for ecosystems. Talk about nature and such instead of rivals and families. 

MN: Yeah, it looks like we take the terminology from nature again so that evolution term is also from there. 

AO: Thank you Markku for your insights on ecosystem design. And hopefully the listeners got a lot out of this. Of maybe understanding a bit more about what’s Web3 and decentralization and how do we actually get use cases out of it? 

MN: Thanks Ari, it was a great discussion. And yeah I always like to share my ideas about this. 

AO: OK, that’s it for now. Please like subscribe, comment, share, e-mail, or poke through our social media channels. Until next time, see you and goodbye.