As mentioned in the last post, the notion of an ecosystem from the world of biology is a useful analogy for the ecosystem digital platforms must foster.  It turns out, another biological concept, the “bow tie”, is also a great analogy for how B2B SaaS platforms must function.

Biological Bow Ties

According to Wikipedia, bow tie architectures in biology refer to:

“ordered and recurrent structures that often underlie complex technological or biological systems, and that are capable of conferring on them a balance among efficiency, robustness and evolvability.”

Those italicized traits (my emphasis) are certainly desired traits of a healthy ecosystem—and a B2B SaaS platform!

A biological bow tie can take into “account a great diversity of inputs (fanning into the knot), showing a much smaller diversity in protocols and processes (the knot) able to elaborate these inputs, and finally an extremely heterogeneous diversity of outputs (fanning out from the bow tie).”

Biological bow ties look something like this:

 

B2B SaaS Platforms as Bow Ties

It all seems quite theoretical, until you consider B2B SaaS platforms as bow ties.  Take the examples of procure to pay, payment, e-invoicing or other horizontal B2B networks.  These platforms need to attract many different kinds of buyers and suppliers on opposite ends of their “bow ties”.  In between, however, the platforms ideally need to provide a significant amount of standardization to transactions or other forms of value-add.

This simple bow tie model helps explain the successes and vulnerabilities of many types of B2B SaaS platforms:

• EDI platforms, while still successful, have lost market share over the past 15 years. Why?  They do not allow very heterogeneous inputs, nor do they typically add value to the data flowing through them.
• Many e-invoice networks have been open to heterogeneous inputs and outputs, but failed to provide structure or add much value to the transactions.  These networks succeeded in speeding the flow of poor quality invoices. (I’m not naming names.)
• One of the reasons Ariba’s network grew successfully was that Ariba eventually opened its network to non-Ariba procurement systems (e.g., increased heterogeneity of buyers).  (It was this openness to non-Ariba buyers, by the way, that likely caught SAP’s attention.)  Ariba also made some progress in accommodating heterogeneity of suppliers via XML, EDI, HTML, and e-mail e-invoicing.
• The credit card networks built an ecosystem with many issuers offering a wide variety of cards and many acquirers enabling merchants of all types—great heterogeneity on both ends. The nature of the “knot”, however, has been quite rigid. Credit card networks can only accommodate a very limited amount of data and have limited flexibility in business model.  This is how both consumer and B2B fintech players are attacking the card paradigm.

Evaluate B2B SaaS Platforms Using the Bow Tie Framework

If you are evaluating a B2B SaaS platform, ask yourself:

• How heterogeneous is the platform in the inputs it can accommodate? Does the platform work for SMB to Enterprise buyers?  Same with suppliers?
• Has the platform found the right mix in the “knot”?  Does it provide enough structure and value add to the data without being too narrow?  Too little structure and a platform becomes “dumb pipes” of overwhelming information.  Too many requirements and the platform may limit heterogeneous participation.  Great platforms make it easy to participate and easy to add or create rich, structured data.

Evaluate Existing B2B Platforms Using the Bow Tie Framework

If you want to attack an existing B2B SaaS platform, consider where its bow tie configuration leaves it vulnerable:

• Does the platform limit its “inputs” or “outputs” in some material way? That is, is it designed to only serve certain types of producers and consumers?
• If the platform seems quite open, ask the opposite question. Is the platform applying too little organization or structure to the data in its core?  Does the platform allows too many participants and is it getting overrun– as with trolls on social networks?  Perhaps the platform is so heterogeneous that each connection is effectively point-to-point and it is not really forming a network?

B2B SaaS Ecosystems and Bow Ties

If you are a B2B platform owner or investor, use the biological ecosytem and bow tie analogies to evaluate your business.  As the biological world teaches us, ecosystems and bow ties can be robust and evolvable.  But remember, both systems can be disturbed and become quite fragile if the platform owner does not manage inputs, outputs, and “the knot” with great care.