E-Business - Summarize attached article

The digital entrepreneurial ecosystem

Fiona Sussan & Zoltan J. Acs

Accepted: 21 March 2017 /Published online: 11 May 2017 # Springer Science+Business Media New York 2017

Abstract A significant gap exists in the conceptualiza- tion of entrepreneurship in the digital age. This paper introduces a conceptual framework for studying entre- preneurship in the digital age by integrating two well- established concepts: the digital ecosystem and the entrepreneurial ecosystem. The integration of these two ecosystems helps us better understand the interac- tions of agents and users that incorporate insights of consumers’ individual and social behavior. The Digital Entrepreneurial Ecosystem framework consists of four concepts: digital infrastructure governance, digital user citizenship, digital entrepreneurship, and digital market- place. The paper develops propositions for each of the four concepts and provides a theoretical framework of multisided platforms to better understand the digital entrepreneurial ecosystem. Finally, it outlines a new research agenda to fill the gap in our understanding of entrepreneurship in the digital age.

Keywords Entrepreneurship . Ecosystem .

Matchmakers . Digital infrastructure . Digital governance . Digital citizenship . Multisided platforms .

Information technologies

JEL classification L26 . 011 . P40 . P00

1 Introduction

As the Economist magazine went to press the lead story was about reinventing the company.1 This new compa- ny type is at the heart of a growing debate on how to understand the digital economy. Ever since the launch of Uber, Snapchat, and AirBnB and the earlier success of Google, Amazon, and Facebook, a new breed of company has emerged that uses digital technology, entrepreneurship, and innovation to upend industries on a global scale (Stone 2017).2 Most of these compa- nies are matchmakers (Evans and Schmalensee 2016, p.1).3 What these companies have in common is that they all connect members of one group with another group. The core competencies of these companies are their ability to match one group of customers with another group of customers by reducing the transaction cost of a match (Coase 1937). These multisided plat- forms would not exist without the explosion of informa- tion and communication technologies (ICT). While

Small Bus Econ (2017) 49:55–73 DOI 10.1007/s11187-017-9867-5

1 Reinventing the Company. Economist Magazine, October 24, 2015. 2 This trend is reflected in the continuing decline in the cost of computing, the rise of open-source software, the move to the Bcloud^ and the emergence of huge datacenters where companies such as Amazon, Google, and Facebook are designing their own approaches. 3 Fifteen companies that were together worth less than $10 billion in 2000 are now among the world’s 50 top technology companies as measured by market capitalization, with a combined who of $2.1 trillion. Had Amazon been included this number would have swollen by another $250 billion (Moritz 2015).

F. Sussan (*) School of Advanced Studies, University of Phoenix, Tempe, AZ 85282, USA e-mail: [email protected]

Z. J. Acs Schar School of Policy and, Government, George Mason University, Fairfax, VA 22030, USA

Walmart would not be as efficient without the Internet, it would survive, because it has a physical location. Am- azon on the other hand could not function without the Internet, since it has no physical outlet. These new companies are startups in many ways. They are young, only a few years old in some cases, but they ignite very quickly (Aghion 2017; Coad et al. 2016; Stenholm et al. 2013).

The entrepreneurship literature has not examined this type of startup (Daunfeldt and Halvarsso 2015). The reason the entrepreneurship literature has not studied the billion-dollar digital startup is because entrepreneurship research is focused on self- employment both as business ownership and as sole trader (Parker 2002; Shane and Venkatraman 2000). The entrepreneurship literature focuses on thousands of small startups and often these small startups fail due to the lack of customer base (Acs et al. 2016). In other words, entrepreneurship has not focused on finding customers first before they start a business. In the digital economy, it is precisely the opposite— we have much fewer startups, and each startup has millions of customers.4

What about Uber drivers and AirBnB renters? Are they digital entrepreneurs? On the one hand, they are performing a very traditional service, driving taxis, and providing rooms for rent, while on the other hand, they are engaged in business using digital technologies. However, one can argue that they are not doing anything creative and therefore are business owners but not dig- ital entrepreneurs. However, many of multisided plat- forms are populated with digital entrepreneurs that write millions of apps that power smartphones, Facebook, and thousands of other businesses. In fact, writing a business App is one of the most common types of business startup today (Haefliger et al. 2010).

In some sense, entrepreneurship research has ignored both the role that digital technologies play in entrepre- neurship and the role that users and agents play in digital entrepreneurship. In short, a significant gap ex- ists in our understanding of entrepreneurship in the digital age because entrepreneurship research does not have a consolidated way to study the impact of digitiza- tion. In other words, entrepreneurship research has yet to

contextualize within the digital economy in terms of how institutions and agency will be changed as a result of digitization. In fact, extant literature about digitization and the impact of digitization from other disciplines in business (management information systems, marketing) are available to inform us about the impact of digitiza- tion and how it may possibly change the way we under- stand entrepreneurship.

The purpose of this paper is to fill the gap in our understanding of the role of agents and users in the digital economy. This paper uses literature surrounding digitization—since digitization is not about one technol- ogy, we use the literature on digital ecosystems (Dini et al. 2011; Li et al. 2012). Coincidentally, entrepreneur- ship also has an ecosystem literature (Acs et al. 2014a, 2017; Stam 2015). We thus integrate the two to form a new conceptual framework—the digital entrepreneurial ecosystem—to guide our understanding of entrepreneur- ship in the digital economy. The digital entrepreneurial ecosystem is composed of Schumpeterian (1911) entre- preneurs creating digital companies and innovative products and services for many users and agents in the global economy.

In this new framework, we introduce four key concepts: digital infrastructure governance, digital user citizenship, digital entrepreneurship, and digi- tal marketplace. By integrating the role of agents and users in the same conceptual framework, we are able to advance entrepreneurship thinking into the digital economy. This paper makes four impor- tant contributions to the entrepreneurship literature. First, it contributes to entrepreneurship by bringing the research into the digital age specifically digital infrastructure and their impact on entrepreneurship in general. Second, by introducing the role of users in digital ecosystem, this paper adds a new dimension to entrepreneurship economics literature (Read et al. 2009). Third, by introducing the in- teractions of agents and users, this paper extends entrepreneurship research to incorporate insights of consumers’ individual and social behavior in mul- tisided platforms. Fourth, digital ecosystem inte- gration broadens entrepreneurship ecosystems research.

The next section of this paper outlines the concept of ecosystems, digital ecosystems, and entrepreneurial ecosystems. The third section integrates the digital and entrepreneurial ecosystems and provides a 2 × 2 con- ceptual framework resulting in four concepts in four

4 The strategy literature acknowledges different forms of value logic (Stabell and Fjeldstad 1998) that extends Porter’s value chain logic of the firm and presents new ways of looking at firm creation approaches and different underpinning economic logics for firm creation (knowl- edge and network economic principles).

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quadrants: digital infrastructure governance, digital user citizenship, digital entrepreneurship, and digital market- place. The fourth section provides a theoretical frame- work of multisided platforms to guide our understand- ing of the digital entrepreneurial ecosystem. The fifth section outlines a research agenda for future research of entrepreneurship in the digital age. The conclusion is in the final section.

2 Background

In order to better understand entrepreneurship in the digital world, we employ the concept of an ecosystem (Mathews and Brueggemann 2015, Chapter 14). A sys- tem is a set of interacting and interdependent organiza- tions that function together as a whole to achieve a purpose. In general, an ecosystem is a purposeful collab- orating network of dynamic interacting systems that have an ever-changing set of dependencies within a given context. For discussion purposes, we can think of exter- nal macroecosystems natural environments of communi- ty efforts around startup ecosystems to support develop- ment and internal or value added microecosystems that support a firm’s platform (Moore 1993).5 Our focus in this paper is on the former however we discuss microecosystems too.

A biological ecosystem is defined as B…a commu- nity of living organisms in conjunction with the nonliv- ing components of their environment, interacting as a system. These biotic and abiotic components are regarded as linked together through nutrient cycles and energy flows^.6 This definition makes it clear that an ecosystem has living and nonliving components and a system does not. BBiological ecosystems are thought to be robust, scalable architectures that can automatically solve complex dynamic problems^ (Li et al. 2012). The modeling of the system’s properties is a complex pro- cess that involves both assumptions and the identifica- tion of the biological processes.7

The challenge in moving from the biological sciences to the social sciences is to identify, not only what the living and nonliving components of the ecosystem are, but much more difficult, is how this complex

socioeconomic community functions. The first issue is that while in the biological sciences the system is modeled, in the social sciences it is generally just as- sumed. Systems constitute multiple components that work together to produce system performance.

If one is interested in the scholarly literature on systems as they relate to innovation and entrepreneur- ship, there are at least three approaches: System of Innovation (SI) (Nelson 1994); The Competitive Ad- vantage of Nations (Porter 1990); Systems of Entre- preneurship (Acs et al. 2014a, 2014b). The broadest approach to economic performance at the economy level is the concept of National Systems of Innovation (NSI) (Edquist 1997; Lundvall 1992; Nelson 1994). The main theoretical underpinnings are that knowledge is a fundamental resource in the economy within which knowledge is produced and accumulates through an interactive and cumulative process of inno- vation that is embedded in a national institutional context, and that the context therefore matters for innovation outcomes. The term Bsystem^ connotes a set of institutions whose interactions determine the innovative performance of national firms. It is impor- tant to understand what the system means in the SI literature. According to Rosenberg and Nelson (1993 p. 4–5) the system concept, B...is that of a set of institutional actors that, together, plays the major role in influencing innovative performance.^ In the SI lit- erature, systems are not created. Rather, they are inherited, evolving structures, and the key task of the researcher is to understand this structure, so the system can be manipulated to deliver improved performance.

The NSI concept is mostly about context, how insti- tutions drive knowledge production and application and how countries differ according to their B..set of institutions…^ but totally overlooks the individual agency (Acs et al. 2014a p. 477). In the NSI literature, individuals are almost treated exogenously given con- textual variables and settings being the focus of academ- ic research and policy makers. In other words, SI helped us understand where we were as nations but not how to improve our position. It is perhaps a little surprising, if not ironic, that although the NSI literature was heavily influenced by the Schumpeterian tradition, the entrepre- neur remained conspicuously absent in this literature (Salter and McKelvey 2016; Winter 2016). Also see the literature on Regional Systems of Innovation that did include some aspects of entrepreneurship (Cooks et al. 1997).

5 Some will call this a business ecosystem that is not bounded by space. 6 https://www.google.com/?gws_rd=ssl#q=ecosystem August 4, 2014. 7 http://w3.marietta.edu/~biol/102/ecosystem.html October 25, 2015

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The second approach to systems is associated with Michael Porter’s (1990, 1998) work on clusters and the new economics of competition. While Porter was also interested in Nations and Innovation like Nelson, he took the analysis one step further. The central question to answer according to Porter is, BWhy do firms in some industries achieve international success and others do not?^ In addition, to understanding the role of institu- tions, Porter argued that firm strategy is also an impor- tant aspect of global competitiveness. To understand the environment Porter introduced the BDiamond^: a con- cept that tied together factor conditions, demand condi- tions, related and supplier industries and firm strategy, structure, and rivalry. Porter argued that productivity and competitive advantage in an economy requires spe- cialization. In the Competitive Advantage of Nation he Bintroduced the concept of a cluster, or group of inter- connected firms, suppliers, related industries, and spe- cialized institutions in particular fields that are present in particular locations.^ Porter offered a sophisticated view between agglomeration economics and competition and strategy by focusing on clusters.

The third approach to systems is associated with Acs et al. (2014a). There is a growing recognition in the entrepreneurship literature that entrepreneurship theory focused only on the entrepreneur may be too narrow.8

The concept of system of entrepreneurship is based on three important premises that provide an appropriate platform for analyzing entrepreneurial ecosystems. First, entrepreneurship is fundamentally an action undertaken and driven by agents on the basis of incen- tives. Second, the individual action is affected by an institutional framework for entrepreneurship. Third, entrepreneurship ecosystems are complex, multifaceted structures in which many elements interact to produce systems performance, thus, the system method needs to allow the constituent elements to interact. The concept has also been applied at the regional level (Szerb et al. 2014).

At this point, it is useful to discuss the services of ecosystems or ecosystem outcomes. Whether we are talking about biological, technical, or entrepreneurial ecosystems, they all have outcomes, and the thread that cuts across all three ecosystems is the quality of sustain- ability through problem solving. Ecosystems can flour- ish. Ecosystems can also be killed if you cut off the

energy and nutrients that sustain them. In the physical world, we see this in the death of coral reefs due to pollution, in the technical world, we see this through regulation, and in the social world, we see it through the death of communities due to technological change. Silicon Valley and venture capital epitomize an entrepreneurial eco- system that produces both routine and high- growth entrepreneurship. Each of these forms of entrepreneurship is performed within an ecosystem, and both routine and high growth therefore must be manifestations of an entrepreneurial ecosystem. Sustainability is therefore the key outcome of the ecosystem process. The next section defines the characteristics of both the Digital and Entrepre- neurial ecosystems.

3 Digital ecosystems

Digital ecosystem (DE), a terminology that emerged in the early 2000s, is defined as B…a self-organizing, scal- able and sustainable system composed of heterogeneous digital entities and their interrelations focusing on inter- actions among entities to increase system utility, gain benefits, and promote information sharing, inner and inter cooperation and system innovation^ (Li et al. 2012, p. 119). DE can be applied in business, knowledge management, service, social networks, and education.

Digital ecosystems have become an important research agenda for both practitioners and scholars (Dini et al. 2011; Li et al. 2012). As the rapid advance- ment of digitization and the impact of digitalization9

increase, the concept of digital ecosystems has been subject to an array of perspectives—ecological, eco- nomic, and technological—in its definition (Li et al. 2012), and attracted multi- and interdisciplinary dis- courses (Dini et al. 2011). Despite the diverging per- spectives and the splintered foci from various defini- tions, the convergence or commonality of all the various discussions on the concept point toward two foundation pillars of DE—digital technologies and people. It is an ecosystem in that digital technologies (e.g., mobile search engine) can be viewed as the nonliving

8 We use the concept system of entrepreneurship and entrepreneurial ecosystem interchangeably in this paper.

9 Digitization is the technical process, whereas digitalization is a socio- technological process of applying digitization techniques to broader social and institutional contexts that render digital technologies infra- structure (Tilson et al. 2010 p.3)

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component, and the people who use these technologies (e.g., anyone who uses Google) are the living compo- nent, and the interactions of the living and the nonliving and the dynamic and continuous changes resulting from the interactions of these two components form the be- havior of an ecosystem. Inherent in DE, the assumptions of such an ecosystem is user-driven, bottom-up, and open-source oriented (Dini et al. 2011), emphasizing the pivotal role users or people play in the ecosystem. The advancement of digital technologies has resulted in a more complex system—digital infrastructure (Tilson et al. 2010). The two foundation pillars—digital infra- structure and users—are the main focus of our discus- sion of digital ecosystems in relation to entrepreneurship ecosystems.

3.1 Digital infrastructure

As digital technologies increasingly become more ser- vice-focus, socially embedded, and laden with intensive human interactions, a more open, inclusive, global, dy- namic, and flexible view of digital infrastructure (DI) is needed in order to capture the effects of digitalization (Tilson et al. 2010). Anchored in digital technologies, DI is a socially embedded mechanical system that in- cludes technological and human components, network, systems, and processes which generate feedback loops that are self-reinforcing (Henfridsson and Bygstad 2013; Tilson et al. 2010). DI thus links systems and networks at the global, national, regional, industry, and/or corporate levels and is constantly changing because of its diverse base of installed digital technolo- gies and users who are designers or operators of these systems (Tilson et al. 2010). In that sense, DI does not have a single defined set of functions or strict bound- aries. Rather, multiple layers of systems and processes are at work simultaneously resulting in a decentralized, shared, and distributed DI which is not subject to a single centralized stakeholder’s control. In other words, there are two views of DI, both from a complex systems theory, and readers can select the scope for application of the theory. DI is a system of itself (Hussain et al. 2010). From an operational perspective, specifically information system service management, it is important that DI be treated as such. However, as infrastructure for a digital business model, DI should be considered as an interconnecting element of the digital business ecosys- tem. Digital infrastructure is often researched within an organizational setting or within a community of IT

professionals. The term digital infrastructure is used interchangeably with information infrastructure, IT in- frastructure, and e-infrastructure (Henfridsson and Bygstad 2013).

DI in practice is similar to the concept of network readiness at a country level as evidenced in the Global Information Technology Report of the World Economic Forum (Baller, Dutta, and Lanvin 2016). This annual report provides a Network Readiness Index for 139 countries in relation to four areas: environment (political and regulatory, business, and innovation), readiness (infrastructure, affordability, and skills), usage (individ- ual, business, and government), and impact (economic and social). Notably, this index includes more than infrastructure in the measurement of innovation in the digital economy, highlighting more than infrastructure is needed for innovation and entrepreneurship. Digital divide is an important topic in the measurement of the effectiveness of DI in enabling economic activities (Hilbert 2011; Vicente and Gil-de-Bernabe 2010) but is beyond the scope of this article.

3.1.1 Digital infrastructure and its governance

As the control of the distribution of DI is distributed across multiple actors such as designers, developers, and users, DI is difficult to govern (Henfridsson and Bygstad 2013). The nature of the Internet having an open access and open standards essentially allows anyone to develop and share applications on the Internet (Zittrain 2006). DI is constantly evolving, and it is therefore Ba system that is never fully complete and the public and ordinary organizational members can be trusted to invent and share good uses^ (Zittrain 2008, p.43). While there are standards among its members, a static set of standards is impossible to attain. Furthermore, the bottom-up nature of DI, but yet the top-down reality of most organization- al structure, makes the governance of DI a specific challenge.

3.1.2 Digital infrastructure, innovation, and entrepreneurship

As DI is an open system, it allows participants to con- tribute freely with little boundaries. DI thus becomes an enabler for innovation for individual entrepreneurs as long as they are following standard interfaces (Hanseth and Lyytinen 2010; Zittrain 2006). Because of flexibility and feedback loop capabilities of DI, Internet

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entrepreneurs in Silicon Valley display new forms of learning by creating paths of innovation, and new inno- vation path creation leads to new services and products that reinforce DI as a basis for innovative activity (Henfridsson and Bygstad 2013).

4 Users

The second foundation pillar of digital ecosystems is users. Users, previously viewed as technologists who directly interact with digital technologies, have morphed to mean anyone who has access to digital technologies (mobile phone) because of ubiquitous computing and the increased ease of use of devices (IOT like fitness wristband). As a result, user-centered innovation prolif- erates as more users develop new products and services for themselves and other users (Von Hippel 2006). As an open-source based architecture, the Internet was designed to allow users’ participation, and the socio- technological consequence of digitalization allowing everyone to participate in the Web resulted in a volunteering culture. This pro-social behavior is unique in that users are providing free labor in time and effort (writing codes, writing a movie review, rating a restaurant) for their fellow users and orga- nizations (Terranova 2000).

Researchers who focus on customers have for quite some time viewed users as co-creators in the product development process, in the service-dominant market- ing process (Vargo and Lusch 2004, 2008), service ecosystems (Lusch and Nambisan 2015), and the entre- preneurial marketing context (Read et al. 2009). Users are labeled citizen-consumers (Webster and Lusch 2013). Users co-create with fellow consumers and firms further add value to the larger social context (Chandler and Vargo 2011; Von Hippel 2006; Webster and Lusch 2013). Essentially, ecosystem value co-creation is pos- sible because of the forces of (1) the generative nature of digital ecosystems, and (2) the service-dominant logic explaining how users can maximize value extracted in user-producer dyads (Autio and Thomas 2016) being at work simultaneously. Furthermore, many of these users turned consumers participate in co-creating new prod- ucts (e.g., LEGO) with organizations and companies, again collecting no wages, resulting in a class of prosumers who are motivated by a combination of cog- nitive and affective reasons for utilitarian or hedonic

purposes, resulting in adding value to firms that become part of firms’ intellectual capital (Sussan 2012).10

4.1 User entrepreneurs

Some of these users in the process of intense interactions with their community accidentally develop new products or services and become user- or accidental- entrepreneurs (Shah and Tripsas 2007). It is well- documented that the online community is a breeding ground for entrepreneurial actions as users are motivated by the attention they receive from the community to develop new products for fellow users (Autio et al. 2013). In the user-turned entrepreneur cases, they often develop an idea as a user and tap the knowledge and creativity of the community before commercialization (Hussain et al. 2010; Shah and Tripsas 2007). Yahoo is an example.

4.2 Users and business models

The philosophical foundation of users’ willingness to share, contribute, volunteer time, and effort in online communities becomes the major game changing element in business models in the digitalization process (Cusumano and Goeldi 2013). In examining the litera- ture, three types of user-intensive business models emerge that revolutionize transaction cost-based busi- ness models. First, some multisided platforms busi- nesses rely entirely on user-generated content from the masses voluntarily (e.g., Facebook, Instagram, and Tripadvisor.com). In this model, the core competency of the business is relative to the data the business is able to collect from users, and thus, the revenue of the business is derived from advertising but not selling anything to a customer. In this model, if all the users decide not to volunteer content to the business, there is no business. Second, businesses that rely on users participating in the sharing economy by sharing their own unused tangible asset (Richter et al. 2015) like AirBnB. In this model, the core competency of the business is a multisided platform, and the revenue of the business stems from receiving a percentage of the sharing service. Third, businesses that rely on users’

10 At the end of 2016, Facebook had 1.9 billion active users. Snapchat that went public in 2017 had 158 million users, who spent an average of 30 min each day on the site, with an average of 18 visits per day, creating $2.5 billon of them are under 25 years of age. Snap IPO tests unsocial network, The Wall Street Journal, March 1, 2017 p. A8.

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network externalities with a combination of paid and unpaid users to generate a large enough customer installed base for a paid distributed product or service (e.g., eHarmony.com). The core competency of this type of business remains at the product itself (e.g., in eHarmony.com an algorithm of matching profiles).

5 Entrepreneurial ecosystems

Ever since the time of Schumpeter, the concepts of entrepreneurship and innovation have been intertwined with economic development. The entrepreneurial eco- system is also a new way to contextualize the increas- ingly complex and interdependent social systems being created.11 Following Acs et al. (2014b p.:479), we de- fine entrepreneurial ecosystems at the socioeconomic level having properties of self-organization, scalability, and sustainability, composed of sub-systems and sys- tems, as B…dynamic institutionally embedded interac- tion between entrepreneurial attitudes, abilities and aspi- rations, by individuals, which drives the allocation of resources through the creation and operation of new ventures.^ Entrepreneurial Ecosystems are complex so- cioeconomic structures that are brought to life by individual-level-action (Spigel 2015). This action is em- bedded in multipolar interactions between individual and institutional stakeholders. Much of the knowledge rele- vant for entrepreneurial action is embedded in ecosystem structures and requires individual-level-action to extract it (Autio and Levie 2015).

Their approach builds on the idea by which individ- ual and institutional factors are combined (Henrekson and Sanandjai 2011). In their empirical specification, they combine biotic (agents) data with abiotic (institutional) components to formulate a system that links institutions and agents through an EE where each biotic and abiotic component is reinforced by the other at the country level. The system includes the stock of institutions and the stock of entrepreneurship organized into sub-systems and systems including a theory as to how they interact through the flows of knowledge (energy) and venture capital (nutrient). The nutrient of the economic ecosystem depends on knowledge, both the stock of knowledge and the flow of new knowledge as outlined in new growth theory (Romer 1990).

However, as we have argued, turning knowledge into technology and technology into consumer goods is not automatic (Arrow 1962), and agency is needed to com- plete the production function and to fill in missing markets. The two foundational pillars—institutions and agents—are the main focus of our discussion of entre- preneurial ecosystems in relation to digital ecosystems.

5.1 Institutions

The first fundamental pillar of Entrepreneurial Ecosys- tems is institutions—the rules of the game. Of particular importance to entrepreneurship are the economic insti- tutions in society such as the structure of property rights and the presence of effective market frameworks (North 1990). Economic institutions are important because they influence the structure of economic incentives. Without property rights, individuals will not have the incentive to invest in physical or human capital or adopt more effi- cient technologies (Acemoglu and Johnson 2005). Eco- nomic institutions are also important because they help to allocate resources to their most efficient uses; they determine who gets profits, revenues, and residual rights of control. When markets were highly restricted and institutions sent the wrong signals, there is little substi- tution between labor and capital, and technological change is minimal (Weitzman 1970).

Baumol (1990) proposed that countries’ institutions create incentives and that the entrepreneurial talent is allocated to activities Bwith the highest private return, which need not have the highest social returns^ (p. 506). Therefore, it is not possible to make inferences about externalities or overall social welfare effects based on generic measures of entrepreneurship. Universal welfare-enhancing outcomes do not automatically fol- low from entrepreneurial activity; indeed, such activities can generate questionable or undesirable effects. Entre- preneurial talent can be allocated among a range of choices with varying effects from wealth creation to destruction of economic welfare. If the same actor can become engaged in such alternative activities, then the mechanism through which talent is allocat- ed has important implications for economic out- comes, and the quality of this mechanism is the key criterion in evaluating a given set of institutions with respect to growth. We follow many others, for example Hayek (1945) and Ofer (1987), in propos- ing that the answer rests upon the institutional

11 Acs et al. 2014a; Autio et al. 2012, 2015; Stam 2015; Stam and Spigel 2015.

The digital entrepreneurial ecosystem 61

system and the incentives that it creates for agents (Estrin et al. 2013).

5.2 Agents

The second pillar of entrepreneurial ecosystems is agency. A modern synthesis defines the entrepreneur as someone who specializes in taking judgmental decisions about the coordination of scarce resources (Casson 1982). The term Bsomeone^ is defined as the individual, and the term Bjudgmental decisions^ are decisions for which no obvious correct proce- dure exists. Judgment is not the routine application of a standard rule. We may distinguish two types of entrepreneurial activity: at one pole, there is routine entrepreneurship, which is really a type of manage- ment, and for the rest of the spectrum, we have Schumpeterian or high-growth entrepreneurship. By routine entrepreneurship, we mean the activities in- volved in coordinating and executing a well- established ongoing concern in which the parts of the production function in use are well-known and that operates in well-established and clearly defined way. This includes what most people in entrepre- neurship research study—self-employment, small business, and new or young firms. It is the next restaurant, new garage or hair dresser. It is certainly the case that replicative entrepreneurs can be of great social significance.

By high-impact entrepreneurship, we mean the activ- ities necessary to create an innovative high-growth ven- ture where not all the markets are well-established or clearly defined and in which the relative parts of the production function are not completely known. Innova- tive entrepreneurs ensure that utilization of invention contributes to increased productivity and facilitates and contributes to economic growth. The gap filling and input completing capacities are the unique characteris- tics of the entrepreneur. High-impact entrepreneurship is not a precise term, and by it, we imply no aspect of size of the new venture. However, it does involve an act of creativity whether it is about creating a Unicorn or an app that fits on a Unicorn’s platform (Leibenstein 1968).

6 Conceptual framework

The digital entrepreneurial ecosystem (DEE) inte- grates two existing ecosystem literatures: the

entrepreneurial ecosystem with its focus on agency and the role of institutions and the digital ecosystem with its focus on digital infrastructure and users. Figure 1 shows the relationship between the EE and the DE and the DEE a subset of the two larger and more complex systems. Both of these complex ecosystems cover much more ground than is needed for the DEE. For example, the entrepreneurial eco- system includes both Schumpetrian (1934) and Kirznarian (Kirzner 1973) entrepreneurs, radical and incremental innovation as well as digital and nondigital technologies.

Similarly, the digital ecosystem includes many technologies that power the digital infrastructure of our conceptual model: more powerful chips; the Internet; the World Wide Web; broadband commu- nications; programming languages; and operating systems, the cloud. The nature of the Internet having an open access and open standards essen- tially allows anyone to develop and share applica- tions on the Internet. DI is constantly evolving, and it is therefore a system that is never fully complete. The system also includes many different types of users and co-creators of the system, as well as issues of governance. The technology itself comes from the research carried out by corpora- tions, universities, and governments.

The intersection that we are interested in is the space where agents and users interact on multisided platforms created by Schumpeterian entrepreneurs using a broad array of digital and other technologies. Therefore, 0 < x < 1, where x is the DEE. The size of DEE depends on, and is dependent on, the adop- tion, absorption, and diffusion of digital technolo- gies. Digital technologies have diffused faster than electricity, telephones, and mobile phones. Smartphones have reached a 40% diffusion rate in only 10 years, while it took electricity almost

Fig. 1 The integration of two ecosystems

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40 years to reach a 10% diffusion rate.12 Digital tech- nology diffusion has been growing rapidly over the years and is expected to continue to expand from around 8% of GDP in 2015 to around 25% by 2030.13 This space is occupied by many of the Unicorns that are matchmaker firms using digital technologies. The core competencies of these companies are their ability to match one group of customers with another group of customers by reducing the transactions cost of a match.

Figure 2 develops a universal conceptual framework and identifies the role of the living and nonliving com- ponents of an entrepreneurial ecosystem in the digital economy. The following 2 × 2 diagram depicts the two dominant components—digital ecosystems and entre- preneurial ecosystems. The four quadrants of the frame- work from bottom left to right are digital infrastructure governance (DIG), digital user citizenship (DUC), digital entrepreneurship (DE), and digital marketplace (DM). We define DEE as follows: the DEE is the matching of digital customers (users and agents) on platforms in digital space through the creative use of digital ecosystem governance and business ecosystem management to create matchmaker value and social utility by reducing transactions cost.

Four qualifications follow our definition: first, there are two routes for entrepreneurs who have ICT skills to be digital entrepreneurs: to work within the existing digital infrastructure or create a new digital infrastruc- ture by developing new platforms or systems. The dig- ital entrepreneurial ecosystem approach view agents who are innovative (Acs and Audretsch 1988) and who are creative (Florida 2004) that optimize the utilization and reconfiguration of digital infrastructure in the form of new systems, new platforms, and new networks as exogenous to the model. These Schumpeterian entrepreneurs create the multisided platforms that users and agents populate. However, as Kirzner (1973, p. 81, emphasis original) points out, B… the function of the entrepreneur consists not of shifting the curves of costs or of revenues which face him, but of noticing that they have in fact shifted.^ Therefore, our focus is on Kirznarian entrepreneurs and not Schumpeterian entrepreneurs. Second, the digital market- place includes all aspects of user and agent outcomes: social network-based businesses, e-commerce, e-health,

e-education, and e-government. Third, the existence of agents (entrepreneurs) and users (people using the Internet) creates a dynamic whereby companies need to develop business models that integrates millions of customers. It is only through this integration that digital business comes to life. The integration of users who do not buy anything but provide data to companies that in turn sell advertising space (Facebook) is one aspect of this interaction that exists in the digital marketplace. Fourth, the outcome of the digital entrepreneurial ecosystem is a sustainable ecosystem.

The four quadrants in Fig. 2 are interrelated in order for DEE to function and sustain. By sustainability, we mean an ecosystem continuously allowing the birth of new digital entrepreneurs to disrupt existing digital en- trepreneurs. One route to sustainability is by making sure successful digital entrepreneurs are not to monop- olize the digital marketplace (Read 2016). Because of the nature of the governance of digital infrastructure is open to all participants (Zittrain 2006, 2008), we argue that it is easier for digital entrepreneurs to participate in and possibly change the rule of the game than entrepre- neurs who operate in a nondigital environment, and thus, DEE sustainability is highly likely to be possible. New digital entrepreneurs’ participation in digital infra- structure governance happens simultaneously as they leverage digital technologies and infrastructure to create new businesses. Often digital entrepreneurship runs ahead of governance (e.g., Fintech), and digital entre- preneurs influence the process of the formation of new regulations. Regulations are almost always behind digital entrepreneurial activities (Read 2016). Another route for DEE sustainability is the increasing savviness

12 https://www.hausmanmarketingletter.com/innovation-adoption- diffusion-age-social-media/ 13 European Commission (2017).

Fig. 2 Conceptual framework of the digital entrepreneurship ecosystem

The digital entrepreneurial ecosystem 63

of digital users worldwide who continuously become disruptive digital entrepreneurs. We will go into more details of the relationships of each quadrant and how they lead toward sustainable DEE.

6.1 Digital infrastructure governance

The first quadrant DIG addresses the coordination and governance needed in order to establish a set of shared technological standards that are related to entrepreneurial activities. In other words, the legitimization of digital infrastructure as viewed from the perspective of the entrepreneurial ecosys- tems. There are two routes to legitimacy in the entrepreneurial ecosystems: follow the established rules or create new rules via the manipulation of meanings, instrumentality, and regulation (Autio and Thomas 2016). Extending this, we suggest legitimacy in DEE also functions similarly. As many digital entrepreneurs and their business models are ahead of the regulators (e.g., sharing economy-based AirBnB, Lending Club), they are essentially forcing the creation of new rules (Read 2016). However, regulations are tricky as too many will stiffen innovation, particularly in Fintech in the UK (Binham 2016) and in the USA (Dexheimer and Hamilton 2016). We suggest that at the beginning of disruptive activities, DIG is likely the most open, transparent, and informal in its process toward legitimacy supporting sustain- able DEE; however, when the disruptive activities reach a certain momentum, the legitimacy process will become less open, less transparent, and more formal, leading to the relationship between DIG and DEE as one that exhibits an inverted U- shape eventually with too much standardization and legitimization that will negatively impact sus- tainable DEE. More formally, we propose:

Proposition 1 As digital infrastructure is decentralized and open and its governance tends to be subject to bottom-up discourse in the shaping of standards and legitimization, DIG has a positive impact on a sustainable DEE. However, the bottom-up stan- dardization and legitimization in DIG will reach a tipping point being effectively and positively able to impact a sustainable DEE. As a result, the relationship between DIG and DEE is one of an inverted U-shape curve.

6.2 Digital user citizenship

The second quadrant DUC represents the combina- tion of users and institutions within the context of both ecosystems. As institution represents Bthe rules of the game^, both formal and informal, this quad- rant therefore addresses the explicit legitimization and implicit social norms that enable users to par- ticipate in digital society, simultaneously the partic- ipation is congruent to and supportive of entrepre- neurial activities. In other words, it is the legal and social contract users formally and informally agree to in their participation in the digital environment that is related to the entrepreneurial ecosystems. Digital citizenship is a familiar terminology that simply means the ability to participate in society online (Mossberger et al. 2007). Online participation consists of many activities ranging from writing a movie review (Sussan et al. 2006) to becoming an activist. No matter what the activities, users (without nation-state restraint) have to have ICT know-how and be relatively skilled in their competent and standard use of digital technologies in order to par- ticipate and engage in acceptable conduct or eti- quette consistent with the notion of digital citizen- ship (de Moraes and de Andrade 2015). Apart from skillset, as digital citizens continuously contribute content online, leaving digital footprint resulting in a permanent record in bytes, the issue of intellectual property, privacy, and surveillance become increas- ingly important (Rice and Sussan 2016) and partic- ularly relevant to entrepreneurial activities.

There are three direct impact of DUC to a sus- tainable DEE. First, as user-turned digital entrepre- neurs are proliferating, the higher the skillsets and contribution of digital users, the larger the pool of potential new digital entrepreneurs who are the main actors of a sustainable DEE. The second direct im- pact of DUC to a sustainable DEE is the more educated and the more participatory of digital users, the larger the customer base for digital entrepreneurs to be able to fill their platforms which is a key component in a DEE. Third and perhaps the most important is the more DUC involvement, the more likelihood users will be able to co-create with fellow users, vendors, and the like to add value to the chain of activities in DEE. DUC thus has a linear relation- ship with the sustainability of DEE. More formally, we propose the following:

64 Sussan and Acs

• The digital entrepreneurial ecosystem
• Abstract
• Introduction
• Background
• Digital ecosystems
• Digital infrastructure
• Digital infrastructure and its governance
• Digital infrastructure, innovation, and entrepreneurship
• Users
• User entrepreneurs
• Users and business models
• Entrepreneurial ecosystems
• Institutions
• Agents
• Conceptual framework
• Digital infrastructure governance
• Digital user citizenship
• Digital marketplace
• Digital entrepreneurship
• Matchmakers
• Multisided platforms
• Platform performance
• Platform competition
• Research agenda
• Conclusion
• References