NETWORK STRUCTURE AND ECOSYSTEM EVOLUTION: AN EXPLORATORY ANALYSIS OF DIGITAL PLATFORM COMPANIES’ FORAY INTO FINTECH By CARLOS L. PASCUAL, JR A DISSERTATION PRESENTED TO THE GRADUATE SCHOOL OF BUSINESS AT THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF BUSINESS ADMINISTRATION UNIVERSITY OF FLORIDA 2020 © 2020 Carlos L. Pascual, Jr. To Nancy, my wife, my love, and my partner in life, whose unwavering support throughout the years has allowed me to pursue my dreams. To Michael, Lauren, Kevin and Brian, my life’s inspirations. Your keep the fire burning inside me. A father could not ask for anything more. You are the light of my life and why I strive to be the best person I can be. ACKNOWLEDGMENTS This has been an incredible journey. I thank my chair, Dr. Gwendolyn Lee, the Chester C. Holloway Professor at the University of Florida Warrington College of Business, Management. Her enthusiastic, unselfish, and unwavering support has been instrumental in getting me here today. The trust and confidence she placed in me had an energizing effect in the toughest of times. I cannot say enough about how she pushed and nudged me to challenge myself and my though process, moving beyond the practical blinders and opening my eyes to academia’s approach. Each conversation was a thought-provoking learning experience with Gwen imparting her knowledge and helping me understand the evolutionary thought process as we worked through new concepts and literature. I am forever indebted, and I am here today because she took an interest in me and my work. INTRODUCTION Rapid pace of change in digital technologies, communications, and data management is causing severe systemic effects while challenging industries and the dominance of incumbent firms. Referred to as digital disruption, it is defined by Skog, et al (2018) as “…a type of environmental turbulence induced by digital innovation that leads to the erosion of boundaries and approaches that previously served as foundations for organizing the production and capturing of value” (Karimi & Walter 2015; Weill & Woerner 2015; Rauch et al. 2016; Skog et al. 2018). Industries and firms have been forever changed by new business models with digital moving into the physical world. Nowhere has it been truer than in financial services where the move has been fast and unrivaled. The disruption is spearheaded by the innovation-led rapid growth of the financial technology (FinTech) sector which is ushering in a new era for financial services. Nimble months old firms and large digital platform companies (e.g. Alibaba, Amazon and Alphabet) enter the FinTech space daily, modifying a highly regulated industry and challenging established 100 plus year-old firms. FinTech is an umbrella term, has many forms, and operates across the entire value chain and within each branch of financial services. The disruption started with digital transformation, defined as the use of technology to generate a more effective and efficient value creation process (Reddy & Reinartz, 2017). However, to be clear, FinTech is not just digitizing financial services. The industry has been digital for decades. In fact, the case can be made that the financial services industry was the first industry that became truly digital during the 1980’s (Arner et al., 2015). In the current era of FinTech, firms inside and outside of the financial industry have begun to offer innovative products and services directly to consumers and businesses (Arner et al., 2015), offering new technology solutions, and disintermediating incumbent firms (Lee, 2017). Industry boundaries are blurring forcing business model changes. The ability to conduct financial transactions on social networks and other social applications (i.e. Facebook, Twitter, WhatsApp) have shown that platform-based business models can permeate even the most trust- based and regulated industries. The pace of innovation is accelerating and the speed with which platforms and network structures are evolving is what marks FinTech’s oversized impact. Digital platform companies invest heavily in FinTech, especially where they can leverage their platforms, large captive customer bases, data troves and strong financial positions to provide financial services and products. The basic principles for doing business have changed. The new players have refocused the customer narrative, reduced margins and changed the playing field conditions forever. Why should firms take note? A quick look at what happened in the mobile phone industry can put things into perspective. Almost overnight, Apple and Alphabet’s platforms knocked out Nokia, Sony Ericsson, LG, Motorola, and Samsung. All the latter were well positioned and profitable. What ensued is a classic case study in the power of platforms, the value they create for their constituents, and the network structures of ecosystems. Rather than just building a product, the former companies created a new ecosystem with a two-sided market and used the hardware and software as an entry to provide platform services. The rest, as we say, is history (Van Alstyne et al., 2016). Firms are required to make defining choices about options, strategies, and technologies (Zeppini & van den Bergh, 2013). Those that do not understand the rules and strategy changes brought on by FinTech or cannot evolve platforms or develop competitive network structures may not survive (Van Alstyne et al., 2016). As firms progress through their digital strategies, many are looking at what they may do to shorten time to market, take advantage of research and development activities in the FinTech ecosystem, and overcome barriers within their own firms. While several platform-led network structure approaches have been attempted, none has been identified as the preferred approach. Yet, not all platforms are equally successful. Why do some platforms thrive and others do not? Zhu and Iansiti (2019) posit that thriving platforms have network structures that leverage or mitigate each of five fundamental properties: (1) strength of network effects; (2) network clustering; (3) disintermediation; (4) multi-homing; and (5) network bridging. They advise managers to use these properties as structural guidelines in developing their ecosystem network structure. The way a firm structures its network can and does have an impact on its ability to generate network effects from its platforms, create and capture value, and grow. It is through the effective management of each of these that managers can protect their firms’ platforms and ecosystems from external threats. In general, extant literature on FinTech, the ecosystems, and strategies to address the challenges and opportunities brought on by digital disruptions is scarce and in its nascent stages (Shim & Shin, 2016) with limited theoretical grounding (Weiyi, 2018). The review reveals a need to examine how the network structure of an ecosystem can be constructed and managed for delivering FinTech-enabled financial services as a digital strategy of platform companies. The objective of this research was to use case study and data-driven visualization methodologies in an exploratory study to better understand the complex and fluid evolution of financial services and how their differing approaches have led to significantly different ecosystems, levels interconnectedness and platform-led network effects. While Zhu and Iansiti’s (2019) five properties are essential, a sixth network property, coined “multi-nodal combination”, was identified and is submitted as an essential component and lever for ecosystem growth. It is theoretically rooted in the strategy principles and core processes articulated by Adner, Puranam, and Zhu (2019) in the context of digital technologies. Multi-nodal combination harnesses the power of enhanced connectivity, data aggregation, and “multi-nodal collaboration”. Multi-nodal collaboration is also introduced and developed by extending the processes of the fundamental properties from Zhu and Iansiti (2019). Multi-nodal combination enriches the extant literature in answering an important question as digital platforms embrace FinTech disruptions: What network structure should be used to construct and grow an ecosystem? The theory is built from case study research complemented by network visualization techniques for the comparative analyses. Case based research was selected as it is interesting and impactful for the reader (Bartunek et al, 2006), is effective in helping to understand complex situations (Harrison et al., 2017) and the articles covering case-based research methodology are among the most cited works within the Academy of Management Journal (Eisenhardt & Graebner, 2007). More importantly, case-based research provides insights that may not be achieved by other means (Rowley, 2002; Harrison et al., 2017). It is also pragmatic, flexible, and suitable to use for exploratory research especially in areas where existing theory may not address it appropriately (Eisenhardt, 1989; Harrison et al., 2017). The rapidly evolving nature of the network structures of FinTech ecosystems firms provides us with an opportune canvas from which to analyze. Three case studies are used to review the evolution of network structure and compare how the structures and their evolutionary paths differ. Sampling is based on potential industry impact and contrasting approaches. Thus, three influential platform-led BigTech firms’ financial services businesses – Alibaba (Ant Financial), Alphabet (Google Pay), Amazon (“Amazon financial