Digital Transformation of City Ecosystems: Platforms Shaping Engagement and Externalities across Vertical Markets

The paper focuses on the design of urban digital transformation strategies. It builds upon the lessons learned from the Digital Cities Challenge initiative, developed by the European Commission, designed to empower European cities to design and implement digital transformation strategies for the uptake of advanced digital services and the smart growth of city ecosystems. We study three cities that participated in the Digital Cities Challenge—Sofia, Granada, and Kavala—and provide an overview of the strategy designs they adopted. The results indicate that beside significant differences in context, sectors, and ecosystems targeted at those cities, common features shape the design of their digital transformation strategies based on digital platforms, such as opening markets for e-services, enhancement of local infrastructures, improving digital skills, and innovation funding mechanisms. We argue that creating digital platforms for ecosystem building is an essential strategy of digital transformation as it can produce network effects and externalities in digital space, similar to those deriving from spatial proximity in physical space. As a result, both spatial and digital network effects lead the development of externalities that play a key role in the formation, expansion, and sustainability of ecosystems.