Business ecosystems and the view from the firm.

I. INTRODUCTION

For more than sixty years, markets and hierarchies have dominated our thinking about economic organization. (1) This article suggests that a third form, the ecosystem organizational form, has now become so important in practice that it should be accorded equal recognition in theory and in policymaking. Markets, hierarchies, and ecosystems are the three pillars of modern business thinking and should provide the foundation for competition policy, regulation, and antitrust actions. I am pleased to contribute to this issue of The Antitrust Bulletin as a member of the American Antitrust Institute Roundtable on Complexity, Networks, and the Modernization of Antitrust. (2)

The ecosystem form of economic coordination has become pervasive on the business landscape. (3) Business ecosystems surround, permeate, and reshape markets and hierarchies. Managers establish business ecosystems to coordinate innovation across complementary contributions arising within multiple markets and hierarchies. The activities of business ecosystems set the agenda for "co-evolution" (4) of markets and hierarchies and their outputs.

The focus of companies in most sectors has progressed from competing on efficiency and effectiveness to competing on the basis of continuous innovation. As companies have accelerated innovation in their own businesses, they have discovered that they can't change the world alone. For every advance there are complementary innovations that must be joined in order for customers to benefit. These complementary advances often must co-evolve across company lines because no single firm has all of the required specialized knowledge and managerial resources necessary for the whole system. Indeed, a substantial solution to a customer need may require the participation of dozens or even hundreds of diverse contributors, each of which is a master of fast-moving, complex and subtle developments in its own domain. (5)

A senior executive might say "we need to promote a business ecosystem around our new product" or "the iTunes ecosystem is becoming important for our company" or "our business ecosystem is becoming more standards-based and open." The term "business ecosystem" and its plural, "business ecosystems," refer to intentional communities of economic actors whose individual business activities share in some large measure the fate of the whole community. Companies making accessories for the Apple iPod can be said to be members of the iPod business community or, more evocatively, the iPod business ecosystem. The same can be said of the entertainment companies that license music through iTunes, the iPod-connected music downloading site, as well as the consumers who purchase and enjoy the music. As the New York Times summarized it, "lain entire ecosystem has emerged around the music player, introduced by Apple in October 2001." (6)

Some of the most interesting work on business ecosystems is being done in developing countries, where many of he most fundamental complementary contributions necessary for business cannot be taken for granted. Examples of this work range from the comprehensive analysis by C.K. Prahalad of "the symbiotic nature of the relationships between various private sector and social institutional players that can lead to a rapid development of markets" serving the world's materially poorest citizens, to targeted studies of key elements of a legal system that are necessary for Internet-centered digital business ecosystems to thrive in developing countries. (7)

A business ecosystem, as we will see, can also be conceived as a network of interdependent niches that in turn are occupied by organizations. These niches can be said to be more or less open, to the degree to which they embrace alternative contributors. One of the most exciting ideas in business today is that business ecosystems can be "opened up" to the entire world of potential contributions and creative participants.