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Best Business Books 2004: IT & Innovation

Successful keystone companies share technology, tools, customer lists, market intelligence, and the value created within their network. They are greedy, but greedy for large long-term rewards. Microsoft, in the authors’ view, is the archetype, having pursued what they call “the most successful keystone strategy of all time.” The linchpin, they assert, is Microsoft’s long-term care and feeding of the 5 million software developers in 20,000 companies and IT departments worldwide who have written more than 70,000 applications to run on Windows, the immensely lucrative center of the Microsoft ecosystem.

Iansiti and Levien assert that there are three possible corporate strategies in the new business environment: keystone, dominator, and niche. The keystone advantage, to borrow the book’s title, is obvious. The niche strategy is to leverage the assets of an ecosystem and specialize. The authors cite niche winners such as Nvidia — a designer and marketer of graphics chips, which works with a keystone, Taiwan Semiconductor Manufacturing Company, to manufacture its chips — and Intuit, the maker of personal finance and tax software, which runs on Windows. The dominator strategy, the authors suggest, is usually shortsighted. Dominators try to hold on to too much themselves, tend not to share information and technology, and never foster a big ecosystem as a result. Apple is the classic dominator.

The biological analogy presented by Iansiti and Levien, like all analogies, has its limits, but their analysis of business ecosystems and strategy is both thoughtful and insightful — an important contribution to the IT literature. The most controversial aspect of the book is its policy prescriptions. According to Iansiti and Levien, keystones are all but paragons of virtue. It is a fallacy, the authors tell us, that keystone companies are chokepoints to innovation, or that they control their industries. The authors say they hope the ideas in their book will “spur a new look at antitrust economics.” It is essential for public welfare, they argue, that “the crucial roles played by these organizations be safeguarded and reinforced.”

Piracy and Property
The Keystone Advantage can, at times, read like an elaborate defense of Microsoft, which, you will recall, lost a landmark federal antitrust suit not so long ago. Reasonable people can disagree as to whether Microsoft’s conduct can be defended on economic grounds — a subject beyond the scope of this article. But it’s worth noting that one of the authors’ niche winners, Intuit, would have been taken out by Microsoft with a hostile bid had that takeover not been challenged by the U.S. Justice Department.

Lawrence Lessig, a professor at Stanford Law School, uses a different sort of biological analogy to reach a very different conclusion about competition in the IT-driven world of business. In Free Culture: How Big Media Uses Technology and the Law to Lock Down Culture and Control Creativity (Penguin Press, 2004), he sees the new “knowledge ecology” made possible by the Internet being gravely threatened by powerful corporate lobbyists responsible for a “subtle corruption of our political process.”

Lessig is well known as a forceful advocate for restraint in the application of intellectual property law to the Internet. In previous books, he has set forth his view of what is at stake as the law and new networked technology collide. In Free Culture, Lessig warns that things are going badly wrong, largely because a few industries, particularly Hollywood and the music business, have unduly influenced the enforcement of copyright law and the public debate.

The danger, Lessig says, is that in cyberspace we may lose much of society’s “creative commons” — a legally shielded zone of “fair use” that permits the sharing and copying of words, images, and music for personal, academic, and other mostly noncommercial uses. This did not happen, for the most part, with earlier technologies, from the printing press to the video recorder. Yet the law’s response so far, notably under the Digital Millennium Copyright Act of 1998, has “massively increased the effective regulation of creativity in America,” Lessig writes. The risk, he asserts, is that we become not the “free culture” of the book’s title but a “permission culture — a culture in which creators get to create only with the permission of the powerful, or of creators from the past.” He adds, “If we understood this change, I believe we would resist it.”

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