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Chapter 3 Information Systems, Organizations, and Strategy 139

FIGURE 3.11 AN ECOSYSTEM STRATEGIC MODEL

The digital firm era requires a more dynamic view of the boundaries among industries, firms, custom-
ers, and suppliers, with competition occurring among industry sets in a business ecosystem. In the
ecosystem model, multiple industries work together to deliver value to the customer. IT plays an
important role in enabling a dense network of interactions among the participating firms.

firms, transportation service firms, and technology manufacturers (Iansiti and
Levien, 2004).
The concept of a business ecosystem builds on the idea of the value web
described earlier, the main difference being that cooperation takes place across
many industries rather than many firms. For instance, both Microsoft and
Walmart provide platforms composed of information systems, technolo-
gies, and services that thousands of other firms in different industries use
to enhance their own capabilities. Microsoft has estimated that more than
40,000 firms use its Windows platform to deliver their own products, support
Microsoft products, and extend the value of Microsoft’s own firm. Walmart’s
order entry and inventory management system is a platform used by
thousands of suppliers to obtain real-time access to customer demand, track
shipments, and control inventories.
Business ecosystems can be characterized as having one or a few keystone
firms that dominate the ecosystem and create the platforms used by other niche
firms. Keystone firms in the Microsoft ecosystem include Microsoft and technol-
ogy producers such as Intel and IBM. Niche firms include thousands of software
application firms, software developers, service firms, networking firms, and
consulting firms that both support and rely on the Microsoft products.
Information technology plays a powerful role in establishing business
ecosystems. Obviously, many firms use information systems to develop into
keystone firms by building IT-based platforms that other firms can use. In the
digital firm era, we can expect greater emphasis on the use of IT to build indus-
try ecosystems because the costs of participating in such ecosystems will fall
and the benefits to all firms will increase rapidly as the platform grows.
Individual firms should consider how their information systems will enable
them to become profitable niche players in larger ecosystems created by
keystone firms. For instance, in making decisions about which products to
build or which services to offer, a firm should consider the existing business

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