New Conglomerates and the Ecosystem Advantage

Abstract

It is the purpose of this paper to explore the emergence of a new form of web-based company and how the new organisational form is able to access multiple-markets and industries by exploiting the benefits of a platform ecosystem business model. Internet-based companies such as Amazon, Google, Facebook and Apple were referred to as the “Gang of Four” in May, 2011, by Eric Schmidt, Executive Chairman of Google. These twenty first century companies are leading an Internet-based consumer revolution which is having a disruptive impact on a broad range of industries and markets. Using their platform-based ecosystems (Gawar, 2009), the Internet-based corporations are able to leverage these core competencies and enter industries that appear unrelated to their core businesses. This has given rise to a new form of conglomerate business model that contrasts with the Western industrial conglomerates of the 1960s and early 1970s. Most of these corporations were broken-up in the early 1980s and the remaining core businesses resorted to focused strategies. The paper also analyses why the new Internet-based firms do not follow the positioning school of strategy and seek monopolistic rents – profits arising from market power - (Porter, 1979) by locating in attractive industries. Instead, these firms leverage core competencies and achieve Ricardian economic rents (Grant, 2008) – profits arising from superior resources - through strategies of stretch and leverage (Prahalad and Hamel, 1990). By adopting a core `competency tree` configuration (Prahalad and Hamel, 1990), a core competency platform is leveraged which allows the Internet-based firms to enter multiple markets using asset-light business models. This new form of competitive advantage is based on having a superior ecosystem that uses data as the key resource instead of capital; capital being the main resource underpinning the success of the traditional Western conglomerates of the 1960s and early 1970s.