Part 2/5—Interview: co-author Roy Levien; The KeyStone Advantage: “This is an important book that should be read by anyone interested in the dynamics of modern business.” — Bill Gates

On Wednesday, I began my discussion with Roy Levien. Here is part 2:

I would like to hear your opinions in this forum or send me an e-mail at Enjoy! …. From Stephen Ibaraki, I.S.P.

Q: Can you detail dominators traits including the areas of control and value extraction?

A: Dominators are the “bad guys” of this view of business networks. They exploit their hub position to extract value for themselves, leaving too little to grow or sustain a healthy network around them so that in the end they become the network. Dominators can also arise though mergers and acquisition or other anti-competitive practices, but the end result is the same: instead of a network with a large number of contributors sharing ideas and value, you have one or two big firms.

Q: Can you distinguish the ecosystem roles of niche players from dominators and keystones?

While keystones and dominators both sit at the hubs of their networks, but they manage them very differently. Niche players constitute the bulk of any network: they make the vast majority of products and account for the variety of what a healthy network does. They are specialists, using the tools and technologies that the network makes available as a foundation, so that they don’t need to reinvent the wheel and can thus focus on the things they do best. If I make toothpaste or board games or desk lamps, I can plug into Wal-Mart’s efficient retail platform and be assured that many decisions about distribution, shelving tracking and stocking – decisions that are not what I’m about – will be handled efficiently. If I make a financial software package or a PC game or an online music store, I can use Microsoft’s platform and tools to handle most aspects of interaction with the user, the hardware, and other applications and files. I can focus on adding my own value and am not redundantly creating things that are not only outside my own expertise, but which would make my product interact poorly with others if each niche player “rolled his own.

Clearly it is the dominators and niche players who have an adversarial relationship: dominators are about displacing, eliminating, or absorbing niche players. But it’s not all love between niche players and the keystones either. This is one of the biggest challenges for niche players: they have to be pragmatic about their place in the network. If they are too close to the keystone, making something that is a candidate for incorporation into the keystone’s platform – like Netscape or Real with respect to Windows – they will end up in a high stakes game of survival. If they survive, they may, in effect, own a piece of the platform, thus becoming a keystone in their own right; if they lose, they lose completely. But in a healthy business ecosystem, new niches are being created all the time. Because the platform is constantly acquiring new capabilities, you can go, in a few years, from a situation where getting any sound out of your computer is a chore and where connecting with another computer requires a degree, to one where kids can acquire and listen to just about any music they want with the click of a mouse. Music players, something once considered inconceivable, now represent a hotly contested niche. But because the platform is evolving, it is also target for incorporation into the platform. That is one of the toughest things to accept about the dynamics of business ecosystems. Unless your niche is relatively secure and small, you will eventually end up as a candidate for incorporation into the platform. And that can be a boon or a bane, depending on how you prepare for it. Protecting your intellectual property and establishing yourself as a keystone in your own domain are critical parts of that. So is timing: Vermeer Technologies’ sale to Microsoft is an example of how to time things right; Netscape is an example of how to time things perfectly wrong. Vermeer knew that it wasn’t quite a keystone in its own right yet, but knew that it had technology that was going to be an essential platform component in the near future. It negotiated on that basis and the result was a win-win situation. Netscape thought it was a platform when it wasn’t even close to being one: it saw the potential, but was nowhere near actually embodying it. It acted on the basis of its delusions and died.

Comments (1)

  1. Anonymous says:

    Last Wednesday, I began my discussion with Roy Levien. On Thursday, Friday, and this Monday, we continued…