Competing in the Age of AI

Artificial Intelligence, Innovation and Economic Growth and Competition Policy and Antitrust

Article Snapshot


Marco Iansiti and Karim R. Lakhani


Harvard Business Review, January-February 2020


Artificial Intelligence (AI) enables the rapid growth of a new type of firm. Many traditional firms now compete directly with AI-based firms. Business strategies and competitive processes are changing.

Policy Relevance

Traditional businesses should transition to new AI-based models. Organizations based on specialized “silos” will be less effective.

Main Points

  • AI enables the growth of a new kind of firm, which delivers value without traditional workers, supervisors, or customer service representatives; instead, valuable products and services are provided by algorithms, digital automation, or by connecting many providers outside the firm.
  • Examples include large firms such as Ant Financial, Google, Facebook, and many smaller firms; AI sets prices on Amazon, recommends songs on Spotify, and qualifies borrowers for Ant Financial loans.
  • The core of these new firms is an "AI factory" that converts data into predictions and insights, guiding the firm’s workflow.
  • With traditional business models, large firms tend to enjoy lower costs than small firms, known as gains from scale; AI-driven firms can expand in scale further and faster than traditional firms.
  • Traditional firms are organized into "silos," specialized structures that keep data and analysis fragmented; AI-driven businesses like Google Ads avoid silos and favor integrated data and software development.
    • Traditional firms like Nordstrom and Visa are making a transition to an integrated AI-driven approach.
    • Microsoft chose leaders with product development experience to reorganize itself into an AI-driven firm.
  • Increasingly, firms will gain competitive advantage less from specialization and more from a universal set of capabilities in data collection, data analysis, and algorithm development.
  • Digital operating systems can aggregate harm as well as value.
    • One mistake can expose an entire digital network to cyberattack, or perpetuate bias or misinformation.
    • The unconstrained growth of AI-based systems can increase risk and threaten equality.

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