Competing in the Age of AI

How machine intelligence changes the rules of business

by

Marco Iansiti

and

Karim R. Lakhani

by

Marco Iansiti

and

Karim R. Lakhani

From the Magazine (January–February 2020) · Long read

Eddie Guy

Summary.

Today markets are being reshaped by a new kind of firm—one in which artificial intelligence runs the show. This cohort includes giants like Google, Facebook, and Alibaba, and growing businesses such as Wayfair and Ocado. Every time we use their services, the same thing happens: Rather than relying on processes run by employees, the value we get is delivered by algorithms. Software is at the core of the enterprise, and humans are moved off to the side.

This model frees firms from traditional operating constraints and enables them to compete in unprecedented ways. AI-driven processes can be scaled up very rapidly, allow for greater scope because they can be connected to many kinds of businesses, and offer very powerful opportunities for learning and improvement. And while the value of scale eventually begins to level off in traditional models, in AI-based ones, it never stops climbing. All of that allows AI-driven firms to quickly overtake traditional ones.

As AI models blur the lines between industries, strategies are relying less on specialized expertise and differentiation based on cost, quality, and branding, and more on business network position, unique data, and the deployment of sophisticated analytics.

Idea in Brief

The Market Change

We’re seeing the emergence of a new kind of firm—one in which artificial intelligence is the main source of value creation and delivery.

The Challenge

The AI-driven operating model is blurring the lines that used to separate industries and is upending the rules of business competition.

The Upshot

For digital start-ups and traditional firms alike, it’s essential to understand the revolutionary impact AI has on operations, strategy, and competition.

In 2019, just five years after the Ant Financial Services Group was launched, the number of consumers using its services passed the one billion mark. Spun out of Alibaba, Ant Financial uses artificial intelligence and data from Alipay—its core mobile-payments platform—to run an extraordinary variety of businesses, including consumer lending, money market funds, wealth management, health insurance, credit-rating services, and even an online game that encourages people to reduce their carbon footprint. The company serves more than 10 times as many customers as the largest U.S. banks—with less than one-tenth the number of employees. At its last round of funding, in 2018, it had a valuation of $150 billion—almost half that of JPMorgan Chase, the world’s most valuable financial-services company.

A version of this article appeared in the January–February 2020 issue of Harvard Business Review.

Marco Iansiti is the David Sarnoff Professor of Business Administration at Harvard Business School, where he heads the Technology and Operations Management Unit and the Digital Initiative. He has advised many companies in the technology sector, including Microsoft, Facebook, and Amazon. He is a coauthor (with Karim Lakhani) of the book Competing in the Age of AI (Harvard Business Review Press, 2020).
Karim R. Lakhani is the Charles Edward Wilson Professor of Business Administration and the Dorothy and Michael Hintze Fellow at Harvard Business School and the founder and codirector of the Laboratory for Innovation Science at Harvard. He is a coauthor (with Marco Iansiti) of the book Competing in the Age of AI (Harvard Business Review Press, 2020).

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Competing in the Age of AI

Idea in Brief

The Market Change

The Challenge

The Upshot

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