n June 16, 2017, Amazon surprised the business world by announcing that it would acquire Whole Foods for approximately $13.7 billion. The acquisition is Amazon’s largest to date by far as well as a significant departure from its traditional strategy of growing businesses organically.

There has been much speculation about the strategic rationale behind this move. Some have referred to the overlap between the clientele of Amazon Prime and of Whole Foods, others to the value of a brick-and-mortar presence, and still others to the need for scale in building out grocery supply chains.^[1]For different interpretations of the rationale behind the deal, see L. Stevens and H. Haddon, “ Big Prize in Amazon-Whole Foods Deal: Data,” Wall Street Journal, June 20, 2017; A. Bhattarai, … Continue reading

Whatever the specific motivation for this transaction, we believe the acquisition is not an isolated occurrence but part of a broader trend: the shift from the largely digital ecosystems that dominate today to ones richly exploiting both the digital and the physical worlds. This shift signals opportunities not only for digital giants but also for physical incumbents to build new digital-physical ecosystems. Orchestrators of these hybrid ecosystems must follow some new principles and adopt a set of behaviors different from those that purely digital ecosystems require. The Japanese company Recruit offers a rich example of how to succeed in this new realm.

The Rise of The Digital Giants

Digital ecosystems—networks of companies and consumers that interact dynamically to create mutual value—have enabled some of the most profitable and most valuable business models that exist today.^[2]See S. Tamim, J. Brock, N. Yousif, and A. Luers, “ The Age of Digital Ecosystems: Thriving in a World of Big Data,” BCG article, July 2013. Digital ecosystems create value primarily through the delivery of digital goods and services, using scalable digital platforms such as two-sided marketplaces. The five most valuable public companies in the US—Apple, Google, Microsoft, Facebook, and Amazon—are all orchestrators of digital ecosystems. This is a strong contrast with ten years ago, when Microsoft was the only digital player alongside four physical giants (Exxon Mobil, General Electric, AT&T, and Citigroup) in the top five.^[3]Based on market capitalization as of August 1, 2017, and August 1, 2007, respectively.