08 February 2013

The Inevitable Sleeping with the "Friend-emy"

Back when Apple was cool (circa 2012), the company liked to throw around its weight almost to a fault.  Everyone knows about the Google Maps fiasco and its decision to move entirely away from Samsung chips seems to be risky choice as well.  As companies such as Apple continue to grow, they will no doubt run into areas in which they end up partnering with competitors for a specific need.  Very few try to avoid this conflict like Apple seems to be; It leads me to the question of whether it is better to avoid enemies altogether or accept small collaboration to achieve a greater good?

There was a good Fortune article recently detailing the rationale for fierce rivals like Ford and Nissan to work collectively to develop hydrogen-based engines for cars. It seems to be obvious that sharing R&D, capital budgets, and know how will help get this emerging technology off the ground quicker and cheaper.  Plus, the expected demand for hydrogen-based cars is so huge that both should benefit from the expanding pie.  This seems to be a win-win all the way around, right? Well, it certainly seems so out of the gate.

Once this new technology matures, however, the tactical competition will most likely lure its ugly head. At some point, there will be a market share grab by Ford and Nissan, who compete for the same customers in the same markets. You see similar fates more broadly in Joint Ventures where resources are pooled by two or more companies to address new markets such as Ford and Nissan's project.  Differing incentives generally lead to withholding of information, divisive management, and jockeying power plays.   In the end, JV's usually are unwound or result in suboptimal results as the fight for market share outweighs the potential benefits of collaboration.  

Almost every large corporation deals with this kind of conflict on varying scales.  While its' channel partners have not loved Microsoft's investment in Dell and the Surface Tablet, they have no choice but to support the software giant.  AT&T, Verizon, and all the large telcos have "peering" arrangements set up to leverage the others' network infrastructure (usually for free).  Luxxotica sells frames to almost every independent eye doctor in the country, but also runs 1000 Lenscrafters stores that compete with them.  Google swallowed Motorola but Samsung still sells the bulk of the Android phones in the world.  Closed door conversations may one thing, but generally speaking, businesses seem to accept some level of channel conflict in the interest of their own bottom line.

Interdependencies are everywhere, not just in business.  China's anti-competitive behavior hurts the US Economy, but without a buyer for our cheaply priced bonds, the US would be in fiscal dire straits.  It is easier for smaller companies that are more narrowly focused to pick partners and avoid competitors.  For larger ones, it's almost impossible to avoid your rivals at least in some capacity.  While Apple's "axis of evil" list may be a psychological victory for the company,  the strategy generally doesn't make much business sense.  Long-term objectives should win over small pools of competitive partnership.  The trick is to pick the appropriate timing and level of collaboration.

1 comment:

  1. the group and mindset of the employees in the early stages of a successful company have specific advantages that often don't play well as the company matures and growth begins to slow. So when you reference that "long-term objectives should win over small pools of competitive partnership", this is true and may take some times for these companies to transition their employee base to those that are more comfortable and better at making these types of decisions. It's very interesting to watch the transition Apple is currently going through.