Alliance-based Competition

Intense competition, changing markets, and the need for speed have forced Internet pioneers and startups alike to thrive on collaborations. Whether it be joint product development projects, cross-marketing alliances, or outright mergers, various forms of organizational arrangements have evolved to serve the need for growth. In the Internet and new media space, recent deals like the one between Yahoo! and Broadcast.com, for example, are built on expectations of the rapid thrust toward broadband and interactive multimedia content. Observers are already talking about a new set of deals (e.g. AOL and CBS) that will change the way we think about conventional media, content, and the Internet. While many of these alliances show promise, it is unlikely that all of them will succeed.

Collaborating the Cisco Way

As John Chambers points out, few companies have mastered the art of successful collaboration. Cisco itself has followed an aggressive growth-by-acquisition strategy, gobbling up small technology outfits that provide superlative solutions in the product-market areas in which it seeks future dominance. Rather than waste valuable time developing in-house solutions in all areas, Cisco selectively acquires technology-rich companies that can then be supplemented with its extensive and sophisticated marketing and support network. Although the acqusition costs to Cisco might not be significant on a per-deal basis, speedy implementation and integration of these deals within the Cisco framework increase the chances of non-linear returns in attractive product-markets. In addition, Cisco actively partners with large players like Microsoft, EDS, Peoplesoft, HP, and many other industry leaders on projects of joint strategic interest and importance. These projects typically involve more substantial R&D investment and aim to avoid expensive duplication through the development of mutually acceptable (and industry) standards. Thus, Cisco plays both ends of the spectrum, enabling it to chart and push the broad vision for an emerging industry, and also carry out detailed implemention in specific solution areas. It's critical competence therefore is in bringing new technologies to market in an extremely short time-span, whether it be through collaborative R&D, or the acqusition of R&D from elsewhere.

Amazon Dots Everything

Amazon.com, the pioneer of online bookselling, is now following a similar growth-by-acquisition strategy, as it seeks to expand its franchise across the online retail spectrum. Through careful and selective expansion into categories like music, video and gifts, and forays into the online mall space through its acquisition of Junglee, a cash-rich Amazon.com has kept its foot firmly on the gas pedal. The pace of expansion shows no let up. Amazon.com now has minority stakes in Drugstore.com, an online pharmacy, and Pets.com, an online pet-food outlet, and an cross-marketing arrangement with Dell Online. In addition, it has recently announced plans to get into the lucrative area of online auctions. Throughout this process of expansion, Amazon.com has painstakingly built  critical competitive assets in the areas of customer acquisition and retention, marketing and customer service, knowledge of e-retailing infrastructure, and the building and sustenance of virtual market mechanisms. Amazon.com today offers you travel vacation packages to exotic destinations through its merchant network. It might not be too far-fetched to dream of a time when you can use Amazon.com dollars for you next hotel reservation, or buy shares in technology start-ups through the Amazon.com stock exchange. All of these may not happen of course, but you can be sure that Amazon.com will give each prospect a long hard look.

The Lure of Alliances

Are alliances and acqusitions the solution to all your problems, then? The answer is a resounding NO! It is not the numerical ability to form alliances that is of importance. It is the ability to form the right ones (that work) that makes all the difference. Cisco and Amazon.com are just two examples of success in industries that are littered with the ghosts of failed alliances that were built on unrealistic expectations, cultural incompatibility, poor implementation, or just plain bad timing or luck.

Typically, successful alliances require a tremendous amount of legwork. Upfront, this ranges from figuring out the joint expectations and objectives of the allying firms and the alliance unit, to the level of complementarity in core competencies between the allying firms. Once the initial pairing is assessed and the domain of the alliance firmly established, the arrangement can then move through stages of genuine collaborative efforts (in the areas of new product development, or marketing, for example) that are guided by the wisdom of senior management, and the skill, perseverance, and creativity of alliance personnel. It takes a lot of motivation, guts and competence to make the right alliance work, and for that, no one can grudge John Chambers of Jeff Bezos their powers of vision and execution.

The Internet Economy is no stranger to alliances. In fact, we are constantly bombarded by announcements about all kinds of organizational arrangements that promise to deliver value to customers. At the end of the day, a logical set of questions and metrics are necessary to analyze the potential of future alliances and acquisitions.

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