(The following is exerpted from “Partnering With Microsoft: How To Make Money In Trusted Partnership With The Global Software Powerhouse” by CMP Books)
Yes, without a doubt, Microsoft is powerful. But what does that power mean to its services, software and reseller partners, actual and prospective? Is Microsoft’s market power any incentive for your firm to partner with Microsoft? Are there better high-technology companies with whom to partner? These questions must be answered in order to understand what partnering with Microsoft-or any major software vendor-can do for its different and wide-ranging partner constituencies.
More than any other company in the computer industry, Microsoft has proved the value of partnering and the efficiencies of the channel model. In fact, many attribute Microsoft’s monumental success to its early recognition that it would need a strong channel of service, reseller, developer and manufacturing partners in order to seed the PC industry.
Some observers suggest that Apple squandered the same potential to grow its Macintosh OS platform by retaining most of the Mac-related hardware, software and services business for itself with only a small number of partners relative to Microsoft’s channel. While it is difficult to pinpoint the precise value of Microsoft’s partner ecosystem, Mr Gates provided an estimate at a partner briefing in the company’s Manhattan office in 2003.
At that time, he claimed that for every dollar that Microsoft earns in sales, eight dollars go to partners in services revenue. Based on Microsoft’s FY04 results, this ratio translates into more than US$300 billion in revenues for Microsoft’s partner channel.
Why Partner at All?
At the same time, though, one might reasonably ask: why partner with anyone? Some say that partners are for dances, not for business. Yet corporate partnering has been steadily increasing for the past decade and for some good reasons. Companies partner with one another to supply a defect: a company is not particularly capable in a certain area so it partners with one that is, or a company does not have access to a potentially lucrative market, so it partners with one that does.
Additionally, companies partner with one another to extend their respective opportunities: a company’s product or service is complemented by that of another company, so they partner for leveraged marketing and improved market traction. One example of this is the partnering by Sun and IBM to advance market adoption of Java and to keep Microsoft, their common enemy, at bay. There are other instances in which one company may have a strong offering for one vertical, and enters a partnership with another firm to leverage its capabilities in another vertical market. Finally, companies partner with one another to extend themselves or their products and services: a company may have a product or service that has greater growth potential than the company can achieve in a certain amount of time and therefore partners with another company to extend its capabilities and improve its market success for its products and services. The pairing of Wal-Mart and Procter & Gamble on just-in-time inventory management is a classic example of the virtue of partnering to improve competitiveness and efficiencies.
Corporate partnerships have an analogue in international relations, of course. Governments have always pursued alliances for the same reasons that companies build partnerships. And, like governments, no company ever reasonably seeks to ally or partner with another firm that it thinks could reduce its chances of achieving its objectives. If your firm aims at improvement, it partners with a company with the same goals, and a company that it thinks will win or at least help it win. Of course, companies-and countries-can make mistakes in judgment, or overestimate the importance of capabilities and the nature of the opportunities that they expect to derive from partnerships and alliances. Apart from a partner’s capabilities, however, and more to the point: companies are well advised to partner with others whose visions, missions, cultures, products and services are complementary.
The same applies to international allies. Stalin’s Soviet Union entered a non-aggression pact with Hitler’s Germany in 1939, and was devastatingly betrayed by an ally it ought not to have trusted; it vindicated itself six years later by invading Germany in tandem with its allies but, within 45 years, it ceased to exist in large part by making enemies of these very allies. In an effort to extend French power, Louis XII of sixteenth-century France allied with and contributed to the growing power of Venice, and then deprived Venice of its state; doing so, in the end, contributed to France’s being undermined in Italy and on the European continent. (Or so, at any rate, judged Niccolo Machiavelli, who, when told that “the Italians do not understand warfare” replied that “the French do not understand statecraft.”) Additionally, in a desperate move to shore up his power at Rome, Marcus Antonius allied himself with the Egyptian queen Cleopatra, and was subsequently vanquished at the naval battle of Actium by Octavian and Rome’s forces in 30 BCE, for betraying Rome itself. None of these political leaders prudently considered the lack of complementarity of their chosen allies with their own political causes, and they suffered the consequences. Instructive historical examples of imprudently planned and poorly executed alliances abound, to the peril of the governments that made them. So, too, companies that imprudently partner with others-whose cultures, visions, missions, products and services are at odds with their own-risk similar fates.
Consider the principle that Machiavelli distilled from Louis XII’s example-“whoever causes another to become powerful is ruined”-and how it applies, for example, to IBM in 1981, when it licensed Microsoft’s MS-DOS for a line of personal computers that IBM viewed as insignificant at the time. IBM’s licensing MS-DOS was the opening salvo in an enduring battle for computers in the market that undermined IBM’s mainframe dominance and jumpstarted Microsoft as a global market power. One need not dwell on extreme cases. The risks and the rewards of partnering clearly admit of degrees. But before entering a partnership, one must be mindful of the cultural traits, long-term strategy, management structure, organizational model and the mechanics of a prospective partner, to say nothing of its driving intentions and how the partnership will balance perils and profits.
Obviously, partnerships among firms with differing viewpoints on core issues, including business models, management theories, work ethic, customer service, or those with vastly different cultures and styles, are often doomed. IBM and Apple, for example, announced two significant alliances in the mid-1990s-Kaleida Labs and Taligent-both founded to develop an object-oriented scripting language and an operating system, respectively, and to keep their common enemy-again, Microsoft-at bay. While those technologies found their way into IBM and Apple products subsequently, both partnerships failed. At the time, culture clash was cited as one of the key reasons for the failed partnerships between those two fundamentally different companies. Likewise, many dot.com startups in the late 1990s clashed with established vendors in the computer industry due to their laissez-faire approach to management and their relaxed, youthful cultures. Indeed, the increasing tension between opensource foundations and commercial Linux vendors is often cited as a potential obstacle to the technology’s deployment, though parties on both sides maintain that they are committed to partnering to defeat the “tyranny” of proprietary software.
However one views the prospect of partnering, IT services and software firms are developing their relationships and alliances with vendors on a more formal basis than in the past. Acquisitions and consolidat