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When Competitors Become Partners

The business world is supposed to be dog-eat-dog. It’s a zero-sum game in which any advance by a rival is a setback for you – and any achievement by your company is one in the eye for your competitors. Sometimes though it pays to put the hostility aside and look for areas where two (or more) competing companies can co-operate. While that might sound like a bad result for consumers (and an issue for an antitrust commission) the result can often be benefits all round.

Much though depends on the context and the motivation for the deal. When Google teamed up with Yahoo last year, providing the online directory with access to its search and advertising technology, the goal wasn’t to provide better services to consumers or even to ensure that both sides earned more money. It was to prevent Microsoft from getting a ready-made foothold in the search market by buying Yahoo. This was a case of two competitors coming together to defend against a common rival rather than create advantages that benefit themselves and the market as a whole. It’s rare though for an industry to be dominated by three firms in this way and the deal itself was temporary and one-sided. Google was the senior partner and by accepting its rival’s technology Yahoo effectively waved a white flag above its own position in the search market.

More common are partnerships in which rivals come together to set an industry standard, and this is something that seems to be happening fairly frequently now as technology advances faster than business models can keep up. Infineon Technologies, for example, recently announced a partnership with rivals Micron Technology to create CellularRAM memory, a kind of chip suitable for 2.5G and higher mobile devices. The two companies will agree on the specifications for products that will use the chips but compete on the products themselves. It’s almost as though the movie industry had decided whether Blu-Ray or HD-DVD would be the standard, created the video systems that would play them then focused on making the films. It’s a much more attractive option for companies than investing millions in a winner-takes-all race.

Publishing Rivals Team Up to Create New Magazine Formats

That kind of mutual platform-building is also now happening in print media. John Squires, an executive vice president at Time Inc., is planning to create a new company that will bring together his old firm, Condé Nast and Hearst. Together, the publishing rivals offer more than 50 of the best-selling magazines, including Vanity Fair, Vogue and Sports Illustrated. The aim of the new company will be to build a platform that will allow them to sell their magazines across different digital devices from the iPhone to the Blackberry. Reports describe the planned product as being something like iTunes for magazines but with a choice of formats.

The incentive for a move like this is clear. The publishing industry is struggling to roll back its decision to offer content for free online even as consumers become more used to reading on digital screens. No firm wants to be the first to put up a paywall for fear that it will send its readers to rivals. In order for everyone to benefit, everyone has to move together. Jointly creating a place for everyone to move to is a canny first step.

On the one hand, this model of co-operation appears very similar to that being followed by Infineon and Micron Technologies. The rival companies will create a common platform and offer their own products on top of it. But it’s not just the technology that the publishing companies are building – the various formats of their magazines that will work on different operating systems running on mobile devices; they’re also putting together a store from which readers can buy their products. They’re creating a marketplace too.

Co-operation Is Rare and Not Always Helpful

So what can small businesses learn from these models, and what can they do to enjoy similar benefits?

The most obvious point to notice is that this kind of co-operation is relatively rare. Major rivals teaming up to solve a mutual problem is unusual enough to generate headlines when it happens. It’s also clear that collaboration works best when everyone faces a common problem, usually one caused by a fundamental change in everyone’s business model. When magazines were sold mostly in stores and read on the buses or in the front of the fireplace, every publisher could have their own printing press and their own distribution system. When technology has changed the business model so drastically that profitability is threatened, it makes sense for everyone affected to come together to find a way to save the industry. Those kinds of revolutionary moments though don’t come along very often, and when they do the industry usually finds the co-operation a struggle. It often takes an outsider – even the force causing the disruption in the first place – to provide a solution. Apple’s iPods, for example, created an even greater demand for music in digital formats  but its iTunes store also provided a way for companies to deliver that music and get paid for it.

But perhaps the best model for co-operation between competitors isn’t the temporary truces sealed by rivals while they rebuild the battlefield. It’s the genuine respect and sharing found between online publishers giving away their content for free. Websites depend on links from other sites to build up their Google love, and references to publications offering similar content don’t detract from the site’s value but rather enhance it. Readers see the referring site as both a source of new information and a place that can send them off to learn even more about a similar topic. Even Internet marketers promote each other’s goods in affiliate relationships and swap testimonials to help each other sell – even if they don’t do it for those offering items that are exactly the same as their own.

For the most part, companies operating in a similar field  should be seen as competitors. It’s the kind of thing that keeps firms on their toes and ensures better and cheaper products. But co-operation can help to solve a temporary crisis – or bring more traffic to your website.

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