A Strategy For Survival in Tough Times
In the simplest terms, the concept here is how a company can potentially increase both revenue and market share by executing a strategy to work with its direct or indirect competitor(s) to the benefit of both, a win-win. The old Arab saying, “My enemy’s enemy is my friend” also applies. It can also be as simple as joining an ad hoc collaboration among a group of companies or a standards group to create market order and simplicity from an overcrowded and confused market. Customers invariably respond to products that provide the greatest value and paths to long-term increased value and cost reduction. Collaboration or “Co-opetition” is one of the most effective means to achieve that goal, particularly in an economic environment where “flat is the new up.”
Multibus: An Early Example of Collaboration Building A New Market
Soon after joining Intel, I learned about Intel’s concept of “Open Systems” and its “Multibus” system architecture. Motorola was Intel’s primary competitor in microprocessors and so-called “single board computers” at that time. Intel’s now legendary Marketing VP, Bill Davidow had developed a strategy to recruit other companies to support Multibus as an open system standard. Davidow’s idea was to make Multibus more attractive to system designers by having a stable of compatible products from other companies supporting Multibus. It worked. Since that time the concept has evolved significantly and has played a major role in the development of many new markets. This post discusses some of the evolutionary changes, offers two high-tech case studies and some key requirements for successful collaboration. It is more important now than ever as a survival strategy in a particularly challenging global economy.
The IBM Personal Computer Sets The Standard For The Future
Perhaps the best known high-tech example of an open system is the IBM Personal Computer, involving IBM, Intel, Microsoft, and thousands of other supporting companies. The result has been the creation of a huge new market, with over 400,000 applications for the PC, significant price competition, and interchangeable components from multiple vendors. By contrast, Apple opted for a closed, proprietary system, which persists to this day, and continues to be a source of discontent from Apple customers: higher prices, as well as accessories and interfaces only available from Apple, etc. In sheer market share, the PC dominated at 85% of the total market, while Apple was forced to concentrate on niche markets like education and graphic design. I am not going to discuss the PC as it has been analyzed extensively over the years, though it does provide an excellent case study on the dynamics and market power of open systems versus closed proprietary systems.
Important Current Co-opetition Successes: DSL And Android
I will discuss two other cases, one less well known and the other better known and more recent. In the first case, I was personally involved so my experience enables me to speak in-depth on the topic. Shortly after leaving Ascend Communications, I was called by a friend at Compaq/HP in Houston and asked to fly down to Houston for a private discussion with the VP of the Presario Division and his team. The VP wanted to incorporate a high-speed digital subscriber line (DSL) connection in the Presario out of the box. The idea was that a consumer would connect the PC to a standard RJ11 telephone wall jack, and be instantly connected to the Internet. However, I had to explain that the challenges to this were enormous. First and foremost the telephone companies themselves could not agree on the standard for how DSL worked. Equally problematic, the DSL market was fragmented with dozens of competitors offering different proprietary solutions.
We decided to proceed regardless, recognizing that if HP/Compaq were to succeed with their ingenious idea, it would require a fundamental change in the current DSL market and the telcos. This could only be attempted if Compaq joined forces with Intel and Microsoft, and even then the outcome would be uncertain. I contacted Ali Sarabi in Intel’s Architecture Labs, who admitted that Intel had been thinking of the same idea, and talking with Microsoft as well. So within two weeks all three companies met at Microsoft in Bellevue and the idea gained steam. Soon after we held three days of secret meetings in Atlanta with DSL companies, without explaining our purpose, and came away completely dejected. Bringing the competitors together was hopeless. They all pointed in a different direction. It then dawned on us that if we could get the telecom companies to agree on a single DSL standard, they could unite and as “the customers,” and therefore dictate to the DSL competitors what they would buy. Nothing works better than the opportunity to make money.
Another round of secret meetings in Seattle with the telecoms, and follow-up meetings around the country led to a breakthrough: the formation of a global consortium of over 100 telecom companies and DSL companies that culminated in the International Telecommunications Union in Geneva Switzerland creating a single global DSL standard, which eventually made the original Compaq Presario vision a reality.
Special Interest Group Legal Framework Paves The Way
One of the keys to this success was a simple legal framework for the companies to collaborate, known now as a “Special Interest Group,” avoiding any hint of unfair competition and ensuring that the technical aspects of the standard would be in the public domain. The SIG legal document has since been used in a number of other developments, notably Bluetooth and USB. Other standards bodies, like the IEEE and IETF, are also structured similarly, enabling the creation of crucial collaborative projects like WiFi. These efforts are now a key aspect of many high-tech markets. Many companies devote entire teams to managing their participation in these standards bodies and ad hoc industry collaboration activities. Even on a small scale, some agreed framework, a Memorandum of Understanding or a simple one-pager may be required to achieve the necessary trust to move forward.
Android Repeats The IBM PC Phenomenon
The second case of successful global industry-wide collaboration is the Google Android smartphone operating system versus Apple IOS. Once again, Android is an open architecture while Apple IOS is a closed proprietary system. Android has been adopted by a wide range of smartphone manufacturers, most notably Samsung, HTC, and Huawei. Despite the well-publicised popularity of Apple’s iPhone, the fact remains that Android, as an open architecture dominates the global smartphone market at 82% market share in 2015, as reported by International Data Corporation (IDC), and Apple again stuck in the 15% range.
Global Smartphone Market Share 2015 (IDC)
Two Failures To Collaborate: Videoconferencing And The Internet of Things
The video conferencing market has been around for nearly thirty years. Originally, there were big bulky proprietary systems. Cisco Systems later became a major player with its own impressive HD technology. In all, there were nearly a dozen major competitors addressing an “enterprise market” for business use only. The equipment was very expensive. Then along came Skype, WebEx, Apple Facetime and others. The problem is that, after thirty years, none of these competitors applications can talk with any other application. Clearly, this is a problem. So “middleware” startups have sprung up, offering a simple translation of otherwise incompatible video transmission protocols. Bluejeans technology is one excellent example. I have used it personally in my UBC classes to link a guest lecture on Skype to UBC’s corporate video conferencing system because there is no other way to do it. Is this the best solution or cost-effective. Absolutely not. Why, after thirty years, has the video conferencing industry failed to standardize?
In another case, the emerging new market buzzword is “The Internet of Things.” This means that everything in your home can and will be connected to the Internet. Sounds simple enough, right? Not exactly. Today the IoT market remains a complex, confusing Tower of Babble, with multiple competing communications protocols. Some products support WiFi, but there is no one single agreed way to communicate. A recent ZDNet post explains that home automation currently requires that devices need to be able to connect with “multiple local- and wide-area connectivity options (ZigBee, Wi-Fi, Bluetooth, GSM/GPRS, RFID/NFC, GPS, Ethernet). Along with the ability to connect many different kinds of sensors, this allows devices to be configured for a range of vertical markets.” Huh? This is the problem in a nutshell. You do not need to be a data communication engineer to get the point. I have written here on this blog about this embarrassing failure to collaborate.
While the open architecture of the PC happened more or less organically, as so many companies were keen to get in on the action, the DSL problem was a hairball of enormous global complexity that had to be solved. I am honored to have been part of that effort. Google’s decision to launch Android as an open architecture was more like Multibus, and the conscious strategic decision of Eric Schmidt and Larry Page to enter the market as an open system from the outset. Other examples in other industries abound and are documented in the now legendary book, Co-opetition.
The result in all three successful cases has been a dramatic market success. The key takeaway point is that in all three cases the open architecture created opportunity and expanded the market. Industry collaborations like this are as relevant for smaller markets with only two or three competitors as for large complex markets. Collaboration can be the key to company survival or failure.