Partnering at large corporations – secrets to succeed!

In the era of consolidation following the economic crises, many firms turned towards a ‘protect the core’ approach. One often adopted approach was the slashing of R&D budgets and consequently a diminishing pipeline of new products. These now lean companies are facing a new problem – what do you do when your core itself is shrinking! This is being fueled by rapid technology changes which allows substitutes to enter the market, many with a compelling service offering, and many times free of cost!

Given an option to either make (i.e. reinstate the development that you just fired), buy (who knows if this is a hype or will work?) – many large firms are turning to the third, the partner option. At the highest level this would seem simple – there are no integration headaches, no large in-house development costs; but many are realizing this is not as easy as it seems. This is best illustrated by a simple analogy, ‘have you ever seen an elephant dance with a mouse?‘. Nonetheless, rather than give up on what is and should be a clear cornerstone of new products offerings to keep customers happy, large companies can make some concrete steps in this direction.

• Make sure that the partnering and venturing team has the full backing of the management. This simply boils down to the fact that partner products should always be evaluated on par with similar internally developed offerings – no step-motherly treatment here.
• Ensure that the team understands the partner mindset. At best this would also mean that a few members if not all have past experience in such an environment. It is quite difficult to understand the challenges, needs and wants of small firms if you haven’t quite done it yourself.
• Do not subject your partner to the internal functions, realpolitik and bureaucracy in your organization. Instead work hard to make your own internal processes lean, efficient and less cumbersome. Best way to look at it – treat the partner as you would a customer; keep him happy! It is amazing how beneficial this could be to other divisions in your organization as well.
• Invest in being able to effectively manage multiple partnerships. Managing the first 3 – 10 are easy, managing 50 is another story altogether. This does not imply additional layers of complexity – but recognize the need to be abreast of and manage partner needs. The Microsoft way – i.e. categorize partners based upon a few select KPI’s (e.g. revenue, strategic interest etc) and then accordingly assign resources to them is quite effective in this respect. Have to give them credit here – they do know how to manage (without strangling) their partners to a good extent.
• And with all partners – do not be afraid of failure; monitor the progress, recognize if and when it is failing – and move on. Do not throw good money after bad.
• Finally – be patient. The above points may sound simple but do need some time to fall in place and for you see tangible results. Give yourself the time, and make management aware of the same. Last thing you need is the fruits of your labor falling apart halfway through because unrealistic short-term expectations have been set!

Nokia & Microsoft – a failing strategy?

The past few weeks must have been a veritable headache for Stephen Elop and his crew at Nokia, one which would be shared with his former employers at Microsoft. After a lot of ballyhoo, and just one week before the iPhone 5 launch the much vaunted Window 8 phones were finally launched at the Nokia World event. This one was deemed important enough that the Microsoft head honcho, Steve Ballmer attended in person.

The result was a disappointment and the stock market made this amply clear by the end of day. What definitely did not help was Nokia resorting to cheap trickery to ‘enhance’ the feature set or the fact that they would generously dole out around $150 million to carriers to subsidize the device. No small wonder many analysts sent in a buy recommendation, with some trying to figure out the value of Nokia’s patent portfolio determining the lowest price at which they could snatch a bargain. But I do not want to dwell only on the negatives, but instead try to peer through a looking glass to try and gather what could or should they do to change this downward spiral.

Let us look at the bigger and far brighter picture. Although smart-phones adoption is increasing fast at the same time they form a tiny fraction of the total number of phones which stands at around 6 billion! For example in South Africa where I am currently based, only 14% of the total subscriber base own smart-phones. From a market opportunity, well there is certainly a huge untapped market to be explored rather than having to fight for market-share in a saturated environment. Agreed this market is primarily in the developing world – but one market which Nokia has keenly understood for over a decade. Nokia has honed its skills in being able to deliver feature phones at low prices and is a well loved brand in this community. Microsoft too is well known in these circles. Rather than aim for a head-on confrontation with Samsung and Apple in developed markets wouldn’t it be interesting to aim for a Windows 8 touch-screen device in the APAC and Africa regions? Nokia could conceivably energize its much vaunted logistics and R&D to create such a device in a global partnership with Microsoft. This would not be a retreat from a battle, but prepare and establish a strong presence in the smart-devices category in a market which is rapidly growing both in earning power as well as numbers. This would need to extend towards devices more than just smart-phones. The Windows 8 platform could offer just this leverage. You could then conceivable have a similar unified experience (a.k.a. Apple) across all your devices, which could make the whole deal a more compelling value proposition.

Of course, this is not a sure shot win. For starters Nokia needs to be doubly aggressive in this case facing the emerging threat of the Chinese with Android powered devices. I believe the whole hoopla with the developed markets is a sorry distraction in this respect. Microsoft may even need to revisit its Windows sales strategy and business models if it wants to be serious in the mobile business. None of these are easy decisions, some of which sit on top of large egos at the management at both companies. Perhaps it is time for them to learn from their teams in the developing world, realize and seek this opportunity and move swiftly to capture it before it is too late.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours

Fit or misfit – decoding the Skype acquisition

On May 11, 2011 Microsoft coughed up a staggering $8.5 billion to acquire Skype via an unsolicited bid. The general reaction all around was critical; why did Microsoft make its largest ever acquisition for a company which only 18 months ago was acquired from eBay at 1/3 the price? And that too a company which by itself had never turned a profit in all the years of its existence, but with over 170 million active users most of whom never paid a dime for the service.

Why would this be important for emerging markets you ask? Well, for one Skype is the way millions of users across the world communicate with each other – many of them from just these developing countries. I have been an avid user of Skype for many years from Africa to Asia and Latin America and can daresay that there are few services which can squeeze voice and video within a limited bandwidth as compared to Skype. And what’s more – it is all for free. What makes it an excellent and attractive proposition for a user makes it a challenging proposition for a company….. well unless you are Microsoft.

Microsoft has quietly developed several online properties over the years, some by itself – others by acquisition but few if any have actually gain traction among a large user base. Anyone can tell you, that in order to be successful in this space you either have to be niche and specialized or well, be the gorilla. Microsoft is just too big in size to be able efficiently address many small niches, hence only the gorilla option is available. In addition, it had been hoarding a lot of cash over the years and now investors were getting restless. You could consider an analogy to that of a property developer building a large mall with all the bells and whistles only to find that he didn’t have anyone coming to his mall because it was too far, too inconvenient or perhaps there were better alternatives. If he couldn’t somehow get the people to come and visit, then he would never have any hope of monetizing his other assets.

This is the dilemma Microsoft faced. It needed a heavy lifter, one who had the capacity to draw people to itself. Organically this would have been impossible, it would have taken too much time and effort – and well, past efforts hadn’t been successful as well. The only logical choice was an acquisition. If you looked around carefully at that point in time, the only asset which was available was Skype. If Microsoft had low-balled it may have resulted in a protracted negotiation, other parties may have entered the mix and the end result could possibly have been much higher. Hence it offered a price which couldn’t be refused – and at around $35 per active user, it can also been seen as a pretty low price to get continuous users.

Now that it has this asset, it is to be seen how best it will go about integrating it with its other offerings. If it manages to keep Skype’s flexibility and ease of use intact, it could potentially draw customers to products such as Office Live, its cloud assets etc – making its once barren landscape humming with activity once again. This could be an route to get people in the developing world latched onto Microsoft as they continue to use Skype as an integral part of being connected to the outside world.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours