Once upon a time, tech companies relied on their own R&D. Corning spent 16 years patiently researching fiber-optic cables before bringing the product to market. Hewlett-Packard, Microsoft, and Intel long maintained a build-it-yourself ethic: Sell whatever you invented last year while in-house researchers steadily seek out the next big thing.
But as products and markets grew more complex, and as new business models began supplanting the old more quickly, rolling your own became a much riskier proposition. So tech companies started to strike long-term alliances. Exhibit A: Wintel. And then, during the Internet boom, companies with nose-bleed valuations simply bought their way into new markets when promising technologies reached critical mass — viz eBay's purchase of PayPal.
But when some of those blockbuster mergers got biffed — like Terra's $12.5 billion stock deal for Lycos — or failed to pay dividends (eBay-Skype), the calculus changed. Today, time-consuming formal arrangements like mergers and joint ventures are pass , especially for big players seeking to dip a toe into new waters. Now the signature move for savvy companies is a quick, tactical strike to fill emerging gaps or explore a niche business. Call it virtual M&A — deals without the turf battles, pricey investment bankers, or messy divorces.
Leading the way
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Apple
iPhone + Google Maps
Verizon
Wireless V Cast + youTube videos
Garmin
Mobile GPS services + Blackberry
Intel
Xeon processors + Solaris OS
In recent months, there have been a raft of temporary alliances, marketing arrangements, and strategic partnerships between Wired 40 companies that operate in different markets. When Apple announced the iPhone in January, Eric Schmidt, Google's CEO and a member of Apple's board of directors, appeared onstage with Steve Jobs. Why? Google Maps and Google search are embedded in the nifty device. And Schmidt made it clear that the Vulcan mindmeld of Apple's big brains with Google's big brains was just beginning. "You can actually merge without merging," Schmidt said.
Later in January, Intel announced it would endorse Sun's Solaris operating system and distribute it to customers, while Sun said it would develop servers that use Intel Xeon processors and encourage software vendors to expand offerings for Solaris that can run on Intel-based systems. The two companies, neighbors in Santa Clara, California, aren't just exchanging compliments. The alliance calls for what the companies described as "joint engineering, design, and marketing efforts." Unlike with Microsoft and Intel, however, the partnership is nonexclusive.
For content makers and wireless-service providers, this type of alliance makes a lot of sense. The creative types gain distribution, and the delivery guys get proprietary content that can hook fickle customers. Both parties get a chance to test out new markets without having to share their crown jewels.
Of course, buyouts do still occur. But expect to see more of what happened in early December when Verizon and YouTube, a unit of Google, signed a "strategic mobile distribution agreement." Verizon Wireless V Cast customers will get access to certain YouTube videos through their mobile phones. Garmin last September struck a deal with BlackBerry under which Garmin Mobile, an application that delivers maps, fuel prices, and traffic information, would be available on select BlackBerry devices.
These short-term relationships can produce some unlikely bedfellows. For example, the fuddy-duddy auto industry has been speed dating with videogame makers, providing branded cars for racer titles. Last summer, Cadillac, the most staid of the car companies, struck a deal with Microsoft and Bizarre Creations to make V-Series cars available as downloadable expansion packs for BC's Project Gotham Racing 3. In the past, GM would likely have set up its own huge internal team to develop a strategy, then worked with its establishment ad agency to come up with some massive, overwhelming buy.
As full-fledged marriages, most of these corporate alliances would wind up creating big sticky messes. During the iPhone introduction, Google CEO Schmidt suggested that a merged Apple and Google could be appropriately dubbed "Applegoo." But a weekend fling has every chance of success.
Daniel Gross (moneybox@slate.com) is the author of the forthcoming book Pop! Why Bubbles Are Great for the Economy.
credit: Mark Hooper
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