Growth IQ

by Tiffani Bova

  By the time Intel realized its mistake, those companies had largely tied up the mobile business . . . and mighty Intel was left only the crumbs. The company spent much of the early twenty-first century struggling to find its place in this new world. Now, autonomous vehicles seemed to offer Intel another chance at dominating the next great chip market. Under a new CEO, Brian Krzanich, it decided to go all in. To fill a perceived weakness, the company acquired computer vision specialist Mobileye for a whopping $15.3 billion. Said Krzanich, “The future of transportation relies on auto and tech industry leaders working together to develop a scalable architecture that automakers around the globe can adopt and customize.”

  Meanwhile, the most dangerous part of Co-opetition is not what competitors agree to do together but what they won’t do—especially when it comes to proprietary tools and assets that they refuse to share, even hide from their erstwhile partners. In this partnership, it is BMW that appears to hold the upper hand when it comes to software acumen. Will it actually share with Fiat Chrysler—BMW a potential future competitor in small urban vehicles, Fiat Chrysler making moves on BMW’s mid-range coupes—the proprietary code BMW develops to remain competitive with its more direct customers such as Mercedes, Lexus, Infiniti, and Jaguar?

  That said, there may be even more powerful forces at work to keep this team together. In automobiles, the Japanese are known to be busy on autonomous cars. Tesla is already testing autonomy—which, with its leadership in electric cars, would quickly put it where the rest of the car industry wants to be a couple of decades from now. As for Intel, it knows that there are a lot of chip companies out there—from contract fabricators to successful direct competitors such as Nvidia and Qualcomm.

  The long-term success of the BMW-Intel-Mobileye-FCA partnership is far from guaranteed, but in understanding the context and finding the right partners to create a combination of skills need to tackle this potentially gigantic new market, the various players have already achieved a presence that they never could have accomplished on their own. Now, if they can just figure out how to work together long-term in their common cause.

  The beginning of a wave of co-operative partnerships chasing the autonomous electric car market has begun. Not to be outdone, at Consumer Electronics Show (CES) in January 2018, Toyota announced that it has partnered with Amazon, DiDi, Pizza Hut, Mazda, and Uber to “collaborate on vehicle planning, application concepts and vehicle verification activities.” This is an example of Co-opetition with Toyota and Mazda working together. It’s also an example of using Partnerships to extend brands and gain access to a new customer set with a diverse group of brands such as these. The Co-opetition and Partnership paths, in combination, round out the narrow view of “IP being shared and used under the hood” (which only a handful of people are aware of) to more customer-facing experiences.

  BMW/FIAT CHRYSLER

  KEY TAKEAWAYS

  This Co-opetition alliance shows that global collaboration among companies, even with deep pockets, as is the case with FCA, BMW, and Intel, will become more commonplace as disruptive technologies threaten the status quo. FCA will benefit because it doesn’t necessarily have the financial muscle to justify developing its own self-driving cars from scratch.

  The partners said they are working to develop a vehicle architecture “that can be used by multiple automakers around the world, while at the same time maintaining each automaker’s unique brand identities.” Maybe taking a cue from the Tesla playbook—if they can truly develop an architecture that can become the industry standard, like the USB or earbud, it could be a game changer for the next few decades.

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  WINTEL

  ATTACK OF THE CLONES

  Keep your friends close, and your enemies closer.

  —MICHAEL CORLEONE, The Godfather Part II

  WINTEL, THE ALLIANCE AMONG WINDOWS (Microsoft), Intel, and IBM, exhibited many of the aspects of Co-opetition long before the term was invented. For nearly three decades it remained, in the words of Forbes magazine, “the most powerful alliance in tech history.” Even today, reduced to just two partners, Intel and Microsoft—and rapidly fading away—it remains a powerful force in the world economy.

  The “Wintel” co-opetitive relationship was created almost by accident and ended as much by success as any other reason. In 1969, Intel developed a new kind of “computer-on-a-chip” called a microprocessor while working on a Japanese calculator company contract to produce a smaller, cheaper calculator circuitry. Despite its subsequent historic success, Intel didn’t really know what to do with this new chip and briefly considered abandoning it.

  Wintel is a computer trade industry term for personal computers based on the Intel microprocessor and one of the Windows operating system from Microsoft. The term ‘PC’ has often been used for this purpose.

  —TechTarget

  Meanwhile, the world’s biggest computer company, IBM, was looking to attack the exploding personal computer business. The company opened a secret research facility in Boca Raton, Florida, to design a “new machine.”

  In designing it, to be called the personal computer, or “PC,” IBM decided not to use its in-house chip hardware or computer software operating system (OS) but to go externally for a “partner” who was already in the PC business.

  IBM approached Bill Gates and said that it was looking for an OS to manage the PC and its software, Gates suggested DR-DOS, produced by a Monterey, California, company called Digital Research. But when Digital Research (for various reasons) wasn’t responsive, Gates proposed to acquire the rights to a similar operating system, “DOS”—from Seattle Computer Products. IBM agreed. Microsoft bought the code, modified it, and renamed it MS-DOS. IBM then licensed it from Microsoft for its new PC.

  Meanwhile, down in Silicon Valley, the microprocessor was doing sufficiently well selling to makers of large computer companies and the military to finally get Intel behind it—even to eventually turn it into its entire business. But despite its early start, Intel found itself losing business to Motorola, which had not only followed Intel into microprocessors but, with its latest product, had managed to pull ahead.

  Intel was in a panic. It desperately needed to come up with a marketing team to try to figure out how to compete with its now second-rate product. The effort was called Operation Crush, one of the most famous marketing initiatives in the history of high tech. Over a long weekend, the team came up with a solution—not to sell only its specific hardware chip but the “solution” represented by the chip, combined with its design tools and company support. This trick, radically new at the time, caught Motorola flat-footed—and put Intel back in front.

  Part of Operation Crush was to set new quotas for Intel’s field sales, including sales calls on even the most unlikely potential customers. One of those targets was IBM. After all, why would Big Blue (that is, IBM) buy chips when it made its own? But when Intel’s sales guy called on Boca Raton, he was astonished to find himself greeted with open arms. IBM was so secretive that Intel’s technical people never actually saw the product. They had to do such bizarre things as reaching through black curtains to touch the machines. There may never have been such unlikely corporate bedfellows, but somehow it worked.

  The great lesson of the Wintel story is that you can’t grow internally or through acquisitions fast enough to dominate a major technology revolution by yourself. Not even the mighty IBM of the early 1980s could do so, despite having its own in-house software and chip hardware operations that were far bigger than either Intel’s or Microsoft’s at the time. Rather, you need to find the best companies out there in their respective industries to partner with—even if they had been, currently are, or potentially one day might again be, your competitor.

  IBM in 1980, in its rush to catch up with industry leader Apple, opened its platform to hardware cloners. In other words, Big Blue invited direct
competitors in to help Apple’s opposition reach the critical mass to truly challenge Apple’s hegemony. With this new arrangement, Intel was free to sell its microprocessor chips to those clone companies, as well, thereby enabling ever-greater competition to Big Blue. So, too, could Microsoft sell its new Windows software, the newly created upgrade to MS-DOS, to those same clone makers. Why did IBM agree to this? Because it was not just trying to sell personal computers; it was trying to drive a new industry standard, defeat Apple, and own the entire PC industry. It trusted its name and manufacturing prowess to keep it ahead of the competition. And indeed, with this strategy it very nearly did just that. And it was willing to let Intel and Microsoft also grow rich and powerful in the process.

  IBM, along with its clones, quickly came to dominate more that 80 percent of the personal computer market. With Microsoft and Intel, this co-opetitive trifecta became the standard for the biggest new industry in the global economy and as a result became among the most valuable companies on the planet.

  It was a high-risk game, with three hugely innovative and successful companies chained to one another, each one never fully trusting the other two, and all three driving one another forward to be the lead innovator. The result was a virtuous growth and innovation spiral that changed the world. Apple, meanwhile, isolated itself and refused to team with other companies, watched its market share drop from nearly 90 percent to under 10 percent. It even missed the computer gaming boom, which buoyed the Wintel world even higher. This co-opetitive business relationship, the most successful in history, produced more than $1 trillion in wealth and changed the lives of every person on the planet. It has been the model for similar relationships ever since, especially in technology—for the value of industry standards and collaboration of multiple, and, sometimes, competing, brands.

  Eventually, IBM left the hardware business to pursue enterprise consulting and research, selling off its PC business to Lenovo. Now the trio was down to a pair, which continued to sell to the vast PC clone industry. Both companies continued to pursue new opportunities that might break the shackles that continued to tie them together. By the early twenty-first century, that chance came with mobile computing and the rise of the smartphone. Intel slipped and missed the birth of the former, freeing Microsoft to work with Intel’s competitors, such as Qualcomm.

  It was the end of an era. And yet, even today, a remainder of the old Wintel Co-opetition still survives: the most powerful Intel microprocessor chips are used in a number of Microsoft products.

  WINTEL

  KEY TAKEAWAYS

  First, they had a common enemy. Apple owned nearly 90 percent of the emerging personal computer business. And its business philosophy was to own every part of the process—hardware, operating system, and software applications. It had also designed its computers around the processor from a small, independent chip company.

  Second, the three companies had little overlap. Intel and Microsoft were still too small and targeted to compete with each other. But IBM was one of the biggest companies in the world—it could have easily decided to make its own PC processor (it already had others for its minicomputers) and it was the world’s biggest writer of software. But because it had made the PC a stand-alone operation, it chose not to interfere with Intel and Microsoft. Besides, by the time these events were occurring, Apple already had a five-year head start. IBM had to move fast and needed to buy off-the-shelf parts and not wait for its own internal operations.

  Third, there was an obvious counterstrategy to Apple. By being so closed, Apple had forced itself to be excellent at every part of the process. IBM’s revolutionary response was to be an “open” system—that is, to let private vendors design hardware for its products and software applications for MS-DOS (eventually Microsoft Windows). As a result, hundreds of companies sprang up to make Wintel-compatible devices, peripherals, and programs—not least the entire vast PC gaming industry. The other part of the strategy was to initially focus on the corporate world, where Apple had made few inroads, but where, as the saying went, “Nobody ever got fired for buying IBM.”

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  CISCO-VMWARE-EMC

  BETTER TOGETHER?

  Cisco and EMC, together with VMware, are coming together in an unprecedented way to help our customers.

  —JOSEPH TUCCI, chairman and CEO of EMC

  IN NOVEMBER 2009, THREE UNLIKELY bedfellows—Cisco Corporation (the world’s largest vendor of Internet servers and other infrastructure), EMC Corporation (a giant data storage provider), and VMware (at the time, a subsidiary of EMC, now owned by Dell Technologies)—announced a co-opetitive venture to deliver a Virtual Computing Environment (VCE) operating system for their various customers.

  For chief information officers (CIOs) and IT managers, cloud computing offers a more simplified way of managing information technology so that the effort they’ve been putting into keeping the lights on can be redirected toward innovation and driving value back into the business. Converged infrastructure, like VCE, takes this a step further, having a transformative effect on the data center that not only simplifies operations and management but is also packaged and delivers a solution in a way that eliminates some of the complexity when deploying new systems. The result is a promise of quicker infrastructure and application deployments compared to traditional approaches and, in the end, faster time to market that enables customers to stay competitive.

  For that reason, from the start, the venture had enormous potential, in part because there was a real need for such a solution: the cloud was just beginning to take off as a substitute for in-house data centers and the three companies involved each had a history of considerable success. The market context was shifting and customers wanted more flexible and cost-effective solutions. Cisco, in particular, was one of the biggest technology companies in the world, and it attributed more than 90 percent of its revenue to its various Partnerships (telcos [telephone companies], resellers, system integrators).

  But events at the start of the venture should have been a warning to everyone involved. The coalition was unveiled in November 2009 at an EMC customer event, to be part of a long-term deal to create cloud computing platforms (called Vblock Infrastructure Packages). It should have been a big announcement, but at the same event, Cisco and EMC announced another joint venture—this one called Arcadia—also involved with the same Vblock Infrastructure Packages as VCE, the difference being that the latter was to perform development of the technology while the former created standardized products for customers.

  The difference may have been clear to the folks at the various companies but not to customers. Thus, the announcement of such an important venture only managed to sow confusion among the customers it targeted. Eventually, in January 2011, the two programs merged, but by then some of the initial momentum was lost. The new company was named the Virtual Computing Environment Company. Initially based in Silicon Valley (Cisco and VMware) and Massachusetts (EMC), the venture was eventually based in Richardson, Texas, and management was divided between the two bigger companies.

  At the time of the company formation, VCE had twelve hundred employees. Two years later, revenues were estimated at more than $1 billion. In other words, it was a serious venture and one enjoying considerable success. And yet, analysts deconstructing EMC and Cisco’s financials—VCE didn’t report separately—uncovered some disturbing data. In particular, even with those revenues, and now with a thousand corporate customers, the two companies were losing money. Lots of money.

  One credible estimate had Cisco having lost a total of $460 million on the venture, EMC $430 million. There were other problems as well. For example, neither company, despite their huge respective investments, seemed to show much loyalty to the venture. In 2011, Cisco announced its own cloud framework, called CloudVerse. In 2012, EMC announced a joint venture with Lenovo that the market read as directly competing with the
low-end VCE offerings. Cisco still said good things about VCE, but it sure seemed as if it already had one foot out the door. Cisco’s CEO at the time, John Chambers, remarked at the VCE announcement that IT coalitions had a lower success rate even than acquisitions. In particular, he noted four problems:

  Misaligned quarter endings between Cisco and EMC. This meant that one partner was just ramping up the selling process while the other was trying to close business.

  “Providing timely and organized delivery of the many different components from the different manufacturers.” The venture eventually solved this by opening additional facilities around the country.

  Unequal sales bonuses. EMC reps received sizable uplift against quotas for Vblock sales. Meanwhile, Cisco reps received an additional bonus for a sale (sales performance incentive fund [SPIF]). VMware reps got nothing—other than being warned (or so many believed) not to sell VMware products through VCE. The inevitable result was that EMC enjoyed most Vblock sales, Cisco second, and VMware negligible.

  Discounting. “A single manufacturer such as IBM or HP has the flexibility to discount any component they deem to be particularly price sensitive knowing they can make up the lost margin on other components. The VCE players, of course, don’t have this option.”