Make, buy or partner - you decide

January 31, 2000

BY MICHAEL KRAUSS

Self-sufficiency is deeply ingrained in the American psyche, yet in interactive marketing, it can be a losing strategy.

The concept of the frontiersman, the cowboy, the explorer, the inventor-the rugged individualist-is very much part of our culture.

Even in the technology world, we celebrate a pantheon of heroic individual achievements in Bill Gates, Carly Fiorina, Jeff Bezos, Marc Andreessen, Jim Clark, Steve Jobs or John Chambers.

Nevertheless, success on the Internet depends on collaboration and community-building, not only among users or customers but among service providers and business developers. Partnering, building alliances and collaborating is the order of the day-the way to get your product or service offering built and out the door fast, providing top quality and offering the lowest risk.

In fact, a whole science of partnerships is emerging today. Ask John Henderson, a professor at Boston University: "The concept of alliances is an essential element of business and technology strategy today," says Henderson, coauthor of a landmark paper entitled "Strategic Alignment: Leveraging Information Technology for Transforming Organizations" which was published in IBM Systems Journal in 1993.

"In the '80s, we saw (that) technology would enable organizations that crossed the boundaries of a single firm. You could see a new organizational form emerging that was network-centric, not firm-centric," he says.

And that new organizational form is here today. It's not Alfred Sloan's General Motors; it's Tim Koogle's and Jerry Yang's Yahoo!.

Yahoo! is the brand that gets you to the best sites, best content and best services; that's what the brand means to its customers. That's the core value proposition, but how does Yahoo! deliver? How does it manage to be the one site to stop at on the Web?

Partnerships and relationships.

Yahoo! doesn't invent every new business. Rather, it cuts a partner-relationship deal, bringing millions of eyeballs to the table and taking a piece of the action. Effective partnering, perhaps even more than brand-building, is Yahoo!'s most critical success factor. It's a veritable partnership-making machine. Do you want to…

• provide content to Yahoo!? There's a Content Partnerships form.
  
• distribute Yahoo! services or content? Distribution Partnership form.
  
• propose a strategic e-commerce partnership? E-commerce Partnerships form.
  
• provide communications products with the Yahoo! brand? Communication Product Partnerships form.
  
• offer same nifty new technology to Yahoo!? Technology Partnerships form.
  
• have Yahoo! as your portal for your corporate intranet? Corporate Partnerships form.

Of course, the online forms are just the tip of the partnership iceberg, which Yahoo! has down to a science. Yahoo! spends no more than a few hours hammering out each agreement. Its executives are young and motivated to try new approaches. They're willing to take risks-and willing to do an about-face if they make a mistake, like reversing their direction with Visa after that partnership didn't work out.

Another example is Quicken.com, which built an online financial services supermarket in 24 months, featuring insurance, stock trading, mortgages, estate planning and personal financial services. Yet Quicken didn't acquire a single provider and didn't build any new competencies. There were no real investments in assets made by Quicken.

Just partnership relationships.

Speed is one reason that partnering has become essential. A new Internet entrepreneur or a large organization moving online can't afford to take the time to build all the competencies needed before launching the new business. Falling transaction costs are another driver: The Web keeps reducing the costs of doing business, and partnering often is a solid way to lower costs and keep up with the competition. To stay competitive when building new products and services, you need to line up the most efficient partners.

Still, partnering can be a slippery slope unless you have a solid set of business principles. Martin Nisenholtz, CEO of Times Company Digital, The New York Times' online venture, establishes clear criteria for partnering. Speaking at a recent industry conference on the subject, Nisenholtz articulated several of the Times' criteria for partnering:

• The partner must be a high-quality brand.
  
• It has to fit and be relevant to The New York Times' target audience.
  
• It has to deliver high traffic levels.
  
• There should be an opportunity to build a community.
  
• Its content structure can't jeopardize the Times' online editorial integrity.

"There are some very important strategic issues that spin out of partnering," Henderson adds. "The old Michael Porter Five Forces model is a firm-centric model. Today, we need a network-centric view. We must look at capabilities, products and customers not from a bilateral transactional approach but from a network approach," he says.

Henderson's point: How do you go about marketing to your customers when your customers are a community? Today, there may be as much going on amongst your customers as there is between you and your customers. You need processes and approaches that enable you to capture value from these relationships.

"Remember, not all relationships are alike. Ask yourself what are the risk and return profiles you want to manage, and how do you adjust the governance approaches you need to undertake," he says.

I guess it all comes down to choosing your partners wisely; in the world of the Internet, you can't succeed without them.

Michael Krauss is a partner with Diamond Technology Partners in Chicago.
He can be reached at news@ama.org.