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Dawn of the digital partnership

Companies are becoming competitive in teams

Dawn of the digital partnership

Written by The Economist Intelligence Unit as a special report commissioned by Telstra; Connecting Companies: Strategic Partnerships for the Digital Age.

In 1612, the East India Company struck a deal with the Mughal Emperor Nuruddin Salim Jahangir: the trading house received exclusive rights to local spices, which it would sell to British consumers at a premium. In return, the company delivered the Emperor goods from the European market, and alas an alliance was formed. Partnerships for mutual benefit are by no means new in the corporate world, but—like so much else in the digital era—that only makes them liable to disruption.

Fast-forward four centuries and the tea consumers of yesteryear are now “always on” and increasingly mobile—moving seamlessly between online and offline, circumnavigating the globe in a matter of clicks. By the end of 2015, there will be more than 7 billion mobile cellular subscriptions, corresponding to a global penetration rate of 97%. As competition for digitally-sophisticated consumers is intensifying, companies of all shapes and sizes are finding it more difficult to go it alone.

This year has seen a flurry of digitally-driven connections being formed between organisations. In their variety these corporate connections, which have stopped short of a more traditional acquisition or formal joint venture, defy easy labelling. But for ease of reference we will refer to these types of association as “digital partnerships”. New research[1] from The Economist Intelligence Unit, commissioned by Telstra, shows that the appetite for digital partnerships is global, industry-wide and set to continue over the next 12 months.

Room for everyone

In April 2015, InterContinental, the world’s largest hotel chain by number of rooms, announced a partnership with Stay.com, an Oslo-based group that offers tailored tourist guides. To some commentators, initiatives like this can be seen as reactions to industry disruptors, such as Airbnb, Uber, Google or Apple. While it is true, disruption can often be a prompt for executives to take action, at the same time it is not as if the digitally native disruptors are themselves immune.

Spotify, the Swedish music streaming upstart turned industry leader, is entering digital partnerships with Starbucks, a US coffee chain and Sony, a Japanese entertainment and technology company. For the US and Japanese partners, Spotify is a mobile champion. It offers an online connection to the Millennial consumer. Conversely, Spotify craves access to the offline consumer, whether that person is sipping a flat white in a coffee shop or playing a PlayStation game at home. On the first day of its partnership, Sony reported that 1.5m people took advantage of its new Spotify service.[2]

These partnerships come at an important time for Spotify. Its dominant position in music streaming is facing formidable competition from Apple, following the US company’s acquisition of Beats Music. Yet even Apple—the world’s most valuable company—is looking to partnerships to extend its reach in other areas.[3] With falling iPad sales, the consumer tech giant is working with more than 40 companies of all sizes to make the device a more appealing work tool.[4]

A platform for success

Digital partnerships offer corporate executives a broader set of growth strategies. The types of digital partnerships entered into this year range from two company alliances, such as Spotify and Sony, to wider networks and innovation clusters. The Digital News Initiative, for example, is a network made up of Google and eight European newspaper groups.

Its founding members, including Germany’s Die Zeit and Spain’s El Pais, aim to bolster the business model of publishers and work jointly on product development. Meanwhile, Germany’s Deutsche Bank is attempting to improve its use of digital technology by opening up innovation hubs in London, Berlin and Silicon Valley in conjunction with the likes of Microsoft and IBM, two US technology companies.

Typically technology companies are central players in these partnerships, although this is not always the case. The Industrial Technology Research Institute (ITRI), a not-for-profit research and development (R&D) organisation, is looking for strategic partnerships abroad which can assist domestic companies compete internationally. “It could be five partners or ten,” says Shuo-Hung Chang, the Executive Vice President.

The German government is actively supporting the development of ecosystems through its Leading Edge Cluster Competition. The programme encourages “clusters” of partners to compete for funding. “It has been a huge success for the German economy,” says Achim Hartig, Managing Director at Germany Trade and Invest (GTAI), a government export-import agency.

One particularly prominent cluster called OWL consists of 174 partner organisations and 46 research projects. The goal is to make entire factories “smart” by sharing technology and knowledge among participants, combining traditional manufacturing with automation, cloud computing and machine-to-machine technologies.[5]

A desire to access the digital capabilities of others is common to most if not all of these digital partnerships—much like many traditional joint ventures. Timing, however, is one notable difference. The rate that technology now moves means that companies must gain these capabilities at speed if they want to be competitive, rather than wait to develop them internally.

Often these digital capabilities relate to specialist knowledge, information, or experience, but other times it can simply be connections. Quintiles, a pharmaceutical outsourcing services firm, uses the web to find patient groups. The arrangement helps Quintiles get more people into clinical trials at a cheaper cost. Patients benefit in the long run from quicker drug development.

“In the past we couldn’t reach these patient groups,” says Ken J. Lee, the Singapore-based Chief Medical Officer for Asia Pacific and Vice President & Head Drug Development in Asia. But because most now have a website, Quintiles are able to easily identify and engage them. “By partnering with them we’re able to access a large number of disease groups in many countries,” says Mr Lee

Revolving doors

Today’s digital partnerships point to bigger changes to come. Companies will find it increasingly difficult to compete singlehandedly now that everything—from mobile health to smart homes and wearable technology—is becoming connected. These industry-straddling technology developments, together with the emergence of hybrid industries, such as fintech, will contribute to a growth of more cross-industry partnerships.

Some of these partnerships will flourish and others will fail fast: another cornerstone of the digital era. Cox & Kings, the world’s oldest travel company, has a history stretching back to 1758 when it had dealings with the long defunct East India Company. Last year it announced a partnership with VistaBee, a UK tech start-up, to bring Glass, Google’s wearable technology eyewear, to the international travel market: users are able to explore the markets of Marrakech vicariously from a seat at home.[6] However, a mere nine months later, Google suspended sales of Glass.[7]

The good news is that digital partnerships are easier to enter; they are less costly to be involved in; and they are easier to exit. As a result, companies of all ages are exploring creative alliances, learning to take small bets on big technologies. Cox & King’s commitment to innovation, after more than 250 years in business, should not waver. Virtual reality, the next big technology trend currently enjoying a second coming, should spur a fresh round of alliances across industries—for better or for worse. After all, doing nothing is now the riskiest option.

[1] Connecting companies: Strategic partnerships for the digital age; A report from The Economist Intelligence Unit, commissioned by Telstra (2015)

[2] http://www.forbes.com/sites/hughmcintyre/2015/04/06/1-5-million-activated-the-new-spotify-backed-playstation-music-in-one-day/

[3] http://fortune.com/2015/02/10/apple-the-first-700-billion-company/

[4] http://www.wsj.com/articles/with-ipad-sales-cooling-apple-leans-on-partners-1439422814

[5] http://www.its-owl.com/industry-40/the-role-of-its-owl/

[6] www.coxandkings.co.uk/pdf/press/google%20glass.pdf

[7] http://www.ft.com/cms/s/0/ff12af46-9ce8-11e4-adf3-00144feabdc0.html#axzz3jyMpRcex

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