'Coopetition' the new norm in tech

IT vendors increasingly expanding market focus, resulting in need to balance impact of competition and benefits of cooperation with industry peers, says analyst.
Written by Vivian Yeo, Contributor

With IT vendors looking for new revenue sources and expanding their business portfolio, "coopetition"--a mix of cooperation and competition--has now become the new norm in the tech landscape, notes an analyst.

Stuart Williams, senior analyst for enterprise software at Technology Business Research (TBR), said in an e-mail interview with ZDNet Asia that the largest and most influential IT vendors such as IBM, Hewlett-Packard, Microsoft, Cisco Systems, Google and Oracle, are "protecting their core markets by entering adjacent" ones. This inevitably creates competition with other large vendors they had previously partnered, Williams added.

Over the last two years, tech vendors have stepped up their market expansion activities.

In September 2008, Oracle announced its first hardware product, the Exadata server, that was jointly built with partner HP. Last year, Cisco made its foray into the data center business with its Unified Computing System, and both blade and rack servers. More recently, Google unveiled its own own Android-based phone, after it previously worked with handset vendors such as HTC, to launch Android phones.

Williams said: "'Coopetition' is the new normal for the large systems vendors. The way these large vendors create coopetition varies: Oracle is growing through acquisition, Cisco through internal development and alliances, Microsoft through internal expansion."

Given that these vendors now boast of multiple product lines spanning hardware, software and services, they will have encounters that are at times complementary, and others competitive. Such situations call for a balancing act, he said.

"The skill with which these vendors reduce the impact of the areas of competition on the benefits that they gain through cooperation, is a new core requirement for these large systems vendors," Williams explained.

In an e-mail statement, Google said it does not intend to compete with its partners--specifically, those in its Android ecosystem. "Our expectation is that the Nexus One will push the entire mobile ecosystem forward, driving greater innovation and consumer choice," said a Singapore-based spokesperson.

"We look forward to working with other hardware manufacturers to bring more Google-branded devices to market, and opening up these devices to operators around the world," he said. "Android remains an open source mobile platform, and we look forward to the innovation that will come from not only Google, but all Android partners."

In some cases, companies may choose to end the affiliation following certain developments within the corporate strategy.

Months after news broke that it had acquired Sun Microsystems, Oracle in September last year said it would leverage Sun's technology for its second generation of Exadata. The company reportedly ended its relationship with HP on the data storage server.

Allocation of company resources
Entry into unfamiliar markets could also put a strain on business models and corporate resources.

In the case of Google, its existing customer service model--built around user forums, Frequently Asked Questions and e-mail queries--may no longer be adequate for its new direct sales approach.

Some vendors have tweaked their product focus to be in line with shifting business strategies.

IBM, which history can be traced back to tabulating machines and dial recorders that track the number of hours worked, was previously a hardware-focused manufacturer which businesses included selling PCs and servers.

In the 2000s, however, it began downsizing its hardware business. In 2002, the company sold off its hard drive unit to Hitachi and in December 2004, did likewise for its PC business to Chinese hardware maker Lenovo. These business maneuvers planted the technology stalwart another step nearer to becoming a vendor focused on software and services.

Claudia Tan, general manager of general business at IBM Singapore, told ZDNet Asia in an e-mail that the company had "remixed our businesses in order to move to the emerging higher-value spaces".

As part of this move, Tan noted that IBM exited commoditizing businesses but at the same time, acquired 108 companies since 2000 for about US$22 billion. "These portfolio actions have contributed to a significant change in our mix of business," she said.

According to Tan, Big Blue had invested in capabilities such as business analytics and cloud computing, to accelerate the development of new market opportunities, and also rechanneled spending to areas of "greatest opportunity". In 2009, the company spend nearly US$6 billion on research and development work, she said.

"The unique portfolio of businesses we have built, heavily weighted toward software and services, generates high profitability," she noted. "We will continue to remix to [achieve] higher value through organic investments and acquisitions.

"We are also leveraging our scale and global footprint to improve processes and productivity in a number of areas, like support functions and service delivery."

Impact on industry
According to TBR's Williams, while large vendors can "enter and exit lines of business fairly easily", customers and smaller partners need to be aware of the impact of a changing landscape.

"Partners may be squeezed out as the large vendors enter lines of business previously served by the smaller partners," he noted. "Customers who use a multi-vendor strategy may need to reevaluate when their landscape gets rolled up into a 'single throat to choke'."

As it stands, tech companies are growing their business by aggressively driving expansion into new geographical markets such as the BRIC (Brazil, Russia, India and China) countries, business segments such as the midmarket and small businesses; and industry segments through specialization, said Williams. Consolidation is another avenue of growth.

"The recipe for success for these large vendors is a mix of a broad portfolio of offerings, a clear and compelling value proposition for why customers should adopt 'one-stop-shopping' and in building closer relationships to each customer," he explained.

Williams added: "The trend of industry consolidation will continue for the foreseeable future, especially in the emerging SaaS (software-as-a-service) and cloud space, where we believe 2010 will be a year of acquisition for the large vendors who are playing catch-up."

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