The lynchpin of the new IBM-Apple alliance will be this simple phrase in the first sentence of their joint press release: “an exclusive partnership.” It sounds so innocent—a sentiment reflected at every human marriage. The two will become one.
But business combinations are not human marriages. About ten years ago, when New Jersey Superior Court judge Margaret McVeigh settled a partnership dispute between Amazon.com and Toys-R-Us, she wrote: “Long term commitment in a world where the technology is advancing almost on a daily basis is difficult to maintain. . .What constitutes an exclusive partnership continues to be a challenge not only for individuals who work on the partnership daily, but for business entities.”
For IBM and Apple, this partnership challenge looms even larger than it did for Amazon.com and Toys-R-Us. One reason for this is that the competitive arenas in which the new Apple-IBM partnership will play are fraught with multiple allegiances. In particular, their main competitor is following a distinctly “open” model that welcomes multiple partners. Google’s Android surpassed Apple’s iPhone in units sold precisely because it is sold by many players, such as Samsung, HTC, and Motorola.
The next shoe to drop in this battle, it now seems, may well be an announcement of an open, non-exclusive alliance in the Android world that ties together Google’s own cloud services with the enterprise reach of all those IBM-rivals left out of the exclusive deal with Apple, in particular HP and Oracle. (But the fact that these two are not quite on speaking terms may not help such a combination.)
This scenario is reminiscent of the 1980s, when in microcomputers Apple famously competed with an exclusive model against the “open” model of the IBM PC. Apple’s tightly-controlled approach failed then, and IBM’s wide-open approach succeeded, though IBM itself did not capture as much value as other players in the IBM PC ecosystem (Intel and Microsoft did).
Another reason the partnership challenge looms large today for IBM and Apple is that they have tried this before—and failed. The recent press releases of the bride and groom don’t refer to this, but history is clear. Yes, the press releases do admit that the two firms used to be arch-enemies in the 1980s. (As often happens, such rivalry yielded wonderful art—just watch one of the best Superbowl commercials of all time.) And yes, this phase is over and done with.
But we have not gotten an accounting of what happened a bit later in the early 1990s, when IBM and Apple formed the AIM Alliance—the “M” standing for Motorola, which was also part of the deal. At that time, all three companies were down on their backs, beaten down by the Wintel alliance. So they reached for a partnership that aimed to create a powerful new processor and companion software. Motorola and IBM were to work on the PowerPC chip, and Apple and IBM were to work on software in two joint ventures (colorfully named Kaleida and Taligent). Furthermore, IBM was to help sell Apple equipment in its enterprise accounts.
By the late 1990s, most of these initiatives had failed, save for the IBM-Motorola part, which did manage to produce a new chip design. The IBM-Apple part ended in delays and disagreements in software development, changes-of-heart on whether Apple technology would be licensed to others, and other such matters. The part about IBM selling Apple into its enterprise accounts sounded pie-in-the-sky from the start and, it seems, never happened. And, perhaps more importantly, Intel had forged ahead, redoubling its research efforts and producing ever-more powerful microprocessors. The PowerPC processor did get used in Apple machines for a few years, until Apple, too, switched to Intel (and now uses ARM too). The Apple-IBM joint ventures and the whole AIM Alliance faded away quietly after a rowdy start.
Like their attempted marriage in the 1990s, the new Apple-IBM alliance will either succeed fast, or unravel slowly. Samuel Johnson said that a second marriage is “the triumph of hope over experience.” Business combinations are not marriages. But we can ask now: What have IBM and Apple learned from their own experience that will justify the new hope? Investors ought to wait to hear that before getting giddy at the wedding announcement.
What lessons should they have learned from their experience? Here are some tests questions:
- What will “an exclusive partnership” mean, concretely? A key success factor in any alliance is that the partners clearly delineate the scope of where they will cooperate and where they will compete. “Good fences make good neighbors,” wrote Robert Frost. Companies like Xerox and Fuji Photo Film followed this rule in their 50-year joint venture. In the IBM-Apple case: will IBM be able to make and sell cloud services and mobile software for Android and Microsoft machines? If it develops “industry specific” applications for the iPad, as the press release promises, will it also be able to develop comparable applications for other platforms? From Apple’s point of view, if a smart, independent developer comes up with a killer “enterprise” app for iOS, can Apple sell this independently of IBM? You can go on and on asking such tricky questions, as we hope Apple and IBM have done; the test is—where did they decide to put the fence, and will it soon need mending (as Robert Frost also warned)?
- “Unique IBM cloud services [will be] optimized for iOS,” the wedding announcement says. It’s impossible for us to see inside the resource allocation of IBM to understand what this implies. But another key success factor in any alliance is that each partner must devote internally sufficient resources to achieve what it promised to its external partner. IBM has many other pans in the fire, just like it had in the PowerPC days. Will the new work for Apple iOS get “optimized” sufficiently to beat out other enterprise solutions, such as might be offered by Android, Microsoft, and even by IBM itself?
- Finally, will the partners be able to move fast enough in a competitive arena that is extremely dynamic? Mobile . . . Cloud . . . Data Analytics: Can you think of three fields that are more fluid today? Advantage will be to the swift. Alliances are great for putting together resources—that is why Apple+IBM is such an impressive formula. But contractual alliances are notoriously poor in making quick decisions, unless they sport an effective and well-staffed governance structure. So far, the press releases from IBM and Apple are silent on how this new partnership will be governed.
So, yes, the formula is powerful. Apple+IBM may well represent the idea that 1+1=3. But to succeed in that, the partners must also ensure that 1+1=1. The marriage must stick.