Hand in hand at a business meeting
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“Keep your friends close, and your enemies closer,” Michael Corleone once said. But what happens when the line between friend and foe is blurred, especially as competitive relationships and strategies evolve over time? It means that business leaders need to have a clear picture of how collaboration can create value for both companies, while being careful about how things can change down the line in ways that could lead to business and regulatory risk.
In particular, it is crucial to think about the competitive options available to you and your partner as a result of collaboration. Let’s look at some examples.
Shortly after Apple released its iPhone in 2007, it allowed app developers to upload their app to the App Store, as long as the app met certain criteria. This created value for both Apple and the developers as Apple gained access to valuable apps, which encouraged the acceptance of users on the iPhone, and the developers gained a large number of potential users.
However, Apple is now being investigated (discussed in my last post) for how they dealt with these partners later on. (Similar issues have arisen across Big Tech companies.)
In Apple’s case, app developers now say that once Apple got widespread acceptance of its iPhones, they then decided to compete with those Apps with it. the app offerings themselves (either acquired or built). As a result, third-party app developers have been cut off or given a different treatment.
Apple is controversial about different or inconsistent handling of app developers. It also reveals that the number of apps in the App Store has grown from 500 to more than 1.7 million, and that the App Store ecosystem has created more than 1.9 million jobs over time. But the fact remains that independent app developers didn’t expect to face competition with Apple later on when they entered into their alliance and built for iOS.
In another case, Apple has previously claimed that it had ended partner abuse, in this case from Qualcomm. Apple and Qualcomm had agreed that Qualcomm would bring chipsets to Apple for its iPhone; Qualcomm benefited from Apple’s scale, and Apple benefited from the performance associated with Qualcomm’s chips.
However, Apple later argued that it had been forced to pay inflated patent realms and enter into special contracts with Qualcomm after Qualcomm threatened to withhold essential chipsets for phones. Both the Federal Trade Commission and Apple have filed a lawsuit against Qualcomm based on these allegations.
Qualcomm disputed these allegations and took legal action against the Federal Trade Commission. Apple settled the case prior to the trial, which reveals that both companies believed they would continue to benefit from their relationship once certain terms were worked out.
In both of those examples, Apple’s partnerships gave value to both Apple and its partners as they both benefited from the iPhone’s exponential growth. The key question arose, as is often the case, what strategy or positional movements may occur that may undermine the value of the settlement.
Effects of Leadership Strategy: Growing, rather than slicing, the pie.
Collaboration works best when they “grow the pie” with supportive offers. This means that the partnership adds value to both companies, as well as consumers, because together the partners fulfill an unprecedented need – which is at the end overseas increasing consumer demand.
On the other hand, if collaboration is “round the pipe,” the companies in the partnership are particularly focused on how they maintain and share the benefits they have captured for themselves, rather than creating more value for consumers. For example, the “main evils” of competition law occur when competitors agree to set prices or share geographical areas. These agreements are automatically considered illegal, as the companies arranged to keep their profits high. no compete, harming consumers in the process.
Take a simple collaboration between a movie theater series and a special popcorn producer, in which the popcorn producer agrees to give it to the theater chain. The deal will grow the pie if the specialty popcorn gives consumers a better experience on film, and as a result more people will return to the movies after a pandemic.
However, let’s imagine that after the successful film-popcorn collaboration, the theater chain is creating their own unique popcorn brand (they prefer to sell since they don’t have to pay a margin to the popcorn maker). On the other hand, let’s say the popcorn maker started promoting the latest Netflix streaming announcements on its package, essentially encouraging fans to stay home and enjoy the popcorn instead.
In either case, the theater chain and the popcorn maker may be concerned: in the previous scenario, the popcorn maker has to deal with the influence a new contestant, and in the latter, the theater chain may be concerned that ticket sales will go down in a streaming space at home. This isn’t a problem yet, to be clear – in fact the better popcorn or the better movie experience that could theoretically be good for consumers.
But let’s say the relevant parties then agree to crack the pipe – for example, they agree that the theater will no longer make its popcorn or that the popcorn producer will stop promoting new Netflix offers. Now, users could suffer because they miss out on popcorn options, or have less information about new streaming options. To reduce the risk of legal scrutiny, it is best to work out in advance how cooperation may increase kitten growth – even outlining future initiatives.
In March 2020 the Justice Department’s Antitrust Division issued a warning that anticompetitive cooperation between competitors for high-demand products would be due to COVID-19 being charged. Around the same time, the DOJ and FTC confirmed that publicly beneficial arrangements, such as health care facilities would work together to provide facilities and services to communities without immediate access to PPE.
So where is the line? Cooperation between competitors poses a greater regulatory risk, and would have to be justified by growing the pie significantly, but cooperation between supporters raises fewer issues.
For example, if competitive film theaters came together for a campaign to promote driving shows during the pandemic, that will grow the pie by raising awareness of the entertainment options that may be available. enjoy users safely. This is likely to survive a study as long as the theaters would not agree to suggested prices or exchange sensitive competitive information circulating the pipe.
To be sure, a slight slicing of the pie is often required to achieve the full benefits of the arrangement. But crucially, for both good business and good compliance, successful collaboration is one that creates more value than it shares, and any restrictions introduced into the agreement must be necessary and according to the overall goal.
Collaboration is often needed not only to survive, but to thrive in an ever-changing landscape. As a leader, however, you just want to make sure that you, your colleague and customers all agree that it has been a success.