When Nokia CEO Stephen Elop announced the company’s partnership with Microsoft last week, he said that it would transform the smartphone market into a “three horse race,” with the alliance taking its place alongside Apple’s iOS and Google’s Android.Elop may be guilty of wishful thinking, but he has some history on his side — a partnership between the right companies at the right time can turn weaklings into competitors, place sudden pressure on market leaders, or turn a startup into the next multibillion dollar giant.
Here are 10 partnerships that changed the technology landscape.
Processor designs from ARM Holdings have powered mobile phones for many years -- in 2005, more than 1 billion ARM cores went into mobile phones. But in 2010, Apple took the big step of using an ARM processor for the iPad. The iPad's runaway success has made ARM the default choice for powering other tablets. Even Microsoft is making the next version of Windows run on ARM chips, breaking a long exclusive held by Intel's x86 processor design.
Game developer Zynga showed that Facebook was not just a popular Web site, but a platform to build a business on. The runaway success of Farmville in 2009 showed the path for hundreds of other app developers, and eventually forced Facebook to crack down on apps that were too aggressive in sending notifications. Now the three-year-old Zynga is expanding rapidly into mobile gaming and is valued between $7 and $9 billion.
It took more than two years, including a failed acquisition bid, an economic downturn, and a CEO change, but Microsoft finally got its search deal with Yahoo 2009, and Microsoft's Bing started powering all Yahoo search results in 2010. The partnership isn't making money for Microsoft yet, but it is putting pressure on Google -- Microsoft's market share gains accelerated in December and Google has been on the defensive lately about the quality of its search results.
Apple knew how to build hardware and software for the iPhone, but the company needed help with online services. A deal with Google put Google Maps and YouTube on every iPhone and helped make it the first smartphone that really appealed to consumers. The partnership soured a bit when Google decided to get into the smartphone business itself -- Google CEO Eric Schmidt had to step down from Apple's board of directors -- but Google's apps are on every iPhone that ships.
For years, while Windows PCs ran Intel chips, Apple stuck with PowerPC processors designed by IBM and Motorola. But by the early 2000s, the PowerPC architecture was lagging behind Intel, particularly in the amount of power required -- a critical factor in laptop battery life. In 2005, Apple made the switch to Intel, and sales of Apple notebook computers took off.
Back when Google was an upstart with few users outside the tech community, the company signed a deal with Yahoo to power its search results. The deal lasted from 2000 to 2004, and gave Google a little operating capital -- and a lot of notoriety -- to help prepare for its own IPO. The deal eventually ended in a lawsuit, but the companies settled in 2004, with Yahoo taking 2.7 million shares of Google common stock.
In the 1990s, most data centre computers ran some variant of Unix, with Microsoft's Windows Server a very distant second. But IBM decided to make a strategic bet on Linux, an open-source OS based on Unix. THe company signed a deal with Linux distributor Red Hat in 1999, then gradually expanded that deal over the next few years. IBM's support helped move Linux from Web servers to enterprise data centres.
When Steve Jobs returned to Apple in 1997, the company seemed to be on the verge of failure. One of his first moves was to sign a deal with Microsoft, which invested $150 million in Apple, signed a patent cross-licensing deal, and agreed to develop Office for the Mac on the same schedule as Office for Windows. The deal was booed by the Apple faithful at the 1997 MacWorld convention, but it helped Apple focus on the future rather than rehashing the battles of teh past.
In 1987, Microsoft introduced Windows 2.0. It ran exclusively on Intel's 286 processor. Since then, the PC market has been a tale of two companies: more than 90% of personal computers run Windows, and more than 80% of them have Intel chips inside. The duopoly may finally be starting to crack -- Microsoft will make the next version of Windows run on chips designed by Intel competitor ARM -- but the partnership has had an amazing run for more than 20 years.
IBM executives first approached Digital Research to licence its CP/M operating system for the first PCs, but for some reason they couldn't reach a deal. (The often repeated tale that Digital CEO Gary Kildall decided to fly his plane instead of taking the meeting is probably just a legend.) Instead, IBM gave Microsoft the deal for MS-DOS. Later, IBM did licence CP/M, but charged far more for it than for the Microsoft operating system, and it never took off. The rest is history.
Looking at these partnerships, they tend to work best when both companies are young and competing in a rapidly expanding new market -- Intel and Microsoft's 1987 deal paid huge dividends for both companies as the PC market exploded. That bodes well for Zynga and Facebook.
But partnerships between unequal players often turned into conflicts -- particularly if the weaker company became stronger as a result. Google quickly eclipsed Yahoo, Apple created a record turnaround with Microsoft's money -- last year, it surpassed Microsoft in market value -- and the PC market that IBM helped Microsoft build almost drove IBM out of business at one point.
First, this is not a deal between two young upstarts in a new market -- both Microsoft and Nokia have been competing in the smartphone market since it began about a decade ago. So this isn't going to look like Intel-Microsoft or Zynga-Facebook.
Second, the companies aren't equal. Microsoft is much weaker in smartphones, but its core business and financial situation are much stronger. Nokia ships more phones than any other company, but its smartphone market share is falling fast and it has no other core business to fall back on. It also just put its technical destiny in Microsoft's hands.
So in a weird sense, Microsoft is playing the weaker come-from-behind underdog with Nokia as the failing established leader -- much like Apple did to Microsoft in 1997, or Google did to Yahoo in 2000.
In fact, the deal most resembles Microsoft's 2009 deal with Yahoo, which seems to be meeting Microsoft's goal of putting pressure on Google, but hasn't helped Yahoo turn its business around.
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