Increasingly, companies that compete directly with another have been announcing major partnerships, and we saw a couple of good examples this week with Microsoft and Salesforce and IBM and SAP. Not coincidentally in my view, they both involved the cloud. That’s because companies may want to compete, but customers want their technology vendors to just get along. They need products to play nicely together –and it seems it’s much easier to do that in the cloud.
We are also seeing entire startup ecosystems built on top of open source and when that happens companies that use the common platform can’t let their competition kill the underlying golden goose. They know they have to work together to keep the project healthy and growing –and compete on what makes their products special.
When companies that would normally be at each other’s throats, suddenly start cooperating, they like to call it coopetition . You could call it being frenemies, but whatever you call it, for whatever reason, these companies are coming together in seemingly greater numbers –and the customers are the beneficiaries. But make no mistake, the companies hope to gain something as well or they wouldn’t be doing it. Just because they cooperate doesn’t mean they aren’t in it to win it.
WHY CAN’T WE JUST GET ALONG?
It would be a mistake to suggest that companies who are cooperating love one another. They probably don’t. They still want to beat the competition and find a way to get the upper hand, and within these agreements between competing companies, surely each one is trying to gain an advantage in the negotiation just as you would expect, but there is also an understanding that there are certain benefits to cooperating.
Box CEO Aaron Levie told me in an interview at BoxWorks in September, companies are cooperating more today for a number of reasons, but in large part because it’s just easier to do now. “The barrier to cooperation is lowered by an order of magnitude. In previous eras [companies] had to choose allies and enemies judiciously. Today you can plug two APIs together. The friction is no longer there. ”
And he says customers are demanding it because it’s possible.
Kevin Hart, CEO and co-founder of Eventbrite says there’s another reason we are seeing this spirit of cooperation –because he says in the past companies tried to do everything and they couldn’t possibly do it all well. Instead of trying to deliver a range of ancillary services, he wants his company to concentrate on what it does best. “The best startups focus on core competencies,” he told me. He added that the relationship of driving growth through partners is critical and he has connected with partner companies like DoubleDutch and Survey Monkey because they have expertise his company lacks. That means a startup like Eventbrite doesn’t need to waste time developing these types of functionality when these other companies do it well.
COMPETITIVE FIRES STILL BURN
Just because there is an easier way to cooperate, doesn’t mean that competition is dead. Far from it. These companies, like athletes, still are in it to compete and win, but the cloud and open source (and APIs and standards too), all have a way of bringing these companies together on some level, even when they don’t really want to cooperate with their competitors.
Couchbase CEO Bob Wiederhold says there is some level of cooperation that happens because there is often a common platform on top of which companies are building products, but he says that just moves the competition a bit, it doesn’t remove it in any fundamental way. “With open source, there may be portions of your technology stack where you’re cooperating, but all that’s done is shift the competitiveness of the companies to the part where you’re differentiating.” He adds that there’s still intense competition in the market in spite of a level of cooperation that might exist for common-good reasons.
A good example of this is a company such as MapR, which is built on the open source Apache Hadoop project. CEO John Schroeder isn’t afraid to admit that he likes to compete and win, but there is also a level of required cooperation at the base where Hadoop is concerned. “Ours is a slugfest, for sure. We like competing. It’s one of the reasons I do this. Competing means there’s a big brass ring you’re going after and you’ve got some worthy competitors and that means it’s a big market opportunity.”
That said, he says the competitors understand that the Hadoop project is one they have to work together on to protect and preserve because it’s the basis for all the businesses in the space. “We are all interested in the adoption of Hadoop, so we try not to let the competition hurt the adoption curve,” he said. That means they tend to cooperate around issues that affect the underlying platform such as a security because it’s in everyone’s best interest.
Omer Artun, CEO & founder at AgilOne says while he sees the upside of cooperation, he still hates his competition and wants to beat them in the worst way. But he still acknowledges that there is a spirit of cooperation among startup founders in the community that surprises him. “I can pick up the phone and they would help me out, much more here [in the Silicon Valley] than anywhere else,” he said. He makes clear, however that cooperation stops when it comes to competitor companies. He’s not out to make life easier for them.
THE GROWING MICROSOFT AND SALESFORCE ALLIANCE
And yet in spite of that desire to compete and win, we see companies like Microsoft and Salesforce which compete directly in the same space coming together making agreements because it’s in their best interest and the best interest of their customers. In fact, Marc Benioff had a chummy fireside chat on stage at Dreamforce this week with Tony Prophet, corporate vice president for Windows marketing –it was fireside so it must have been warm and fuzzy right?
Let’s not forget at one time these two companies went toe to toe in court suing one another over patent infringement. Microsoft still has a CRM product called Dynamics that competes directly with Salesforce CRM, and yet they intend to extend their growing alliance because it’s one that makes sense to both sides.
That’s because CEO Satya Nadella has decided that being a trusted cloud vendor is more important than beating Salesforce in the CRM business, which is just a small part of Microsoft’s business anyway. It’s a smart strategic decision on his part (even though it clearly messed up his Dynamics partner network) and it gives him access via Office 365, OneDrive and Outlook.com to a stream of Salesforce customers who get the cloud and aren’t afraid of it. It solves a problem that Nadella has with his own customer base. They are slower to move to the cloud and he has the potential to gain a critical mass of cloud customers much faster this way.
For Benioff, well he gets access to all those Microsoft customers, and those companies that might have used Microsoft Dynamics CRM, might be willing to use Salesforce now that Office 365 will be so nicely integrated into the ecosystem including an upcoming Salesforce app for Outlook (where many sales people prefer to work). If Salesforce is more smoothly integrated into the Microsoft experience, it works in Salesforce’s favor because the Office franchise remains very popular inside the enterprise.
IBM HOOKS UP WITH SAP
In another case of companies that quite often compete for the same customers, SAP and IBM announced a cloud partnership this week. It’s not quite as strange as the one between Microsoft and Salesforce because these guys have been partnering in various guises for decades, but they admitted you could call them frenemies in spite of the good working relationship. At least they haven’t ever sued one another. SAP will be using IBM Softlayer’s network of 40 data centers to run the cloud version of SAP HANA, and provide a substantial increase over the data centers that SAP runs on its own.
SAP increases the size of its worldwide data center network dramatically, simply by writing a check and without the hassle and cost of building the data centers themselves. What’s more, many of SAP’s customers have data sovereignty issues, which means the data in some cases has to stay in-country. Having a network of data centers across the world increases the possibilities that there is one close by and that can mean the difference between winning and losing a sale.
IBM has invested more than $1B since buying SoftLayer last year to increase its data center count from 13 to 35 with five more going on-line by the end of the year (for a total of 40). Having a partner like SAP gives IBM a huge customer that will help begin to pay off some of that investment in new data centers. It also gives them a selling point for other large customers that a big company like SAP with a worldwide presence is using its infrastructure services. It’s another win-win.
See what happens when companies play nicely? The companies win and the customer wins too and ultimately that’s why they do it. There is an intense customer need and open source, cloud APIs and services make it easier for these competitors to work together. They may not ever love one another, but they understand that it’s worth doing for the benefit of the business –and that’s why you’ll continue to see companies cooperating in this fashion.
PHOTO CREDIT: (c) Can Stock Photo