Break Up The Techs!

You’ve heard the cry break up the banks, haven’t you? Politicians like Senator Elizabeth Warren of Massachusetts continue to press the argument that our global banks are too large, too diversified, and too complex to continue in their present forms.

If that’s what they assert about the global banks, though, what would they say about our global technology companies? Just last week, the telecommunications giant Verizon bought internet pioneer AOL for $4.4 billion. And at roughly the same time, Facebook announced its entry into the business of publishing original news stories.

Why are firms like General Electric and Citigroup shedding their non-core businesses and shrinking down to their core competencies, while others like Verizon and Facebook expand aggressively beyond their fundamental services? Most proponents of expansionary strategies offer the justification that seemingly unrelated businesses can be aggregated in order to recognize underlying synergies.

On the other hand, the potential for synergies was the driving force behind AOL’s ill-fated merger with Time Warner. That 2001 transaction, executed just ahead of the bursting of the millennium era technology bubble, is often judged to be one of the worst merger decisions in business history.

So how are firms to know when diversification is a sound strategy? And how are they to judge when it is a foolhardy one?

There’s never a foolproof way to know the answers to such questions with absolute certainty. Nevertheless, it’s easy to understand why Verizon believes that it can strengthen the revenue potential of its telecommunications backbone by integrating AOL’s online advertising function. And, likewise, it’s a cinch to envision Facebook expanding its online market share by leveraging its existing platform to publish news stories.

Conversely, it’s difficult to envision how GE’s ownership of NBC Television could have helped it sell more jet engines. And it’s hard to argue that Citigroup’s ownership of a Japanese retail bank network could have helped it expand in the United States.

So, at least in retrospect, we appear to be quite capable of differentiating between sound and foolhardy expansion strategies. Regrettably, though, it appears to be far more difficult to proactively foresee such results.

Technology Titans In Trouble

Something strange is happening to America’s titans of technology. At the precise moment when the economy is supposedly gaining strength, and at the very time when technology platforms are evolving in increasingly productive ways, many dominant firms are experiencing dramatic slow-downs (or even outright declines) in sales revenue.

Just last week, for instance, Amazon slashed its sales projections for the upcoming holiday season. Apple revealed that it was losing iTunes music volume to online streaming services. And IBM abandoned its $20 earnings per share “road map” target for 2015, while an analyst complained, “too much of its revenue comes from old-school business lines, and not from potential growth areas.”

But why are such admired firms suddenly struggling to attract customers? After all, IBM rescued itself from collapse by shifting from a hardware focus to a customer focus in the early 1990s. Amazon virtually invented the online sales industry in the late 1990s. And Apple’s iTunes, along with the iPod, revolutionized the music industry in the early 2000s.

All three firms, though, now appear to be struggling to maintain their competitive market positions. Amazon’s initial venture into mobile phones, for instance, flopped earlier this year. Apple is pinning its hopes on integrating its recently acquired Beats music streaming service with its own iTunes service. And IBM industry analysts are now referring to the firm’s predicament with expressions like “a sad national story.”

At first glance, these firms appear to be focused on different technology sectors. Nevertheless, they do seem to share a common problem. Namely, their customers are underwhelmed by their offerings, and they are taking their sales revenue elsewhere.

Unless these firms can rediscover the internal development capabilities that first drove them to prosperity, their days as industry titans may indeed be numbered.

JC Penney: A Leadership Mistake?

At the end of the 1956 baseball season in the United States, Brooklyn Dodger icon Jackie Robinson received some disconcerting news. In the twilight of his career, he had been traded to the cross town rival New York Giants, who sought his veteran leadership for a roster that included the very young future Hall of Famer Willie Mays.

Veteran leadership? For a rival team? Fuhgettaboutit! Robinson refused to report to the Giants and Major League Baseball voided the deal. Robinson himself retired from the game shortly thereafter.

Was Robinson excessively worried about his professional legacy, or did he understand that veteran leaders who switch teams rarely find success in their new positions? Unfortunately for American retailer JC Penney, Robinson is no longer available to provide them with advice regarding their leadership strategy.

A Small Slice of Americana

JC Penney, of course, is a venerable American department store chain. Although it has never earned the pedigree of Macy’s or achieved the size of Sears Roebuck, it can lay claim to its own slice of American retail history.

James Cash Penney was originally an employee in a small retail organization called Golden Rule. After purchasing a minority share in 1902, he bought out his partners five years later and took command of the chain that would be renamed JC Penney in 1913.

Although Penney lost his fortune during the Great Depression of the 1930s, he managed to keep his retail empire alive. In fact, Penney’s Des Moines store hired a young employee named Sam Walton in 1940, the entrepreneur who would later establish the Walmart chain.

JC Penney peaked in size in the early 1970s, when it briefly expanded to more than 2,000 retail sites. It now operates more than 1,000 stores across the United States.

An Apple Transplant

So who is the current leader of this venerable retail establishment icon? None other than Ron Johnson, a former corporate executive at Apple who was hired by Penney to bring a little pizzazz to its facilities.

And that’s precisely what Johnson brought to the Texas based retailer. He placed new emphasis on full, “hands on” customer service and in-store boutiques. He even abbreviated the brand itself to a crisp, concise jcp.

But then Johnson decided to eliminate Penney’s traditional reliance on frequent sales events, replacing them with a standard pricing policy for all merchandise. His Fair and Square pricing strategy emphasized non-discounted prices and infrequent sales.

Standard pricing, of course, is a classic Apple strategy; it supports the philosophy that sales events tend to cheapen the image of the brand over time. But by taking away the tradition of the frequent sales event from Penney’s core customer, Johnson drove many of them away. Indeed, sales volume has plummeted under Johnson’s command, and the prospects of the retailer are eroding quickly.

An Austerity Plan

Faced with intense criticism about Penney’s sales decline, Johnson is now retreating from his “limited sales event” policy. Instead, he is cautiously reinstating special sales events on a partial basis.

But should Penney adhere to Johnson’s limited-sales plan? After all, organizations in many different industries have moved away from sales driven marketing strategies. Many automobile companies, for instance, are no longer relying on large rebate campaigns. And most airlines are forsaking fare sale strategies, opting to increase ticket prices and ancillary service fees instead.

One can characterize Johnson’s sudden abandonment of sales events as an austerity themed plan, with austerity being imposed on the firm’s customer base. Is it possible, however, that Johnson selected an appropriate austerity strategy but served as an inappropriate leader for implementing it? Would a more familiar and recognizable leader, instead of an outsider, have been more palatable to Penney’s regular customers?

Home Grown Leadership

Anecdotal evidence seems to suggest that people tend to accept austerity solutions more readily when they are proposed by home grown leaders, and not by transplanted leaders with personal histories and loyalties to other organizations. The evidence extends beyond the business sector and throughout other sectors of human endeavor.

Consider the realm of politics, for instance. On the one hand, the Italian people recently rejected the European prescription of austerity that was imposed by interim leader Mario Monti. His political rivals attacked Monti’s credibility by suggesting that his brief leadership position was too “centric” (i.e. too focused) on German political needs.

On the other hand, the popular, home grown Icelandic government has presided over an economic rebound since the 2008 / 09 financial collapse. And in the business world, Apple itself presents a quintessential example of a firm that once tottered towards bankruptcy until its home grown founder returned to replace an outsider CEO.

So is it possible that Ron Johnson developed the right plan for Penney, but is the wrong leader to implement it? And if he isn’t the right leader, then who should replace him? Until Penney’s Board clarifies the nature of its leadership mistake, it may find itself unable to correct it.

Free Markets and the New Orleans Reporter

If the cities of the world were to compete for the title of “The Greatest Comeback,” which one would emerge triumphant?

Would it be New York, the metropolis that survived a devastating terrorist attack? Hiroshima, the city that rebuilt itself from the devastation of a nuclear holocaust? Or perhaps Leningrad (now St. Petersburg), whose citizens starved and froze to death during two years of siege by the Nazi army?

All of these cities have pulled themselves up by their bootstraps, and have re-emerged as global communities that are more economically powerful, socially vibrant, and culturally energetic than ever. Interestingly, last week’s announcement by National Public Radio and the University of New Orleans indicated that a similar process is now underway in the Crescent City.

The Decline of the Big Easy

The 21st century hasn’t been an easy one for New Orleans. Although the utter devastation of Hurricane Katrina is the catastrophe that first comes to mind when we ponder its recent history, the city has suffered other indignities as well.

Its surrounding wetlands and tidal basin, for instance, have been impacted by a variety of environmental threats. The Deepwater Horizon oil spill in the Gulf of Mexico damaged its seafood and tourism industries. And various industrial and residential activities in communities on the Mississippi River continually flood the surrounding wetlands.

NOLA has also absorbed several blows to its civic pride. Mayor Mitch Landrieu, for instance, felt compelled to ask the U.S. Justice Department for unprecedented levels of assistance to address pervasive corruption in his police department. And the football Saints flirted with other cities after the Katrina disaster before agreeing to remain in a refurbished Superdome.

Covering the News

Of course, during the past decade, there have been reasons for celebration in the Crescent City too. The championship won by the Saints after the 2009 season, for instance, energized the region and delighted the nation. And the intrepid on-site reporting of the Katrina disaster by the Times Picayune daily newspaper was recognized with a Pulitzer Prize for Public Service in 2006.

It therefore shocked the community to learn that the Times Picayune was planning to eliminate its daily edition and shrink into an online news service and a three-times-a-week news publication. Many community leaders worried that a major city could not prosper without a daily news presence.

So whom shall residents rely on to cover the news of the city in the future? Have no fear … there appears to be a new news organization in town! Last week, National Public Radio and the University of New Orleans jointly announced the launch of the New Orleans Reporter.

Free Markets at Work

Michael Hecht, chief executive of Greater New Orleans Inc. and lead fundraiser for the Reporter, proudly proclaimed that “we (i.e. the staff members of the Reporter) are filling a reporting gap that the free market will not necessarily fill.” He was referring to the fact that the Reporter has been designed to function as a non-profit service organization, as opposed to a for-profit, privately owned market entity.

In a sense, though, the emergence of the Reporter can be considered a prime example of the free market at work. Although there is continuing demand for daily news coverage in NOLA, the Times Picayune was unable to deliver a cost-effective supply to meet that demand, and thus engineered a partial withdrawal from the market. The Reporter then emerged, as a new supplier of news information, to meet the daily demand for news.

In other words, although Mr. Hecht described the Reporter as a venture that is designed to replace the free market, it can be considered instead as a core component of the free market itself. Its legal structure as a non-profit entity simply represents a business decision that was made to fit the parameters of the venture’s strategic plan.

Blurring Distinctions

The New Orleans situation, featuring a fledgling nonprofit entity competing in a free market against an established for-profit firm, is certainly not a unique one. The non-profit New Haven Independent, for instance, competes toe-to-toe with the established for-profit New Haven Register in the southern Connecticut news market.

Other industry sectors feature similar situations as well. In the hospital market in neighboring Massachusetts, for example, the fledgling organization is a for-profit entity and the established providers are non-profit organizations. Steward Health Care System, a one year old subsidiary of the private equity firm Cerberus Capital Management, is now competing with Massachusetts General Hospital and other major non-profit health systems.

Do you believe that competition is healthy because it inspires people and organizations to work harder to meet the needs of their constituents? If you do, then the partial withdrawal of the Times Picayune from the daily news market of New Orleans might prove to be welcome news indeed. After all, it attracted a new entity with formidable resources into the competitive free market.

Target vs. Target: Clashing Strategies

When we think of Target, we usually visualize a middle market company that executes a low cost, high volume product strategy. To be sure, the chain does maintain a stylistically distinctive brand image, but it offers a very basic value proposition: to provide a modestly comfortable shopping experience while maintaining low sales prices.

Recently, though, Target announced a pair of highly unusual business initiatives that will dramatically differentiate it from the competition. First, it announced that it is collaborating with a major consumer electronics firm to form a joint venture; then, it reached out to its suppliers in an aggressive attempt to respond to a challenge from Amazon.

It remains to be seen, of course, which approach will prove to be the more effective one. Interestingly, though, each of Target’s initiatives appears to be based on a different assumption about its primary core competency.

The War On Showrooming

Last week, Target reached out to its suppliers and asked for help in combating the practice of showrooming. It’s an activity that has blossomed with the emergence of internet-based shopping; it refers to consumers who “scope out” products in a bricks-and-mortar store and then use the internet to purchase them from discount web sites like Amazon.

Because web-based retailers do not incur the costs of maintaining store networks, they can undercut the sales prices of chains like Target. And in many states, web-based retailers can avoid collecting sales taxes from customers as well.

Frustrated by the practice of showrooming, Target’s executives asked their suppliers to consider designing special edition products that would be exclusively sold through their stores. The executives also implied that they would welcome discount pricing arrangements with their suppliers, and would (presumably) pass along the lower costs to their customers.

By making such requests, Target’s executives signaled that they intend to continue battling Amazon and other online retailers. At the same time, though, Target is also taking a drastically different approach to managing the competition.

If You Can’t Beat ‘Em, Join ‘Em

Two weeks ago, Target and Apple jointly announced an innovative new venture. Apparently, Apple will soon begin to utilize Target’s floor space to create “store within a store” boutiques for its products and services.

Apple boutiques within Target stores? That might become a very uncomfortable arrangement! After all, the two firms compete directly with each other to sell computers, mobile phones, and other electronics merchandise.

Furthermore, with Apple dramatically expanding its own global retail store network, the two firms are probably heading for more intense competition in the future. And yet Target has decided to turn over a significant amount of its floor space to the world’s most admired company.

The Core Competency

How can we make sense of this dramatic divergence in competitive strategies? One approach, perhaps, is to understand the two different perspectives by which Target may be defining its primary core competency.

If a retailer focuses its efforts on the creation of an attractive shopping environment, then it wouldn’t necessarily be alarmed by the prospect of more intense product competition. Starbucks, for instance, comfortably sold Top Pot doughnuts in its stores for many years because it has always defined its primary competency as the creation of a social “third place” between home and work. It has never simply defined itself as a vendor of coffee and doughnuts.

On the other hand, if a retailer focuses on the maximization of sales volume, then it would always be concerned about more intense product competition. Automobile companies, for instance, often prohibit their dealers from affiliating with rival manufacturers because they define their primary core competencies as “selling cars” and not “creating an attractive environment for automobile buyers.”

If we apply these concepts to Target, it’s easy to categorize the retailer as a sales focused organization in order to understand their Amazon initiative. But is it reasonable to simultaneously define them as a “social environment” organization in order to understand their Apple initiative?

Welcome To Magnolia!

You may be struggling to envision an Apple boutique within a Target store, one that provides a typical Apple store environment to its customers. But other low cost, high volume retailers are successfully executing this strategy; Best Buy, for instance, has been hosting hundreds of similar Apple boutiques for several years.

In addition, Best Buy has been partnering with Magnolia Design Centers to host hundreds of high end electronics boutiques within their stores. The partnership continues to be a successful one; it may well have served as a model for Best Buy’s (and now Target’s) expanding joint venture with Apple.

In other words, although many may believe that Target would be better served by focusing on a single core competency of low cost, high volume sales, Best Buy has actually been doing so and simultaneously pursuing a successful boutique business strategy for several years. Apparently, Target shoppers will soon learn whether the retailer can manage to focus on two core competencies at once.

Public Broadcasting: Hello, Britain!

The Public Broadcasting Service (PBS) of the United States is the national network that supports 354 American public television stations. Like CBS, NBC, ABC, and FOX, PBS is without doubt a quintessentially American institution.

Until two weeks ago, that is. On November 1st of this year, PBS launched a new service called PBS UK, bringing its lineup of educational shows to the British television audience. Now Americans will no longer need to worry about losing touch with their favorite Sesame Street characters, or losing track of the “hot” political stories on PBS News Hour, when they visit Britannia! Bert and Ernie, as well as Jim Lehrer, Gwen Ifill, and Judy Woodruff, will only be a click away from them.

But critics in the federal government have threatened to slash funding for public broadcasting programs for many years; how does this new trans-Atlantic business opportunity affect their views? Are these critics now more likely to seek to eliminate funding for PBS … or to expand it?

Public Television: A Brief History

Although some Americans believe that public television has been on the air since the initial emergence of the visual medium during the 1950s, that impression is actually not correct. Though nonprofit television has been broadcast on a nation-wide basis for almost sixty years, the federal government did not step in and begin funding educational television until the late 1960s.

From 1954 until 1966, the Ford Foundation funded a private nonprofit network called National Educational Television (NET), which gradually evolved from a broadcaster of adult education programs to a producer of socially conscious documentaries. In 1967, as the Ford Foundation began withdrawing its support because of fiscal constraints, the U.S. government established and began funding the Corporation for Public Broadcasting, which then assisted NET’s evolution into PBS in 1970.

Conservative critics initially began accusing NET of liberal bias in its documentary programming during the 1960s, and have continued accusing PBS of similar political bias in more recent times. Some critics have also accused nonprofit public television organizations of relying on federal government monies when they are capable of identifying their own private sector funding sources; the recent PBS UK arrangement may indeed serve as an apt illustration of their beliefs.

PBS: Pros and Cons

On the one hand, PBS supporters can easily argue that the network must be producing quality programming if European viewers are eager to gain access to it. Although iconic shows like Sesame Street had been aired in more than 140 countries before PBS’s recent expansion efforts, the network itself had remained focused on the American market until British market demand compelled it to expand into the United Kingdom.

PBS supporters can also argue that, in an era of diminishing foreign aid and cultural exchange budgets, the extension of existing PBS programming to foreign nations may help promote American diplomatic interests in a cost-effective manner. By showcasing American values, PBS may even be able to mitigate the negative impact of recent reductions in the geographic distribution of the Voice of America, America’s global radio broadcaster into remote geographic regions.

On the other hand, with contemporary conservative commentators like Bill O’Reilly continuing to heap criticism on liberal PBS icons like Bill Moyers, the UK distribution deal may lend credence to their assertions that PBS should be required to compete in the market for funding along with other nonprofit networks — as well as the many for-profit networks, for that matter. It’s easy to understand why many believe that PBS may not need to rely on federal funds if it is capable of earning broadcast fees in global markets far from home.

Global Competitors

Whether PBS is capable of thriving without the federal government’s assistance is a question that can only be answered by the accountants with access to its internal books and records. There is no question, however, that a global competition is now thriving among nations that seek to project their interests through television network programming.

Historically, of course, the United Kingdom has shared its culture, values, and traditions with the world through its continuing support of the British Broadcasting Corporation (BBC). But we have also witnessed the recent rise of France24, Japan’s NHK, Russia Today, and various government supported Arabic news networks. Even business news is now ripe for such competition, as evidenced by the recent agreement between Bloomberg LP and Saudi Arabia’s Prince Alwaleed bin Talal to launch Alarab in the Middle East.

We now live in an internet dominated media age when nations are waging wars for the “hearts and minds” of global populations through such television programming; it is thus easy to understand why many support the continued existence of a publicly funded American flagship network. Nevertheless, as the U.S. government’s financial resources continue to wane, PBS may have no choice but to continue identifying new funding opportunities to finance its growth plans.

Which Agency Survives: Amtrak or the Postal Service?

One traces its lineage to a golden spike, driven into a rail in 1869, that linked the eastern and western coastlines of the United States. The other was formed in 1775 and was explicitly institutionalized by the United States Constitution.

To which organizations are we referring? To the Amtrak railroad service and the United States Postal Service, government agencies that have existed for decades and even centuries. Each is deeply ingrained in the American way of life, and each now faces a similar existential threat.

A more detailed analysis, though, reveals a significant difference between the competitive positions of the two entities. And because of this difference, it is indeed possible that one of the organizations may long outlive the other.

Antique Technologies

Amtrak is America’s public railroad transportation service, operating from northern New England to southern California. Although the service was officially formed during the Nixon Administration in the early 1970s, the network considers itself the heir to the nation’s earliest transcontinental railroad service, an entity that was born with the driving of a ceremonial golden spike in Utah that linked the Central and Union Pacific rail lines together.

A century earlier, the Postal Service was formed shortly before the thirteen colonies declared their independence from Great Britain in 1776. Its first Postmaster General, in fact, was Benjamin Franklin, who had previously halved service delivery times between Philadelphia and Boston by modernizing and standardizing mail shipment procedures.

Each of these services, though, was eventually threatened by more efficient emerging technologies. The rail system lost large numbers of passengers to automobiles, buses, trucks, and airplanes after the Second World War. And the postal system continues to lose significant business volume to internet-based email, merchandise purchasing, bill payment, and coupon distribution services.

In other words, industrial advances have forced each service into a position of technological obsolescence. But does this mean that each service is equally likely to fade away after generations of public service?

Competitive Positions

Although the services are each facing similar threats, they differ markedly in terms of their strategic market positions. Specifically, each service confronts a different mix of competitors, with differing abilities to attract customers with more efficient levels of service.

Amtrak, for instance, benefits from the competitive reality that the nation’s highway grid and air space are saturated with traffic. Such congestion has helped make Amtrak’s northeastern Acela service competitive (in terms of both time and cost) with air and land vehicle alternatives.

On the other hand, as the Post Office’s first class mail business continues to gravitate to the internet, and as its package delivery business continues to migrate to for-profit firms like Federal Express and UPS, the federal agency has been forced to face the prospect that its entire line of business may be vulnerable to poaching by rivals. Of course, no other firm would be interested in poaching its grossly unprofitable rural delivery system, which it plans to streamline in the near future.

Thus, based on its competitive strengths, Amtrak appears to be much better positioned to survive than its sister agency the Postal Service. But do their respective financial positions support this assertion as well?

Government Subsidies

Regrettably for Amtrak, the financial positions of the two government agencies are mirror opposites of their strategic positions. In other words, although Amtrak is the stronger entity from a competitive perspective, the Post Office is the stronger one from a financial perspective.

How can that be true when the Post Office has relentlessly increased the price of a first class stamp from 37 cents as recently as January 2006 to 45 cents in January 2012? In essence, its ability to raise its prices has actually helped bring it the necessary revenue to phase out government subsidiaries. And because Congress is now proposing to allow it to implement various cost efficiencies, the Post Office has been able to manage (and subsidize) its costs effectively.

On the other hand, United States Congressmen who fear watching their home districts lose access to the national rail transportation system are loathe to permit Amtrak to reduce, eliminate, or spin off rail lines. As a result, Amtrak is unable to engage in the types of restructuring activities that can improve its financial position, and thus it has needed over $40 billion in public subsidies in order to remain solvent. Since it initiated service under the Amtrak moniker, the agency has never broken even or earned an annual profit.

Nevertheless, the growing public need for a national rail service recently led Amtrak to announce an all-time record 30 million tickets sold last year, at the same time as the Postal Service declared that it is hiring a former Obama Administration automobile “czar” to study its restructuring options. As long as the railroad is strategically positioned to serve a growing public need, it may thus survive long after Ben Franklin’s postal system closes down, despite its financial shortcomings.

Online Advertising: Allied Against Google!

How many global internet firms does it take to challenge Google in the online advertising industry nowadays?

The answer, apparently, is three: Microsoft, AOL, and Yahoo. Although no formal agreement has yet been announced by the three firms, credible news organizations reported last week that the trio had agreed to coordinate their efforts to sell advertising space on their web pages.

Google, meanwhile, has chosen not to respond to the reports, preferring to maintain its focus on challenges like the positioning of its Android mobile telephone franchise against Apple’s iPhone. That says something about how the once-dominant market positions of the three partners have waned, doesn’t it?

They Once Were Giants

Microsoft, AOL, and Yahoo, of course, exemplified the growth of the contemporary knowledge economy during each of the final three decades of the twentieth century. Each firm revolutionized an existing technology and then found a way to profit from it, eventually yielding to the next firm in line, which then accomplished a progressively similar feat.

Microsoft was the first in line in this series, incorporated in 1975 by the now-legendary development team of Bill Gates and Paul Allen. The men modified the operating system DOS, which had previously been created by a firm named Digital Research, to operate IBM’s emerging line of Personal Computers (PCs). Later, they introduced the groundbreaking Windows line of operating systems to the world.

But despite its dominance of the desktop computer operating systems sector, Microsoft was never able to dominate the internet age that emerged during the 1980s. That accomplishment was achieved by Steve Case of America Online (now AOL), originally incorporated in 1983 under the name Control Video Corporation. The firm dominated the Internet Service Provider (ISP) business at a time when the vast majority of all Americans accessed the web through dial-up telephone lines that were connected to their PCs, at the dawn of the internet age.

Later, in 1994, Stanford University engineering students Jerry Yang and David Filo launched the Yahoo site as a reference tool, one that was designed to help web surfers find information once they were connected to the internet. Their portfolio of virtual services soon diversified into search engine, email, and other functions, which eventually grew into the most highly trafficked collection of web sites in the world. Even today, Yahoo holds the #2 position (behind Google, of course) in web traffic in the United States.

Each of these three firms thus arose to enhance and then supplant the innovations of the previous firm. None, though, possess a successful track record for establishing mutually profitable joint ventures with other organizations, which is why some analysts are dubious about their prospects for success in their newly announced three way partnership.

Failed Relationships

Those skeptical analysts, in fact, can point to any number of instances in which the three firms have fallen out of joint business relationships with other prominent organizations. Microsoft’s original business relationship with IBM, for instance, ended with angry recriminations and subsequent retaliatory attempts by IBM to establish its own operating system and productivity suite to rival Windows and Office. And the NBC television network’s MSNBC cable channel still carries an acronym within its name that memorializes its original failed plan to jointly operate the news service with Microsoft.

Meanwhile, AOL’s merger with Time Warner continues to be universally regarded as one of the greatest fiascos in the history of corporate mergers. Consummated at the very height of the internet bubble economy in the millennial year 2000, the AOL half of the merged entity later collapsed in value and was fully jettisoned (i.e. spun off) by the firm in 2009. More recently, AOL’s recent acquisition of the highly successful Huffington Post is reportedly confronting similar challenges.

Finally, Yahoo was recently embroiled in a complex ownership dispute with Alibaba of China, an organization in which it owns a 40% interest. Some believe that the stake represents Yahoo’s most valuable strategic asset, but earlier this year Yahoo charged that Alibaba’s Board spun off its Alipay subsidiary without seeking its advance approval. Although the disagreement has since been settled, the public argument was described by some as having reached “soap opera proportions.”

Why would these three firms, with so many resources at their (individual) disposal and so little successful experience in collaborative joint ventures, try to pull off a three way venture against a far more accomplished rival? It is, indeed, difficult to avoid the conclusion that the three firms have reached a level of desperation where no alternative options are feasible.

In the meantime, the historical cycle of innovation and evolution continues, with Facebook having launched in 2004 as a pioneer of the social networking revolution, and with fledgling location based services such as foursquare now hoping to become the success stories of the upcoming decade. It is indeed difficult to image how AOL, Microsoft, and Yahoo, working together or independently, will be able to succeed against the inexorable tide of history.