Introduction
Alliances have become an integral part of 21st century corporations. Alliances range from minority equity holdings, informal alliances, to outright mergers and acquisitions. It is believed that developing strong business alliances is the key to gaining competitive advantage (Dyer, Kale & Singh 2001; Das & Teng 2002). The reasons for alliances offered by corporates are numerous and varied. Alliances create value to the company by improving knowledge management, remove accountability problems, provide internal coordination, and increases external visibility (MacAvoy et al. 1998; Koza & Lewin 2000). Strategic alliances, therefore, are believed to posses many advantages when rightly utilised.
Google Inc. has entered into numerous alliance and acquisition processes with varied and disconnected business interest. This paper discusses two such alliances of Google – first with automotive companies since 2013 and then with Luxottica in 2014 – in order to understand the logic behind these two different alliances. This paper will try to enumerate the plausible reasons behind these two unlikely alliances.
Theory
Alliances are formed due to various reasons. Some believe, due to the market structure, alliances become inevitable, and the type of market determine the reason for the alliance (Koza & Lewin 2000). According to Koza and Lewin (2000), strategic alliances are of three types – learning alliances, business alliances, and hybrid alliances. Learning alliances are created with the pure intent to collaborate with no clandestine intention to exploit (Koza & Lewin 2000). Business alliances are formed with strong objective to exploit and little or no intent to explore (Koza & Lewin 2000). Hybrid alliances are formed with both the intent of exploitation and exploration (Koza & Lewin 2000).
Studying the competitive environment of the alliances, both internal and external, helps to understand the reason behind such collaborations. This paper utilises SWOT analysis, porter’s five forces competitive environment analysis, and value chain analysis to understand the reason behind the alliances.
Evidence
Alliance with Automotive Companies
The alliance of Google with automotive companies was to capture an untapped market of cloud based operating system for vehicles. In this respect, Google faces stiff competition not only from its competitors like, Apple and Microsoft, but also from its partners (Souppouris 2014). The main offerings of Google to its automotive partners are Google Map and Places in the cars’ telematics system (Yoo-chul 2014; Vance 2014). The automotive partners of Google are Hyundai, Chevrolet, GM, Honda, Kia, etc. (Yoo-chul 2014).
The analysis of the product should be based on the competitive environment of Google (see figure 2). The figure demonstrates that the product faces high threat from various areas such as direct competitors, application developers, and substitutes. The environment for the product is highly competitive, as direct competitors of Google, such as Microsoft and Apple, have already entered into similar alliance with automakers to provide their own version of the integrated automobile system. Some of the other new entrants into the market are Telsa Motors and CarCloud (Vance 2014). CarCloud is a technology partner with Google in the Open Automotive Alliance (Open Automotive Alliance 2014).
Google and the automotive companies have a business alliance. The logic behind such an alliance is to exploit the production and sale of Google’s software for the cars of the automakers (Koza & Lewin 2000). Google makes the software, provides content to the alliances that in turn provide it in their vehicles. The customers, ultimately, pay for the software. Google therefore is a partner in creating the integrated vehicle system for the carmakers.
Alliance with Luxottica
The alliance between Google and Luxottica is an unlikely partnership between the fashion and the technology industry (Luxottica 2014). The alliance is forged with the intention to make and market Google Glass, an innovative wearable computer, in alliance with Luxottica (Forbes 2014).
A swot analysis of Google Glass would demonstrate the main strengths and weaknesses of the product.
Table 1: SWOT Analysis of Google Glass
The SWOT analysis shows that the three main constraints that will determine the adoption of Google Glass are – social barriers, government regulation, and developer’s interest. Threat that Google Glass faces are government regulations and social barrier to adoption of the product: “criticized for infringing on others’ privacy, banned from bars and restaurants and given tickets for distracted driving” (O’Toole 2014, para. 5). The social barrier to adopt an innovation is high as late adopters are reluctant to spend $1500 on a wearable computer.
The advantages of the alliance with Luxottica can be seen through a value chain analysis. The alliance has its advantages in providing Google assistance in two forms – (a) creating a fashionable eyewear to make Glass more adaptable to the customers and (b) taking advantage of the extensive distribution channel of Luxottica. The value chain of Google is enhanced through the advanced distribution capability and the fashion appeal of Luxottica brands like Ray-Ban. The alliance between Google and Luxottica is a hybrid alliance (Koza & Lewin 2000).
Analysis
So, what can be the reason behind these two alliances? The reason for the alliance between Google and the automotive companies are as follows. First, reason for Google to enter into an alliance was to compete with rivals. The reason therefore, was to maintain strategic and competitive relevance. Thus, the first reason for alliance building was speeding up entry into a new market opportunity (Koza & Lewin 2000).
Second reason for the alliance was to diminish threat from Google’s direct competitors. Other software developers like Apple, Microsoft, Nokia, etc. have already entered the race to capture the market for integrated vehicle software. For instance, Nokia has entered the foray with its Nokia Map, Transport, City, and Pulse and have forged alliance with Mercedes, Volkswagen, and BMW. Apple has entered into an alliance with Ferrari.
Third, Google is a software developer. It can develop systems for many things, but it cannot develop hardware. Hence, it has to enter into alliance with hardware developers to make their products tangible. Thus, an alliance with the automobile companies allows it to develop a platform to utilise its software customised for cars.
The alliance between Google and the automotive companies was to remain competitive in a market that was the next step in mobile connectivity. However, that between Google and Luxottica aimed to create a market for wearable computers. First, an alliance with Luxottica allows Google to mass market its futuristic wearable computer mounted on a headgear (O’Toole 2014). The wearable computer attached to a fashionable eyewear creates a conglomeration of technology and fashion. This alliance with Luxottica allows Google to transform an innovative eyewear to a fashion accessory.
Second, the alliance with Luxottica allowed Google to gain advantage over other creators to be the first entrant in the futuristic eyewear market. It will be the sole entrant in the wearable computer market, which is yet to develop.
Third, the alliance allowed Google to unite technology, fashion, and social norm. The social and cultural barrier to use such a futuristic product is immense. The alliance will help transform the product to a fashion accessory that would garner greater acceptance. Hence, it will help the product more marketable.
Fourth, larger distribution system of Luxottica would allow Google to sell its product to the masses, which will eventually bring down the price of the product, making its adaptation easier.
Conclusion
Google had entered into an alliance with two different companies. However, the reason was always to add value to its value chain. The alliance with the automotive companies stemmed from the necessity to remain competitive while that with Luxottica was to enter a completely new market. However, both the alliances are expected to be good for the business of Google.
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