Friday, October 20, 2006

Alliance week day 3 - "Complementors" and managing them

The "complementor" relationship, in which different companies make and market products that work together, is a fast-growing yet poorly-understood type of partnership, a point brought out in a fine article in the September issue of the Harvard Business Review.

Here's how the authors, David Yoffie and Mary Kwak, define complementors:

Companies that independently provide complementary products or services to mutual customers [which] increase the value of each other's offerings and the size of the total market.

Examples include the digital camera industry (where flash memory and photo printers are complementary products) and the video game industry (where games are complementary to the consoles), not to mention the PC industry (microprocessors, operating systems, application programs, security programs, and on and on).

Complementors are valuable because the products they sell increase the size of the market and therefore spur sales of the base product, and yet don't require the base product company to invest in the development and sales of the product.

So what's the catch? The very nature of these relationships--that of independent companies selling separately--makes them hard to manage. As Yoffie and Kwak state,

Although complementors share many goals--notably, the desire to expand their common market--their interests are frequently misaligned.... As a result, tensions can develop in many areas, such as pricing, technology, and, perhaps most important, control of the market--both in terms of which company has the most influence over customers and which one gets the bigger slice of the pie.

For an example of complementor tension, read this article about the dispute between security giant Symantec and Microsoft over how easily external security programs will be integrated into Microsoft Vista.

One could do an entire PhD dissertation on this topic, so let's stop there for now. We'll take it up again later in Alliance Week.

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