With Friends Like These

The art of managing complementors

Present by

Ms.Phailin Thampramuan ID M987Z216

Ms.Sermsri Chirawongaram ID M987Z220
Ms.Nat-uma Jongjitpisamai ID M987Z224
Ms.Ruechuda Kittisaengsuvan ID M987Z225
Ms.Nguyen Pham Nhut Thien ID M987Z240
Ms.Thidarat Prasitpornphakdee ID M987Z245
Content

Complementor analysis
Building hard power
Building soft power
Smart power
Combining hard and soft power
In Business, As in war:

Know yourself

Know your enemy

Know your friends : Supplier

Distributor
Complementor
The Definition of Complementors

By David B.Yoffie and Mary Kwak

Companies that independently provide complementary products or
services directly to mutual customersthose that increase the value of
each others offerings in customers eyes and the size of the total pie
can play an equally important role.

Brandenburger and Nalebuff (1997)

The organisations that produce products and services, which complement
(or support) those of another organisation and therefore add value within
the industry.
 Examples of Complementors

1.Intel -Microsoft

For Intel, Microsoft is a complementor

The more demand for Windows, the more demand for Intel chips.

2. HP - Microsoft
For HP, Microsoft build the worlds biggest printer driver.
HP sells printer and cartridge - and cartridge is where HP makes its
money.
3. An organization producing DVD players
-
Filmmaker Companies
-An organization producing DVD players requires the film
industry to support this hardware by making films available in
the DVD format.
 The Importance of Complementors
The quality of relations with complementors can determine the
degree to which a new product succeeds or fails and even whether
a company thrives or dies.
For Examples:
- Digital cameras

- E-books

Surprisingly, few companies pay much attention to complementors.

The reason may be that executives often overestimate common
interests with complementors and repeatedly underestimate the
potential for conflict.
The Dark Side of Complementor Relations

Relationships with complementors are typically double-edged .

In the book :Co-opetition by Adam Brandenburger and Barry Nalebuff..
They stated that:
When a complementor enters the game, the pie grows. Thats win-
win, but then theres a tug-of-war with your complementor over
whos going to be the main beneciary. If your complementor gets
less of the pie, that leaves more for you.
Although complementors share many goals specially, the
desire to expand their common market, they may overlook the fact
that the economics of their businesses and their strategies are
totally different.
As a result, tensions can develop in many areas, such as
Pricing
Technology
Control of the market
An Example: Tension in Pricing
:Handspring Company

Normally youd like to price your goods high

while your complementors price theirs low.
Handspring had a promising initial strategy:
It invited third parties to add modules to the
Visor, its expandable personal digital
assistant , whose retail price ranged from
$149 to $249
These modules could turn the PDA into a digital camera, an Internet
access device, or practically anything you could imagine.
Handspring hoped that the modules would be priced at around $25
to $50 each.
However, Handsprings complementors delivered a variety of creative
products that were generally priced between $150 and $250.
Virtually no one bought them, forcing Handspring to nd a new strategy
 How to increase your leverage with
complementors?

With suppliers, you can increase your leverage by increasing your

purchases with them
With customers, you can increase your leverage by tailoring the
purchasing process or your products in ways that lock them in.
With complementors, it is the challenge for you to persuade them
to meet your terms and do the business with you. You have to
know how to manage complementors.
 Complementor Analysis
The first step in managing complementors is to develop a deep
understanding of their economics, strategies, goals, existing
capabilities, incentives for cooperation and any potential areas of
conflict.
After considering your complementors economics, you need to
dive into the details of their business model.
Most important need to know where does your business model
overlap with theirs.
The more you know about the potential conflicts, the better you
can manage effectively.
Complementor Analysis (Contd)
Executives often overestimate common interests with
complmentors and repeatedly Underestimate the
potential for conflict.
Once you understand your complementors business
models, you can employ a board range of techniques to
influence their behavior.
Building Hard Power
All Managers seek to develop Hard Power resources to
strengthen their position via suppliers and customers.
But all too often they fail to think about how they can use
hard power to manage complementors.
As a result, they may overlook important sources of leverage.
Hard Power is typically based on traditional sources of
strength, such as market share, brand equity, control of
distribution channels, or cash.
Building Hard Power (Contd)
In theory, this approach has many advantages.
By determining the performance and price of key
complements, companies can control customers
perceptions of the value of their products or services.
Internalization can be an effective strategy for
companies that require a limited number of
complements and have the resources to develop them
on their own.
Building Hard Power (Contd)
Many companies seek a middle ground by simultaneously
cultivating independent complementors and limiting their
power by producing certain strategically important
complemetns themselves.
Hard Power can be highly effective in managing
complementors, but relying heavily on hard power for an
extended period of time can be costly.
EXERCISING HARD POWER
LESSONS FROM MICROSOFT
AND INTEL
Today, roughly 80% of
personal computers
worldwide ship with
Intel Inside
More than 90% of
PCs come with
Microsoft Windows
preinstalled.
 Exercising Hard Power:
Lessons from Microsoft and Intel
Some aspects of the relationship between
Microsoft and Intel show the advantages and
disadvantages of exercising power
Successful managers can be blindsided and fail
if they lack a deep understanding of
complementor relations.
Exercising Hard Power:
Lessons from Microsoft and Intel
Microsoft and Intel have obvious
incentives to promote two shared goals:
1. Growth in the overall personal
computer market
2. Improvement in the Wintel standard
Exercising Hard Power:
Lessons from Microsoft and Intel
By coordinating investments in new
features and performance, the two
companies can not only expand the
market but also raise barriers to imitation
and make it even more difficult for
competitors.
Microsoft has created new software to
take advantage of the processing power
delivered by Intels latest generation of
chips.
Exercising Hard Power:
Lessons from Microsoft and Intel
But the conflicts between Microsoft and Intel
came from the differences in their business
models and the competitive conditions they
face.
Intel makes money on sales of microprocessors
that go into new PCs under the strategy: The
promise of better performance is what keeps
computer sales strong, and to deliver such
innovation.
Intel needs Microsofts active support.
 Intel often takes a new operating system to release
the full power of a latest-generation chip. On the
other hand, Microsoft can succeed for a while
without Intels help because it makes a share of its
profit by selling upgrades and applications to the
installed base. Also, Microsoft had little price
competition
In conclusion, Microsoft has often needed
Intel less than Intel needs Microsoft, which
means that when the two sides have clashed,
Microsoft has frequently had the upper hand.
 Marketing Mix
If your need for a wide assortment of complements is:
High Low
Produce some
If your capacity to invest is:

complements Make all

High yourself, but have complements
third parties produce yourself
most of them.

Produce most
Have third parties complements
Low make all yourself but have
complements third parties produce
some of them
 MMX created a difficult problem for Microsoft. At
least one other chip maker, Advanced Micro
Devices(AMD), was pressing Microsoft to
support its own multimedia technology,3DX. If
Intel went ahead with MMX, the hardware
platform could split into competing strands.
Microsoft would have to supply an MMX-enabled
version of Windows for Intel-based computers
and a different version for PCs built on AMDs
chips, which could confuse customers and
multiply Microsofts costs.
 To solve this problem, Microsoft turned to hard
power. It demanded that Intel license MMX to
other chip makers at no charge in return for
Microsofts support for the new standard. Intel
was understandably reluctant to comply. MMX
was a potential source of competitive advantage
that Intel had developed at great expense. In the
end, however, Intel saw no choice but to accede
to Microsofts terms: MMX for everyone was
better than MMX for no one
 The limits of hard power:
Intel learned two essential lessons from this and
similar experiences with Microsoft.
1. The importance of understanding Microsofts
business model
Intel started investing heavily in understanding its
complementor :
- Stationed its own employees on the Microsoft
campus full-time, and senior managers of the two
companies held regular discussions to coordinate
product plans, marketing efforts, and joint
engineering initiatives.
 The limits of hard power:
2. Learned that when business models conflicts,
it is critical not to be too dependent on a
complementor.
Despite its prominence in the PC industry,
Intel had remained vulnerable to Microsofts
whims. Accordingly, Intel made clear moves to
lessen its dependence on Microsoft and limit
the software giants ability to use hard power.
 Microsoft should have learned an important
lesson from this as well: If you push a
complementor too hard, you risk a backlash.
In the case of MMX, by using hard power to
take away an important complementors
intellectual property and competitive
differentiation, Microsoft probably went too
far.
Building soft power
Soft power is
the ability to obtain what one wants
through co-option and attraction. It
contrast with hard power', that is the use
of coercion and payment.
 Business need complementors to help its
product launched
But complementors are unwilling to sign
up until the business have a large installed
base
Example to solve this problem is Intel
helped make Wi-fi, the standard for
wireless computing
 In 2003, Intel introduced Centrino, a new
product for laptop computers that
included a new microprocessco, wi-fi chip
and software.
 Intel launched 300$ million to assure
complementors that the chip maker
was committed to wi-fi.
Complementors ranging from T-mobile to
Starbuck and airports.
 Soft power is the ability to form
what others want Joseh Nye
In 2002, Steve Jobs launced his campaign to persuade
the major music companies to sell track to
iPod users through iTune
music store.
Jobs convinced the companies
that Apples service would
protect their benefit by being
secure.
 Netscape is a US computer
services company, best known
for its web browser.
Netscapes claim to web browser leadership
and increased the pressure on third parties to
support its browser.
Soft power limitation
As Netscape discovered in later years
when Microsoft defeated it in the browser wars by
using hard power to attract complementors
Microsoft launched Internet Explorer into Windows
and paid for service provides such as AOL to make
Microsoft the exclusive default browser.
Wielding Soft Power: lessons from
IBM and Linux
IBM is one of the worlds true powerhouse.IBM plays a leadership
role in establishing the free Linux operating system.
Linux developers were fanatically independent, making them difficult,
if not impossible , to coerce or bribe.
They were also suspicious of large corporations. So IBM was
seeking to control Linux development could defeat the companys
efforts to influence its course and pace.
In 2000, IBM turned to soft power to get complementors on the
board.
RESULT:
IBM has become an acknowledged leader of the Linux movement.
IBM has succeeded in accelerating its development in directions
favorable to the company.
 Articulating a vision: IBMs conception of Linux as an industrial-
strength operating system that can overthrow the empires
created by Microsoft & Sun has helped the company draw
many of the Linux communitys 1.2 millions developers to its
side.
leadership : IBM joined forces with Intel, Hewlett-Packard,
computer Associates and NEC to launch the open Source
Development Labs in 2000.
Contributing to the cause:
IBM has donated a vast amount of money, people & intellectual
property to the Linux community.
IBM has donated copyrights, Linux specific software,&
engineers time to standard-setting organizations such as W3C
& Ecma International
IBM has largely succeeded in achieving its goals of improving
Linux, giving Linux credibility, and putting pressure on Microsoft
 Lessons
IBMs reliance on soft power,however,carries risks.Its lack
of direct control over critical assets is a vulnerability.
Despite all of IBMs efforts,the Linux community could still
evolve in directions detrimental to its interests. In
addition,IBMs leadership position in the community makes
it a prominent target of Linuxs rivals.
For example,when SCO carried out its threat to sue Linux
users for allegedly infringing on its patents, it sought
$1billion in damages from IBM.
 SMART POWER
Microsofts battles with Intel and IBMs efforts to work with
the Linux community demonstrate that both hard power
and soft power can be effective tools for handling
complement relations.

How, then, should companies decide which approach

to use?
3 factors, play significant roles in determining the relative
value of hard and soft power:
Capacity

Variety

Hold up
 Capacity
Hard power:
- By and large, exercise hard power success fully requires
extensive resource.
- Ability to make direct payments or coerce complementors
depends heavily on such assets as a leading market position,
strongties to other essential partners, and stockpiles of cash.
- Effective use may not lie within every companys grasp.

Soft power:
- Offers more options to smaller firms that lack the deep
pockets of a major corporation.
- Weaker players may even have an advantage.
- Potential partners are often more willing
to work with them.
 Variety
Hard power:
- Concentrate on one or a few complementors and focusing
on attaining the perfect product or service match.
- Key lies in consistently maintaining the upper hand in
any one-on-one relationship.

Soft power:
- Often relies on the creation of public goods, which can be
extended to additional complementors at little or no cost.
- Sharing a strategic vision with more rather than fewer
partners, for example, makes it more compelling, not less.
Similarly, strategic commitments to reduce
complementors risks, can often be extended to multiple
partners without becoming less effective.
 Hold up
If the products to become a good match,
potential partners must make large, irreversible, and
highly specific investments, they are bound to be
more wary of getting trapped in relationship that
could go sour.
Hard power:
- Higher cost as complementors seek reassurance
that committed to making the relationship work.

Soft power:
- Particularly measures to reduce risk.
- Building trust.
 Combining hard and soft power
Apple opened the iTunes store in 2003, it relied primarily on
soft power
Cajoling music companies into making their libraries available.
It reduced the risks by offering safeguards against piracy.
When Apples contracts came up for renewal, it turned to hard
power. iTunes had capture 80% of the market of legal
downloads, which gave Jobs the upper hand. The music
companies were receiving between 60 and 70 cents per
download, wanted more.
Though iTunes Music Store could double or even triple their
download revenues and profits.
But Jobs was determined to keep the price of a download at
99 cents and to maintain Apples margins. Given iTunes
dominant position, the music companies had no choice but
relent.
Combining hard and soft power
(contd)
Conflict among complementors is inevitable.
Even most successful partnerships are never
trouble free.
Try to create win-win scenarios.
But together, hard & soft power can help
companies manage the dark side of
complementor relationships and take full
advantage of the opportunities that cooperation
should create.