Strategic Alliance Advantage and Disadvantage

The strategic alliance has long been a niche strategy in the traditional business world – often talked about and rarely used. In the online business world, the strategic alliance is very popular. Let’s take a look at the primary advantage and disadvantage of this approach.

Traditional Strategic Alliance

A strategic alliance occurs when two or more businesses form an alliance to pursue a business goal. Consider the auto industry in the United States. The automakers are always looking for something that will differentiate them from their competitors. How do they do it? They find accessories that the can offer on an exclusive basis.

Sirius Satellite Radio is the dominant satellite radio service in the United States at the moment. That being said, it has to compete with internet radio and other groups for the attention of consumers. Its goal is to get in front of as many people as possible, so it is constantly looking for opportunities to expand its reach.

In a classic strategic alliance, Sirius started teaming up with the automakers to provide satellite radio in their cars. Sirius wins be getting a larger market share, and the automakers gain by offering something unique to potential customers. This outcome is a classic characteristic of a strategic alliance – both parties benefit.

Online Strategic Alliance

The strategic alliance may be somewhat rare offline, but it extremely prevalent in the online business environment. For instance, an affiliate program is a modest form of a strategic alliance. A company has a product or service it wants to sell, and an affiliate has traffic it wants to monetize. Through the alliance, the company obtains additional sales, and the affiliate generates money from their traffic.

When we talk about online strategic alliances, however, we are not talking about affiliate agreements. Instead, we are talking about agreements between two very successful companies. The classic example is a company that has something it wants to sell aligning with a business that controls a large amount of traffic or has a large mailing list.

Advantage

The primary benefit of a strategic alliance online is the ability to leverage assets you don’t own. Let me be blunt. Most businesses that have mastered marketing tend to make less than stellar products. Conversely, companies that make excellent products tend to be a bit clueless when it comes to marketing. The marketers and developers can combine their strengths to maximize revenues.

An example can show how this works. Let’s assume I create an excellent program for making and uploading videos to YouTube for small businesses. Unlike other programs, this one is incredibly easy to use and organized so that even mom and pop outfits can make a useful video for their company.

I just need to figure out how to market my program. I could go ahead and pay for advertising or try search engine optimization, but those are expensive propositions that may or may not work. A better choice is to look for a business or person that has a big list of people looking for help regarding making money online. This person already has credibility with their followers. If I can get them to promote my product to their list, I can make a ton of money in a matter of a day or two. In trade, I will give up a piece of the sales price to that person for each sale. Each of us wins, which is the best outcome.

Disadvantage

Strategic alliances certainly come with inherent difficulties. Perhaps foremost of these disadvantages is the fact one party that handles all of its business internally must now rely on a second party. If the partnering party has hidden agendas, less enthusiasm for the project or sees its priorities change during the term of the agreement, the project will suffer. Collateral damage will then arise in the form of negative alliance performance and potential career derailment of those working on the project.

Companies small and large often have difficulty in their first strategic alliance ventures for another reason – loss of control. Lawyers often describe strategic alliances as a form of marriage as mentioned in the video above. Marriages involve a good bit of give and take. The same is true for business alliances. This process can be a bit of a shock to a company entering into its first alliance as the decision-making process morphs from a one party to two party foundation.

While negotiating such parameters as part of the strategic alliance agreement is critical, no agreement is going to be able to cover the flowing nature of a business relationship. A party entering an alliance for the first time must mentally prepare for the control issue. At the same time, an experienced party entering such an agreement with a “first timer” must recognize a certain amount of patience may be necessary to further the relationship.

As an attorney with 20 plus years of experience, I would be remiss in failing to mention a fact that has a significant influence on the success or failure of strategic alliances – ego conflict. Unless you’ve spent the last 40 years in a cave meditating, you and the rest of your team have egos as does the management team of your strategic alliance partner. The question is whether the egos are of sufficient size to create a conflict that torpedoes an alliance before it has any chance to succeed.

A well-planned strategic alliance negotiation will include a due diligence review of the individuals each company will allocate to the day-to-day running of the alliance. There is no bright line test for determining compatibility. One can, however, usually bring the individuals together to discuss the parameters of the potential project. This open discussion will often reveal any conflicts that may imperil the alliance with appropriate staff changes being made after that.

Written Agreement

It is vital that you enter into a written agreement when forming a strategic alliance. The parties must define in writing how the relationship will function, the decision-making process, how long the relationship will last and how it will wrap up in an orderly fashion. Which party will own any of the new materials produced [advertising materials, site pages] during the alliance once it ends? Can the other party continue to use your name? Can you continue to use theirs? There are many issues that need to be addressed, so a win-win alliance doesn’t become a lose-lose situation.

Should you consider a strategic alliance as part of your online business strategy? Absolutely. Contact me to learn more.

Richard A. Chapo, Esq.