Strategic Alliance And First Mover Advantages In Business: Lessons Learned
Six Degrees’ Failure in Social Networking
Six degree was a social networking site which was based on a concept which is popularly called as “Six degrees of Separation”. The concept implies that all the living things in the world and everything else are six or fewer steps away from each other so that a chain of “a friend of a friend” statements can be made to connect any two people in a maximum of six steps (Ellison, 2007). Based on this social study and a scientific phenomenon Andrew Weinrech thought of leveraging the growing penetration of internet and people curiosity of connecting with one another. Hence, six degree social networking site was created, it gained huge popularity in the past, but could not sustain it for a longer time as people felt that not too many people are interested in the social network, also it had limited functionalities for people (Gross & Acquisti, 2005). The people could just accept invitation or send invitation to other people, thus the site was doomed. Few years later other sites like Friendster & MySpace came in the ecosystem and addressed some more requirements of the growing internet population. None of them could live up to the expectation of the demanding consumer and in the end all of them had to close their businesses.
Meanwhile in the year 2004, Mark Zuckerberg and his team came up with Facebook, initially started as social network for Harvard, but year 2006 saw the company opening up the doors for the general public (Scott, 2017). Since then, Facebook has disrupted the ways people perceive social network. Mark Zuckerberg learnt from the mistakes of all the earlier companies, he rationalized why other social network failed to succeed and hence created a formidable strategy for Facebook to sustain in the market. Facebook was innovative right from the start and it kept on adding new things on the platform to make it engaging for the audience. In the initial days he kept Facebook away from the harmful effects of advertising and later as well, he never let the advertisement deflect the customers from serving news feed (Dwyer, Hiltz & Passerini, 2007)
It can be said that Six degrees was the first company to come up with the idea of a social network, however it failed to leverage the benefits of the first mover’s advantage. First mover’s is a term which is used to describe some competitive advantage an organization gains by bringing the first one to bring a service or product to the market. Being first helps a company to build a brand recognition and customer loyalty before any new player enters the market. It also gives the company a gestation period to improve the service before an incumbent enters the same business space. However, Six degrees could not live up to the hype it created once it entered the market, it garnered 3 million subscribers quickly, but post that it failed to innovate and hence quickly died in the business cycle. The tricky thing with first mover advantage is to capitalize on the growing market, understand the need of the customers and come up with solutions to engage with the audience. In absence of all the above elements, no company can take advantage of being a first mover.
The Success Story of Facebook
Facebook was smart, it clearly understood the market landscape, realized the needs of the customers and existing lacunae between the current solutions and the required solution. Based on the clear analysis Facebook created a platform which catered to all the audience. It did not stop after catering to the needs of the customers, but it kept on innovating to satisfy the unsatiated needs of the customers. He believed in consistent innovation throughout the business cycle. Mark Zuckerberg created the market for social platforms, Twitter, Pinterest; Foursquare etc. were created after the success of Facebook. Hence, it can be said that all the companies who are first movers in their businesses do not reach the heights as envisioned by them (Duggan, Ellison, Lampe, Lenhart & Madden, 2015)
- First movers have an additional responsibility of developing a brand new market; it has to bear the economic burden of creating and developing the market which the followers easily enter through. First movers have to conduct a lot of research before entering the market, and all this goes in vain if the company fails. At the same time, awareness is created which followers easily leverage(Vecchiato,2015)
- Followers, who enter the market just after the first movers can learn a lot from the challenges that first movers faced and hence can reduce the risk and avoid costly mistakes. Facebook learnt tremendously from Six degrees, MySpace, Friendster and finally after filling in all the gaps realized by the early movers he came with a comprehensive platform which was widely accepted by the people(Househ, 2016)
- First movers don’t have a ground for experimentation, there is a huge burden on them to do things right the very first time, and hence if they fail in delivering result at the very first time, people lose confidence in the company and then there is no coming back. On the other hand followers learn from it, adapt the changes, improve their business processes and move towards sustained growth(Carr & Hayes,2015)
- First movers are driven by the fear of missed opportunity and hence they launch a new product or service without sufficient market research, they don’t think at times if the market is ready for their product.
Based on the points discussed above it can be clearly said that, being a first mover is a great thing, but the level of preparedness for becoming a successful first mover has to be immense. Some of the successful first movers are Amazon & E-bay in the internet space. Six degrees was a great concept, based on a proven theory, but the founders did not have a vision to process it further, they did not have futuristic thinking, they could not envision the demand of the consumers after giving a platform for social interaction, thus the company failed. Facebook on the other hand, realized the mistakes other founders made, hence went on the path of constant innovation in its product and thus made Facebook as the largest social networking site in the world.
Edward Lanphier was the man who founded Sangamo Biosciences in the year 1995 with the purpose of developing Zinc-Finger nucleases (ZFNs), a technology which could edit the genetic code of a living individual to correct genetically based diseases or to confer genetic resistance to non-genetically based diseases. Sangamo was a big respite for patients suffering from terminal illness from the diseases like Huntington, Haemophilia and so on. But the problem with Sangamo was that it was unable to conduct the R&D out of its free will, it was reliant on the grants from institution, none of its products were fully developed and in the pharmacist labs, thus despite achieving breakthrough in the technology, it could not achieve much.
It has been pointed in the case study that Drug development is extremely expensive and risky at the same time. In some of the studies it has been indicated that it costs a decade of time and over $1.5 Billion to bring a drug after all the checks, FDA approvals into the market. Also, the statistics are not fairly conclusive in calculating the cost behind creating one drug, because in the process many failed drugs go through the litmus test and thus the fair estimation of development of a drug would be much higher than $1.5 Billion. Studies further suggested that the cost of clinic trials is the major cost component in the drug development. Sangamo was going through a bad shape and had no idea how the firm can expedite the process of dug development and contribute to the society.
Advantages and Disadvantages of First Movers
A ray of light was showered on to Sangamo when Biogen Idec, a Cambridge based company with almost $10 Billion in revenue was excited with the product of Sangamo and wanted to enter into a partnership contract with the firm. The terms & condition of the deal was pretty much favourable for Sangamo, Biogen promised to give Sangamo $20 Million upfront and Sangamo would be responsible for doing all the R&D on the treatments until the drug was proven to work on humans. Further, Biogen would take over, conduct the drug trials, take care of the marketing, manufacturing activities and pay somewhere around $300 million in royalties to Sangamo, seemed to be a win –win deal for Sangamo and Biogen. In the following year another UK based company, Shire AG striked a similar deal with Sangamo with more or less the same conditions. Hence, creation of strategic alliance was pivotal in pulling Sangamo out of the troubled waters. In the modern day scenario, creation of strategic alliance is extremely important. In sectors such as biomedical, it plays a more important role due to the huge cost involvement in the R&D.
Strategic alliances are an agreement between two or more independent companies to cooperate in the manufacturing, development or sale of products and services or for the fulfilment of other business objectives (Albers, Wohlgezogen & Zajac, 2016). There are different ways in which the company can get into strategic alliances.
Joint Venture: It is created when the parent company establishes or creates a new company for the fulfilment of the joint objectives (Rothaermal, 2015)
Equity strategic alliance: An equity strategic alliance is created when one company purchases a certain equity or percentage of share in another company.
Non-Equity strategic alliance: This type of alliance is created when two or more companies sign a contractual agreement among themselves to pool the resources and capabilities together and fulfil certain objectives (Zamir, Sahar & Zafar, 2014). Sangamo was in non-equity strategic alliance with Biogen & Shire AG.
There are a plenty of reason why company get into strategic alliance, for example, in the purview of the case study the reason for strategic alliance was that Sangamo required funds to develop the drugs. Certain other reasons for the alliances are:
Slow cycle: Pharmaceutical companies are the biggest repositories of slow cycle, slow cycle can be inferred to the industries whose competitive advantages are shielded for a relatively longer time, thus require the need of forming alliances (Grant, 2016)
Sangamo Biosciences’ Partnership Strategies
Standard Cycle: In this type of cycle company launches a new product every 5 years and hence may not be in a position to maintain the position of leader in the industry. Thus, this type of alliance are created to gain market share, push out other companies out of competition, pool resources for large capital projects and establishing economies of scale(Hill, Jones & Schilling,2014)
Fast cycle: In this type of cycle, company’s competitive advantages are not protected and companies are operating in a fast product lifecycle.
Sangamo falls in the standard cycle as drug development takes time and thus it formed partnership agreement with other companies.
Strategic alliances are not always fruitful; there are times when it puts forward challenges in the contractual agreement. Some of the challenges which can be identified are:
- Partners misinterpreting what they are bringing to the table, they might communicate something but their hidden motives might be different, hence a good research has to be done before getting into a partnership.
- Sometimes partners overcommit, but later when the deeds of the alliances have to be honoured they take a backseat, losing the entire purpose of getting into an alliance and in the meanwhile time gets wasted in the process.
- The meaning of alliance creation is when one partner can use the resources and capability of the other partner, but there are chances when one of the partner is not in a position to use the complementary resources effectively, thus ruining the purpose of the strategic alliance.
It is no doubt that strategic alliances help the company to pursue their goals quickly, leveraging the resources and knowledge of the other party. An alliance can also provide easier access to new opportunities on the block and a low barrier to entry. Sangamo’s troubled went away when the big giants came forward to help the company, because it was win-win for both the firms. Biogen and Shire would get a chance to market, manufacture and develop the drugs, keeping all the revenues in hand, at the same time Sangamo would be the one responsible for creation of life saving drugs.
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