Remix Strategy by Benjamin Gomes-Casseres

Author:Benjamin Gomes-Casseres [GOMES-CASSERES, BENJAMIN]
Language: eng
Format: epub
ISBN: 9781625270573
Publisher: HarvardUP
Published: 2015-06-30T05:00:00+00:00

Intel, the Master of Partner Positioning

Intel has been the master at partner positioning in the last few decades. The general story of how Intel came to dominate the microprocessor business is well known, but the implications for alliance strategy are worth extra attention. Intel succeeded in flipping its position in its partner network from dependence to dominance. Industry conditions and trends helped, but this move was driven in no small part by Intel’s own strategy.

Let’s back up a bit for some background information. At the launch of the PC, IBM insisted that Intel license the design of the Intel microprocessor to a long list of major semiconductor makers, as well as to IBM itself. As a result, Intel competed with these licensees to supply one buyer, IBM. In this configuration, Intel could not capture much of the value created by its combination with IBM and Microsoft, even though the product line was growing rapidly. By one estimate, Intel earned only 30 percent of the revenues and profits of IBM’s microprocessor purchases, even though the chip maker owned the design of the chip.

Luckily for Intel, the industry was moving fast. Moreover, license deals for one generation of microprocessor did not carry over automatically to later generations. When the second generation of the Intel chip came out, Intel purposefully reduced the number of licensees to four, while launching an intense marketing and sales campaign dubbed “Checkmate.” Any doubt that Intel knew what it was doing on the chessboard of alliance partnerships should have been erased by now. Intel would try to reposition the chess pieces to gain bargaining power with its partners.

This was a risky move, but luckily for Intel, the industry had evolved to generate more rivalry on the buyer side of the equation. Soon after the launch of the IBM PC, Compaq had succeeded in reverse-engineering the system, that is, Compaq learned how to make a PC that worked just like the IBM machine, using Intel-designed chips and the Microsoft operating system. Compaq’s move gave rise to the proliferation of IBM PC clones, which created serious rivalry for IBM. The tables were being turned.

With the rise of the clones, Intel gained the bargaining power to refuse to license any other independent producers in later generations of its chips. Now in sole control of production and pricing, the company could triple its average selling price per chip. The rest is history. Intel maintained its dominance and sole position in one chip generation after the next, leading to a strong rise in profits and Intel’s market value.

To visualize the change in position that Intel engineered, consider figure 5-2. It shows how the configuration of options available to one party in a combination influences the relative bargaining power of both parties. Imagine that Company A (circle) needs resources (squares). It decides to form an alliance with, or to acquire, Company B (whose resources are shown as the black square). In addition, however, the resources may also be available internally (the white square), from

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