Asymmetric war can be confusing, my friends. Sometimes what looks like a win may in actual fact be a lost opportunity. In the high stakes world of technology M&A, multi-billion dollar exits are typically celebrated as victories. However, retroactive analysis of such ‘victories’ with one’s asymmetric marketer’s cap (or helmet) on can sometimes reveal a different reality entirely. By way of example let’s look at the rather nebulous case of Netscape. Founded in 1994 by Marc Andreesen and Jim Clark and sold to AOL for $4.2 billion in 1998, Netscape is the poster child for hi-tech success. Or is it? Perhaps not. Consider the facts: Netscape went from establishing and dominating one of the most significant product categories (internet browsers) in the history of information technology to having their market viciously and meticulously co-opted by late entrant & noted asymmetric marketing veterans, Microsoft. Their Navigator product has gone from a near 90% market penetration in the mid ’90’s to less than 1% today while Microsoft’s Internet Explorer enjoys a 50% share. In hindsight, Andreesen & Co’s propensity for stating that their browser was going to be “the OS of the future” may have been ill-conceived. By explicitly threatening Microsoft’s second most important revenue stream, they essentially gave them no other choice but to enter and, ultimately, lead the market.
What if these guys had worked with the enemy, instead of against them? What if Netscape had allied with Microsoft to exploit the near limitless synergies exposed through the marriage of their browser and Windows? If you are a reader of this blog you know that Netscape would then have been exercising creative symbiosis and co-opting Microsoft’s momentum from within, leading to…. Who knows? Netscape morphing into a platform and crushing Windows? Possibly. Speculation aside, the fact is that, despite a respectable and highly lucrative result for the Netscape team, there might have been potential for so much more.
Given the vertiginous drop-off in popularity of Navigator, one would think that the Netscape story might serve as a cautionary tale to other aspring software superpowers. It seems not. I recently discovered another, more contemporary example of an organization that failed to see the potential of an alliance with a superpower. As part of some research that I was conducting into the economics of SaaS, I had the opportunity to view a keynote given by Josh James, CEO of Omniture, a leader in the web analytics space. While James is clearly a visionary and his company is much admired, it was clear to me from listening to his speech that he is not an asymmetric warrior. “We can take nothing for granted”, he said,”there are many new entrants into our market including one whose name I cannot reveal. Ok, I’ll give you a hint… Their name rhymes with Schmoogle!” The moment I heard James taunt Google, titan of web advertising and burgeoning superpower, I knew that Omniture was not going to be independent for long. In another interview he did with Google for CNBC, James overtly questioned the utility of search in predicting buying trends, a clear challenge to Google’s supremacy in this highly strategic area. Within a few months, Ominiture was snapped up by Adobe for $1.8 Billion.
So what’s the problem? Omniture got a respectable valuation (6x revenues), their investors got paid and Josh is probably now driving a Porshe 911 up the winding road to his 60 room mansion and plotting to buy the Utah Jazz, or something. Still, I can’t stop myself from wondering if they might not of had an opportunity to be a massive SaaS aggregator in their own right, had they only taken the time to situate themselves in the software superpower continuum. Their technology is rock solid, often described as the ultimate instrument panel for internet marketers. They not only have an excellent engineering organization but also made several astute acquisitions over the years, leading to the deepest product portfolio in the space. The only thing they lacked was the kind of momentum that could result in the ultimate prize: true cross category leadership. Some folks, myself included, might be inclined to contend that it was there for the taking.
Hypothetical situation: suppose, sometime earlier in their history (just after the IPO, say) Omniture had taken the time to identify the superpower on whose strategy they were most likely to have a tangible impact. I feel pretty confident that this investigation would have led them to Google (after all, how many true superpowers are their in internet advertising and analytics?). I also feel it is likely, given the then complementary nature of Omniture and Google’s offerings, that there would have been sufficient synergies to support the formation of an alliance. Such a partnership would have essentially put the Google marketing machine and distribution channels at Omniture’s disposal. Talk about co-opting momentum from within! Imagine a bundled co-branded Google/Omniture service inclusive of click acquisition, monitoring and optimization! Sounds like a winner, doesn’t it? Instead Google, feeling that their core business was threatened, decided to release their own analytics service and the threat of co-optation proved to be to much for Omniture who sought out the safe embrace of another giant of the internet: Adobe.
As I type this, I can hear the outraged backlash in my head. “Netscape was a pioneer, the Mosaic browser changed our lives permanently! You idiot!”, “Omniture was an awesome company, man! You know nothing!” Look, I know all about these companies’ respective pedigrees. I’m a massive fan of both organizations. I love ’em, really, I do! However, I also sometimes wonder if these businesses had recognized from the start that single category leadership fundamentally imperiled their independence, if they had seen that there was possibly enormous capacity and momentum at their disposal were they were prepared to partner instead of go it alone, might they not have ended up as something more than mere acquisitions?