In this economic environment, it’s time to dust off the Peachtree Media Advisors’ Strategic Partnership and Biz Dev products that were collecting dust in the back storage room.  This blogpost is the equivalent of a local merchant retailer bringing the umbrellas to the front of the store when it rains or the beach blankets and coolers (happy thoughts) in the summer time.  In order for digital media companies to survive and flourish in this economic environment,  it is a good time to put emphasis on developing strategic partnerships.

A few weeks ago, I had a conversation with a digital out-of-home CEO.  Prior to the call, I looked at his Web site and media kit.  My first reaction was, ”Wow, this company has grown a ton this past year.”  On our call, the CEO told me that he had developed strategic partnerships with similar companies with ad inventory in different markets.  This CEO called a meeting with his so called competitors and said, “Look, we are not competitors.  Yes, we have the same product (digital signage), but it’s in different markets.  The way I see it, it’s us against traditional (billboards).”  The strategic partnership allowed each company to sell the others’ ad inventory in different markets, which gave each company scale.  If one of them had their foot in the door at an agency, then why not sell more markets to the agency and appear to have a larger national footprint in the process?

Similar to acquisitions and mergers, strategic partnerships need to make sense.  When I look at acquisitions, I start with the end user.  The end user is always the pivot point in analyzing an acquisition.   The goal in any strategic acquisition should start with obtaining more of a particular end user’s money, spend or budget.  Typically, a parent company has a direct relationship with an end user and purchases a company that also sells products to that exact same person.  (This is also called a vertical market.)  By leveraging a direct sales relationship with that end user, the buyer can benefit from certain economies of scale associated with targeting that end user (advertising, sales infrastructure, marketing, back office, etc.)

Strategic partnerships and joint ventures also start with the end user, except both entities remain separately owned.  The primary reasons for partnering or establishing a joint venture are to reduce cost and share revenue.  Typically, companies that are direct competitors with similar products and end users partner to reduce costs (magazine racking, beer or soda distribution or transporting products to overseas markets).  Most strategic partnerships evolve from companies with different specialties or assets that would rather not try to recreate the partner company’s product or service.

Why Partner? 

Strategic partnerships and joint ventures can help companies create new products, reduce costs, penetrate other markets, develop a network to reach scale to survive, and generate more cash from selling someone else’s products or allowing someone else to sell their products.  Similar to a rugby scrum, strategic partnerships and networks allow companies to lock arms and cover more ground as a stronger unit than they could individually.  Whether it is bargaining power, reduced investment risk, reduced admin costs, improved service or improved performance, strategic alliances are an important aspect of corporate development and survival.

In an attempt to keep this blog post from being too long, I will discuss digital media partnerships in general as opposed to giving examples of other industries (airline, auto, beverage, snack food…) or specific digital media sectors, such as Internet, mobile, video, signage, interactive marketing services and many other digital media verticals.   Most digital media strategic partnerships involve either content, audience/traffic, technology or advertising revenue.  The objectives are even simpler – to produce more revenue or lower costs and risks.

In  digital media, strategic partnership agreements can be Content for Traffic (typical Yahoo relationship); Rev Shares; Content Production or Distribution; Branded Content or Sponsorship; Traffic (links); and E-Commerce (interactive marketing services/lead gen).    A digital media partner company has one of the following:  a technology or service that the other company does not have; access to a complementary audience or demographic group; direct relationship with advertiser or agency; and/or a distribution channel, application or unique form of media content.  In partnering, the relationship is mutually beneficial where each party sees a clear path to increasing revenue or reducing costs.

Structuring Partnerships

Strategic partnerships are similar to acquisitions, and both are comprable to human relationships.  An acquisition would be considered marriage and a strategic partnership would be living together while keeping your separate residences.  As in any relationship, there can be a beginning, middle and end.  The good ones last forever and the bad ones can fizzle out or end ugly.  In structuring a strategic partnership though, companies need to figure out how the relationship ends before it begins.  That is the ugly truth about structuring them.   

Structuring a strategic partnership is the easy part, since all it takes is planning and communication…executing them is the hard part.  Execution takes commitment and trust.  The partnership agreement should clearly articulate what each party is expected to input or contribute and describe the expected outcome(s) of those contributions in addition to each party’s ownership of that outcome.  The agreement should then discuss duration and the terms for extending the relationship.  Agreements also account for what happens when things do not go according to plan.  In a perfect world, companies would just take their equipment and go their separate ways.  If it were only that easy.

Executing a strategic partnership can be difficult because neither party wants to be caught putting more into the partnership than the other.  This is why the right combination of trust and leap of faith need to go into a “relationship.”  Neither party wants to be the one doing all the work or contributing much more than the other for an equal portion of the outcome.  Therefore, agreements have to clearly articulate what is expected from each party in terms of contribution (money, technology, traffic or content).  If those contributions are not met, then there needs to be some sort of discussion as to why, such as a clause that triggers a meeting or conference.  If the discussion, mediation or mending conference does not work, then the approved champions or officers of the partnership can enact the pre-planned steps to unravel the partnership.  This scenario can get squirrely when the partnership is a 50-50 joint venture or one party has put a significant amount of money into the partnership.   

Pitfalls and Drawbacks

Strategic partnerships are a means to reduce overall development and marketing risk, but with any business endeavor there is risk.  Strategic partnerships are no different and carry inherent relationship risk.  One party brings a knowledge-base to the table that reduces the risk for developing a product and introducing it to its end users, vertical market or overseas market.  Although business risk is reduced, relationship risk is added to the formula.  The best way to manage or eliminate relationship is to find a good strategic partner.  (By the way, this is where Peachtree Media Advisors can play an integral role.)

From my experience, the most risk in strategic partnerships is getting them off the ground (execution) or unravelling an unsuccessful partnership (divorce).  In getting them off the ground, trust and expertise are primary impediments to success.  One party does not see the benefit or feels that they are bringing much more to the table.  (Kind of like me and Michael Jordan playing a pick up game of basketball or playing a scramble with Tiger Woods.)  The most risk in unravelling a strategic partnership is one party has taken a free ride while another party has done all the work.  What might have been equal contribution in the beginning, can quickly turn into a free ride.  This is typical of upstarts using the dormant or shelved IP of a larger corporation.  A deal is a deal though.

When a strategic partnership is going well, it is easy to tell.  And as the saying goes, “If it ain’t broke, then don’t fix it.”  Both parties can ride the relationship into prosperity.

John Doyle