Corporations join forces against competition from Silicon Valley

Corporations join forces against competition from Silicon Valley
16.12.2019 Rainer Wiedmann
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John Deere and Claas, Daimler and BMW, but also Microsoft and Sony. Large corporations are increasingly working together to respond better to the enormous innovation pressure of the Economy of Things that stands for the digitization of products as well as the raise of usership and subscription models. But both the large technology groups and agile start-ups in Silicon Valley often have more innovative power to implement the new products and business models more effectively. In addition, they master the platform business, which is essential in the Economy of Things and very asset-light. Therefore, it can be implemented quickly. For example, Uber does not have a large vehicle fleet and Airbnb does not have huge hotel complexes. This is a major advantage over asset-heavy groups such as BMW. And last but not least, many newcomers are equipped with large financial resources and can afford to write losses without being punished by the stock exchange.

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Why do large corporations are working together in the EoT?
Source: iq! Management Consulting

John Deere and Claas, Daimler and BMW

In the future, agricultural machinery manufacturers John Deere and Claas will connect their smart farming systems via a data interface. At the same time, they offer all other industrial partners the opportunity to network with them as well. The customer controls the systems via the preferred portal, but can access the data of the machines of all participating manufacturers. Thus, they are creating the first manufacturer-independent cloud-to-cloud solution in agriculture.

Daimler and BMW intend to cooperate more closely in the future and generate savings potential in the billions. The car sharing services have already been merged and a decision was made on the joint development of autonomous vehicles. However, there should be more far-reaching plans with regard to the development of further models, especially in the electrical sector.

Volkswagen and Ford also announced to work together in the areas of electric mobility and autonomous driving.

Microsoft and Sony cooperate in the areas of streaming, artificial intelligence and chips. Together they want to develop interactive content and cloud services. They will benefit from each other’s strengths. In addition to new competitors, they want to position themselves in particular against the cloud market leader Amazon.

Why do so many large corporations pool their resources?

The future holds great challenges for all industries. One of the main reasons is the increasing importance of the Economy of Things and the emergence of usership models. In the automotive sector, for example, these challenges can be summarized under the buzzword “CASE”: Connectivity, autonomous driving, sharing and electrification.

These future technologies entail enormous development costs that are to be spread over several shoulders. In this way, corporations can generate saving potential in the billions. In addition, there is often a great loss of time to innovative players that are already well advanced. This innovation gap must be filled as quickly as possible.

In addition, competition from large Internet companies is becoming increasingly noticeable in many industries. Apple, for example, checkmated the music industry several years ago with iTunes. In the area of autonomous driving, Google with Waymo is already several lengths ahead of the automobile companies. CarPlay and Android Auto show OEMs what comprehensive connectivity offerings look like.

But not only Apple and Google, but also new competitors are making life difficult for the large corporations.  Tesla, for example, has already gained a lead in e-mobility. And companies like Uber and Lyft are currently revolutionizing the mobility market in the area of ride haling.

A major threat for traditional, asset-intensive companies are agile platform businesses that cover parts of customer demand without the need for capital-intensive production. Often these are marketplaces that function as C2C models and reach enormous user numbers. As a result, these platforms receive customer data of immense value. Examples include Uber in the area of Ride Haling and Airbnb as hospitability marketplaces.

Customers demand digital solutions that work across manufacturers, are exclusively customer-oriented and contain usership approaches. In this respect, individual manufacturers find it difficult to define an appropriate solution. This is easier to implement in a cooperation.

Conclusion

Large companies of the “Old Economy” do well to join forces in order to defend themselves against the enormous competitive pressure of the technology giants and newcomers. In order not to lose the grip and to dispute the positions in the Economy of Things version of their industry, they have to pool budgets, resources and innovative strength. At the same time, the vanities of the own brand and its technical features must take a back seat for the sake of securing market share.

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