Have Partnerships & Acquisitions Become a Necessary Evil in CE?

Looking back at all of the companies that have either partnered up or followed through with a complete acquisition, I'm wondering if this activity has become a sort of necessary evil in the consumer electronics space. Do these companies need to join forces in order to remain competitive within the market, or are the moves made strategically in an effort to boost profits?

The latest company to join the rumour mill of acquisitions and partnerships is D&M Holdings, the parent company to brands like Denon, Marantz, and Boston Acoustics. The company is reportedly auctioning off a major stake, and several sources cite that current bidders include mammoth retailer Best Buy (yes, you read that correctly), Merrill Lynch, the Advantage Partners LLP, and, most recently, a joint bid with Kenwood and Bain Capital. The press section of the D&M Holdings Website states that “recent press reports concerning the potential sale of D&M shares is not based on any information provided by the company.” When contacted, D&M Canada said that the company had “no official announcement to make at this time.”

Although that information is merely based on speculation, Blockbuster's recent bid for Circuit City is indeed true. As mentioned in a previous post, this move was in an obvious attempt to revitalize a business that has been experiencing tremendous pressures as of late. Blockbuster likely hopes that, in combining its DVD rental business with Circuit City's consumer electronics hardware offering, it can become a sort of one-stop-shop for consumers.

Back to the manufacturing side, it appears that many partnerships are forged in an effort to remain profitable rather than gain additional profitability. Take the flat-panel arena, for example, where companies like Toshiba and Pioneer have partnered with Sharp on LCD TV initiatives (with both companies also providing specific technologies and expertise to Sharp). Pioneer also recently announced it would outsource plasma panel manufacturing to Panasonic, while Philips has inked a similar deal with Japanese manufacturer Funai. The reasons for these partnerships are obvious: reduced costs, simplified manufacturing process, and the need to keep up with the increasingly competitive market. Flat-panel pricing has come down tremendously over the years, while new entrants are being added to the foray by the dozens. Will we reach a point where all TV brands eventually lead back to just one or two factories?

In the audio manufacturing arena, Canadian manufacturer API, maker of the Mirage, Energy, and Athena Technologies brands, was acquired by Klipsch Audio Technologies back in 2006. In many cases (like this one) the acquired brand or company remains an independently-operated entity. Was the acquisition made to strengthen the brand? After all, API is one of the biggest speaker manufacturers in the world!

The list goes on and on. In some cases, partnerships are indeed made to strengthen a company/brand by utilizing resources that the other can provide. In others, it's to "take out" the competition. But it appears that, as of late, we're seeing more and more traditionally considered "competitors" looking at one another and saying "I need you and you need me. We can't do this alone."

Whatever the reason, is the competitive nature of this industry in danger?

Should Microsoft Buy Yahoo!?

Last week, Microsoft placed a whopping US$44.6 billion offer to purchase shares of Yahoo!, which has been struggling as of late due to stiff competition from companies like Google and YouTube. In December 2006, Yahoo! underwent a major reorganization, and recently, it has been rumoured that hundreds (or even thousands!) of jobs could be cut from the company. So when Microsoft swoops in with a major bid that likely no one else could (or would!) attempt to beat, is this the Golden Ticket Yahoo! has been looking for? More important: will this spell disaster for consumers everywhere?

It's no secret that takeovers are essential in this industry for a number of reasons. Sometimes, it's to build capital in order to invest in things like R&D to create the amazing products we see today. Other times, it's to help effectively compete against major powerhouses: two (or more) heads are better than one, right? Other times, it might be a mutually beneficial relationship, where each company can compensate for a particular weakness by utilizing the strengths of the other. But many times, the reason is the sheer need to be number-one, and take out anyone in your path.

Before you jump to conclusions, I'm not saying this is Microsoft's intention nor motivation. But the bid wasn't exactly a "hey, we'll throw a bone out there and see the reaction." It was a move that would almost definitely obliterate all other bidders, and dangle a carrot in front of Yahoo!'s eyes that might just be far too tempting to resist.

Microsoft already owns plenty in the online arena; and we all know about its dominance in computing. The company recently made sure it had a major foot in the door of the growing social networking world by securing a US$240 million stake in popular Website Facebook.com. If Microsoft combines forces with Yahoo! as well, what sort of "competition" will be left?

Sure, Google isn't an "innocent" party in this equation, owning major properties like YouTube, and online advertising behemoth DoubleClick. But at what point will it become absolutely impossible for any company to get their foot in the door, and the power be placed in the hands of too few?

Many argue that we see the same sort of problems in the cellular phone industry in Canada, where three main carriers dominate, only one of which operates on the worldwide standard of GSM. However, the opening of the wireless spectrum to new entrants this coming May could change this. Meanwhile, the ongoing debates about a potential merger between satellite radio providers Sirius and XM in the U.S. lead to the same antitrust-like issues.

Bottom line: acquisitions and combining forces certainly help to advance technologies in ways that one company might not be able to accomplish. But we have to draw a line somewhere.

On that note, I always laugh at friends or family that want to "boycott" a particular brand because of a bad experience. Half the time, the brand they decide to go for instead is actually owned by the same parent company, showing that their efforts are, quite frankly, futile. The sad truth is that there are so many conglomerates out there, that the company that makes your socks probably also owns the place where you had dinner last night, along with your favourite shampoo. Business is business, of course. But competition is what adds to the excitement, and leads to continual innovation.

Should Sirius & XM Merge?

Should satellite radio providers Sirius and XM merge in the U.S.? This has been the question on many minds over the past few months, as the companies, their investors, and the Federal Communications Commission (FCC), go back and forth on the issue.

On the one hand, a merger would unify the two competing brands, allowing them to more effectively compete against other forms of music entertainment, which range from standard, terrestrial radio, to streaming Internet radio, digitally downloaded tunes, store-bought CDs, and even the relatively new HD Radio format. On the other hand, Sirius and XM are technically the only two providers of satellite radio technology in the U.S. (not to mention Canada), so a merger would see them effectively competing against, well, no one. Without competition, one really has zero incentive for providing attractive promotions and pricing.

According to SkyREPORT, several groups, including the Consumer Federation of America, Consumers Union, and Free Press, are urging the FCC to reject the proposed merger. I often find myself in opposition of large lobbying groups (like those that wish to impose a levy on hard drive-based music players or pretty much those in favour of stifling technological innovation in any way), but I'm actually on the side of these groups this time. Competition is good for the consumer and good for business. The satellite radio arena needs it in order to remain fresh, and work toward giving consumers a valuable reason to switch from standard radio to a paid, commercial-free service.

I do understand that, although Sirius and XM are the only two satellite radio providers in the race, they are technically competing with other services: terrestrial radio in the car, streaming Internet radio in the home, for example. In that case, they would indeed have to offer some sort of incentive in order to get customers to pay for their radio service, whether there was only one provider, two, or 20. But then we can take it one step further and say they're also competing with iPods, because these nifty players can easily dock in a car to playback tunes through the vehicle's audio system; and manufacturers like Sonos and Squeezebox, which provide hardware that makes streaming tunes throughout the home just as easy as docking your satellite radio receive with your stereo system. Where do we draw the line? More important, if a significant chunk of consumers get hooked on satellite radio, where, then, is the incentive to offer better deals that go beyond "commercial-free music"? Even though the companies would likely operate independently from one another, the bottom line is that, if there's only one provider, why bother with great promos that we might have otherwise seen in the market?

The situation can be likened to GSM phones in Ontario, which I've mentioned before in previous blog entries. If a customer wants to move to a new GSM carrier, his choice is limited to Rogers or Fido, the latter of which is owned by the former. Sure, a customer could always just opt for CDMA and go with another carrier altogether; but if he wants GSM for its world-roaming capability, or perceived better reliability, he has one option.

The groups cited above claim that a merger would "reduce the number of channels and formats available, and result in fewer cost-saving incentives." They add that without competition, the industry would see a "dramatic drop in spending on talent and retail". Here, here.

Can’t We All Just Get Along?

The one thing that frustrates me to no end about technology is compatibility, or rather lack thereof.

Take this example, which happened just last night, and in fact prompted this entry. I often e-mail Microsoft Word documents to colleagues only to hear footsteps trudging into my office shortly thereafter, and sullen faces explaining that they “couldn’t open it”. I don’t even need to think twice: I already know why.

I use the Vista version of Microsoft Office, while they use older versions or, *gulp*, Apple iBooks. By automatic default, all of my Word documents are saved as “Word Documents”. This sounds fine, but what it really does is save them to some strange file type called .docx that only the Vista version of Office can read. In order to allow an older version of Word to open my documents, I must scroll the drop-down list once I hit “Save As”, and manually select “Word 97-2003 Document”. Is this a weird attempt at forcing everyone to adopt Vista, or just a rudimentary work-around the fact that it isn’t compatible with older versions of the software?

Of course the issue of incompatibility isn’t just limited to PCs, but spans every area of consumer electronics: VHS and Beta, HD DVD and Blu-ray, AAC and MP3, and so many flash memory card formats that I can’t even keep track any more, to name a few.

Here’s another example: my colleague owned a mobile phone from brand X, which he absolutely loved. In fact, he loved it so much, that he decked it out to the nines with accessories: a 12V adapter for the car, optional headphones, and even a cute little desk stand/charger. About a year later, he decided to grab a new phone from this same manufacturer. As it turns out, the proprietary connector is different, which means all of those accessories? Hello, eBay!

I guess you don’t get full-on compatibility in any industry: I can visit any bank’s ATM and withdraw funds, but I can only deposit cheques into my own, for example. But when it comes to CE, where competition is brutally fierce, it would be nice to see the battle fought out after a single standard was agreed upon. Then, let the consumer choose which gadget he wants, and keep your fingers crossed that it’s yours.