Corporate co-dependence: when good partnerships go bad
One of the biggest surprises in Facebook’s IPO filing was that it depended on game-maker Zynga for 12 percent of its sales last year.
In 2010, the online game company famous for “FarmVille” and “Words With Friends” nearly declared war with the social network over a change in Facebook’s policy involving credits — the currency Zynga players use to buy virtual goods. Facebook wanted to take a 30 percent cut of transactions.
Bing Gordon, a video game veteran, Zynga board member and partner at Kleiner Perkins Caufield & Byers, described the standoff during the TechCrunch Disrupt conference in May as a Silicon Valley version of the Cuban Missile crisis, where Zynga was at one point prepared to walk away from Facebook.
Now that the importance of their relationship is out in the open, it is clear that it is the best interest of both companies to work together when it strikes a new agreement in 2015.
Zynga and Facebook are not the first mutually dependent companies which sometimes come to blows. Here’s a look at some famously antagonistic business pairings starring the likes of Microsoft and Intel, SAP and Oracle and Netflix and Hollywood.
The interdependency of Microsoft’s Windows operating system and PCs running on Intel’s chips – which still accounts for more than 90 percent of the world’s personal computer market — was so powerful in the 1990s that the word ‘Wintel’ came to describe their joint hegemony. The relationship has been beneficial to both, but strained by running disputes since the mid-1990s over compatibility of Microsoft’s code with Intel’s chips. Microsoft’s occasional co-operation with chip-maker AMD and Intel’s decision to supply chips to Apple further tested the relationship.
Japan’s Sony Corporation and German Bertelsmann AG quickly merged in 2004 in an attempt to fend off the music business’ secular decline. It was purely economically driven and didn’t take into account the clash of cultures between the companies. Internal politics resulted in constant infighting between the two sides. The 50-50 joint venture ended after Sony completed its purchase of Bertelsmann’s stake in December, 2008.
Cable industry and programmers:
The so-called retransmission fee debate has led to high profile blackouts of local TV stations in the last few years after contract negotiations between pay-TV companies and broadcasters broke down over payment terms. A lot of the fighting is over the high cost of sports programming rights, which have skyrocketed in recent years. Cable operators are fearful of having to pay when the fees increase or pass it on to customers.
Hollywood is starting to embrace Netflix as a new source of revenue, which they need after Netflix sparked a huge decline in their DVD sales. Moreover, some premium cable channels like Time Warner’s HBO have emulated the Netflix model and launched their own online streaming portals. HBO also stopped DVD discounts for Netflix early this year. This interdependency and competition is redefining the landscape of the home-entertainment market.
SAP is one of the biggest sellers of the Oracle database and the vast majority of SAP customers use Oracle database. Yet the tech giants are arch rivals in business and have fought fiercely in high-profile court cases. In 2010, Oracle won a $1.3 billion federal jury award against SAP, which is believed to be the largest- ever for copyright infringement.
The Ford Motor Co and Firestone tire company were closely entwined as families and pillars of the auto business, but fell out in the early 2000s over a rash of SUV rollovers which Ford blamed on the failure of Firestone tires, and Firestone blamed on Ford’s top-heavy vehicles. After a massive product recall and a number of lawsuits, the two severed relations, ending a 100-year partnership.
Burger King and its franchisees:
Fast food chain Burger King and its franchisees have historically shared a contentious relationship with frequent clashes over pricing of products and royalties. A group of Burger King franchisees sued the company over its 2009 decision to set the Value Menu price of its Double Cheeseburger at $1, a move operators said hurt profits. The group dropped the lawsuit after Burger King granted franchisees the power to set prices for the fast food restaurant chain’s cheaper items.
(Reporting by Liana B. Baker, Bill Rigby, Jennifer Saba, Malathi Nayak and Peter Lauria)