It was to be the “world's first fully integrated media and communications company for the Internet century,” a colossus with top-flight media brands and unparalleled Internet access. A triumphant press release declared it “an historic moment in which new media has truly come of age.”
Within a short time though, the AOL-Time Warner partnership was a punchline and a cautionary tale. Less than two years later as ad dollars disappeared, AOL took a jaw-dropping $99 billion write down.
A dozen years later, anyone can see why the merger was a bad deal for Time Warner: AOL specialized in dial-up Internet and the world was quickly moving to broadband. As Google gained momentum, the idea of a walled garden for Internet surfing wasn’t appealing to most.
We can laugh off such judgment now with the benefit of 20/20 hindsight, but in real time it’s often difficult to discern when you’re making what could be a sour partnership deal. Everyone wants a “win-win,” but often it’s a win-lose or lose-lose instead.
How can you avoid making the equivalent of an AOL-Time Warner deal for your company?
Here are four key considerations to bear in mind:
1. Ask ‘are we both getting something out of this?’
Partnerships can often be very one way. A good example of this is in the software world. If you build your company on another company’s API, then you are effectively at their mercy. It’s never a good idea to build your house in someone else’s backyard, so to speak.
For example, DataSift, a data analytics company that based its business at least in part of the use of Twitter’s “firehose” of data, was “blindsided” when Twitter decided to stop providing such data to third parties in April. That was just the most recent instance in which Twitter left outside developers in the lurch.
Sometimes such partnerships pay off, but in such unbalanced arrangements, it’s important to know that you’re taking a big risk.
Conversely, if you are taking advantage of a partner, it may seem like a good deal in the short term, but it won’t be long until your partner lets you know that the agreement isn’t working.
2. Do some research on your potential partner
This should go without saying, but human nature is to avoid exploring a potential partner’s dark side when a deal seems to be in the offing. Instead of counting the money that you might make if the deal went through, do some research on whom you are partnering with.
Even smart tech companies fall down on this task. In 2013, for instance, GetGlue called off a proposed merger with Viggle, another player in the social TV space, after it got a closer look at Viggle’s numbers. The deal was contingent on Viggle raising $60 million, which it had difficulty attaining.
3. Think strategically and avoid jumping in too soon.
The temptation to consummate a deal can be strong. That was the case with AOL-Time Warner. As Fortune recently pointed out, a lot of people thought the deal was brilliant at the time. Rival media execs were worried that they would be left out of the digital revolution.
What they failed to see was that AOL’s advantage was transient. Just 3 percent of households had broadband at the time. Yet no one foresaw that broadband had the capability to go mainstream.
Similarly, we can be blinded today by viewing digital-savvy firms as holding a permanent advantage. Technology moves so fast though that their lead can be quickly erased. If there aren’t strong fundamentals in the company as well -- such as the company’s management or relationships -- then you could be making the same mistake.
4. Execute the partnership the right way.
Before the ink on the partnership docs is dry, it’s typical to want to press full steam ahead but doing so is not without consequences. Instead, after the docs are signed, convene internal stakeholders to ensure a coordinated effort in light of the overall strategy for your company and how this partnership fits in relation to other initiatives the company may have. Then, figure out how that should be messaged to the partner or, better yet, meet with the partner to coordinate the launch strategy and timing directly. It sounds easy (and obvious) but executing on the partnership in the right way and with the right timing is just as important and signing on the right kind of partner.
A great example harkens back to 1994, when Quaker bought Snapple. The deal made a certain amount of sense on paper, but there was little synergy. While Quaker’s products were distributed via supermarkets, Snapple’s were sold in convenience stories, a category in which Quaker had scant expertise.
Ensuring there is a clear execution plan for the partnership in terms of key personnel, timing, resources, and how the partnership fits relative to each party’s respective overall corporate strategy will setup the partnership for success.
Likely your partnership deal won’t go the way of AOL-Time Warner’s. You do stand to lose money, time and sleep, however, if you don’t go into it with the right mindset. Partnerships are often wonderful things. They can make both firms stronger than the sum of their parts. Before you pop open the champagne, though, it helps to keep a sober outlook.