By Debra Goldfarb
Group Vice President of WW Systems and Servers
March 7, 2002 | One of the extraordinary aspects of the Bio-IT market is the notion of "scale": the scale of scientific discovery, and the possibilities derived from discovery; the scale of growth, which requires looking at multiple dimensions such as the number of biotech companies, VC investments, IT infrastructure build-out, etc.; and the scale of complexity, by which I mean the elaborate organizational ecosystems emerging in this market.
Clearly there is a growing web of partnerships and alliances within, and across, life science organizations. Interestingly, there is a parallel phenomenon among IT infrastructure providers targeting the life science marketplace. This latter ecosystem encompasses a broad set of players, ranging from suppliers of lab equipment, LIMS, applications, and bio-content solutions, to database, middleware, server and storage suppliers. Also included are large services companies, consultants, distributors and a host of niche solution providers.
My underlying assumption about this large and diverse community is that the whole is greater than the sum of its individual parts. In other words, IT suppliers cannot tackle this market alone. To be successful, they must enter into a range of alliances to enhance their product portfolios. However, identifying whom to partner with, and how to go about it, can be daunting.
To help provide perspective on these emerging sets of relationships, IDC has begun to think of them in terms of confederations, coalitions, and camps.
Confederations are the most tightly bound partnerships, and certainly the trickiest, particularly for smaller players. Typically, they focus narrowly on a particular application or process and require close integration of products—this produces high interdependence both technically and for success in the market. Confederations usually have a strong exclusivity component, which may allow them to charge a premium. In some cases, the confederation may include equity investments, or end up in an acquisition of a smaller partner by the larger.
One example of a confederation is the Rosetta/Sun/Oracle alliance. Here, the relationship is very tight; however, the exclusivity, which allows for focused product development and support, is also limiting for one of the partners. Rosetta chooses to work exclusively with Sun and Oracle, and has thus bound Rosetta's fortunes to the strength of the Sun and Oracle brands. Meanwhile Sun and Oracle are free to enter other alliances, which might be competitive with their work with Rosetta.
Confederations work best when two or more best-of-breed suppliers cooperate to dominate a niche, or have complementary technology paths that enable the confederation to evolve with the market. The challenges, however, can be significant, particularly when market and user needs change rapidly. Additionally, our data suggests that users often shy away from such solutions if the technology is proprietary. The bottom line: If you are a small player, be careful. While the potential benefits are enticing— particularly the lure of development dollars, technical strength and marketing leverage (especially if one of the players is a large OEM)—the downside can be devastating if the market suddenly shifts, or you choose the wrong partner.
Coalitions are much broader and looser than confederations, and typically focus on process-oriented elements of the drug discovery value chain. Coalitions can take on general tasks, such as creating frameworks to solve the data integration problem, or narrower projects, such as developing an integrated platform for sequencing and analysis.
Not surprisingly, coalitions are less likely to be exclusionary. Although they often involve formal public commitments to work together to achieve specific product or solution goals, they rarely involve equity investments in a partner. Within a coalition, certain partners may have joint marketing agreements, while others may participate only at the level of technical compatibility with published specifications. An example is the set of partnerships IBM is forming in the area of data integration, building on the Discovery Link and Web Sphere middleware components. Agreements with LION Bioscience, and Accelerys provide the basis for an interesting coalition, with hooks into many different databases and a foray into domain specific analytic applications.
Coalitions work best when their strategy—broad or narrow—is well-defined and drives the quality and comprehensiveness of the solution. When creating coalitions, it's important to attract key partners that possess unique capabilities and are also well-regarded by the target user-community. Locking these partners in will catalyze others to follow. Smaller IT suppliers should evaluate coalitions carefully before joining; however, they should also seek to participate in many coalitions since doing so can speed up their access to markets, particularly when aligned with key infrastructure suppliers.
Camps or communities are the least structured form of alliances; however, they have power because of their size and reach. Often driven by open standards such as I3C, Bio XML, Linux, and Globus, these groups are intent on guiding much of the underlying infrastructure in the life science sector. Camps are not exclusionary, and participating in one of these camps is often a precursor to becoming a major "legitimate" player in the market. Interestingly, when end-users are asked about their allegiance to specific standards, their answers are somewhat vague and non-committal. However, when queried about how they see their organizations evolving, they have a sophisticated understanding about the inherent need for standards—particularly when it comes to data integration issues.
For suppliers, participating in camps or communities is a cost of business. Vendors who align with one or more of these camps often gain strong brand awareness and recognition as a strategic player in the community. Sun has clearly gained notoriety from its participation in I3C and other standards organizations, and has built awareness among many of the key influencers within the life sciences community.
Debra Goldfarb is Group Vice President of WW Systems and Servers, IDC.