Digital Transformation » Technology » Partnering with Big Tech: the risks and rewards

How traditional companies fight to stay ahead in an age of ever increasing disruption is taking many forms. One approach has been to partner with technology specialists to create new types of customer interaction.

Take H&M Group, the Swedish fashion retailer which announced last year year it is developing H&M Home Stylist, a voice application from Google Assistant.

Described as a tool which “provides personal styling suggestions, mood boards and inspiration for every room in the home, using the Google Assistant to talk to H&M Home Stylist on your phone,” it promises an exciting new channel for the retailer.

H&M says the Home Stylist will be tested and developed with input from the group’s customers, reflecting the open-ended approach to development of the project. But what do experts think about the complexities around a traditional retailer working with a tech giant in this way?

Julien Levy, an affiliate professor of entrepreneurship and innovation and the director of business school HEC Paris’ Digital Center, says there are plenty of benefits from such a collaboration.

“The main purpose of H&M seems to be experimentation. First, they took the opportunity to apply agile methods, with a small dedicated and mixed team-working in a very short period of time on an innovative concept before validating and developing it, and this was done with Google.

“Second, they experimented a new way to interact with customers, using Google’s personal agent technology, and looked at the feedback and interest from customers, “ he adds.

Prof Levy says Google is both willing and good at developing application cases for their technology with corporate partners. Google Home, for instance, needs many compelling applications to be more than an Internet microphone or a fixed Siri which it is today, he says.

“It is noteworthy to observe that Apple does usually not partner with other companies: Apple has its own ecosystem, people or business that can plug into it, but a partnership (co-development) is usually never developed (unless Apple needs partners for their offer, i.e., the future Apple TV+),” says Prof Levy.

Garth Saloner, the John H. Scully professor of leadership, management, and international business at Stanford Graduate School of Business, says: “There is vigorous competition to be the IT hub of the home, with Google and Amazon being the front-runners. Amazon has the big advantage that they can offer access through Alexa to a very broad array of products.

“Through partnerships like this Google is trying to broaden its own ecosystem. For H&M this is a way to improve its online presence as brick-and-mortar stores struggle to compete as distribution channels shift,” he adds.

Prof Saloner says the rationale for H&M makes sense as no retailers can afford not to look outside the box when there so much disruption in their sector. “Firms that double-down on existing channels in the face of shifts in technology are likely doomed in the long run. As the landscape shifts so too must corporate leaders which requires flexible business models and cultures,” he says.

Tech challenge

Drill down a bit deeper and its possible to see why the relationship is so interesting to Google, which has had challenges developing the VA technology. “Voice assistants were supposed to be the next big thing two years ago. Astounding previsions were made about the share of ecommerce that will pass through this new channel, or how much additional revenues would be generated by Amazon Echo… Two years later, theses revenues evaporated: Echo enhanced sales are almost non existent and voice assistants are glorified Internet microphones. In other words: it is a tech in search of a business model,” says HEC’s Prof Levy.

“No one is to blame here: innovation is inherently risky and risk means: a high probability to fail. Market opportunities are found through multiple iterations. Voice assistants are a marvel in terms of technology and are getting better over time. They are going to have many uses but will probably remain marginal as an interface used by customers to order a product,” he adds.

There are plenty of similar relationships between traditional companies and tech firms. The telecom player Bouygues Telecom is a partner of Google, as its Bbox (a Bouygues box that enables their customers to connect to the Internet and get online TV at home) uses Android TV.

Bouygues is a large player in France but a very local player. It has neither the know-how nor the funds to develop and maintain an up-to-date box for their customers. “The company is therefore very happy to collaborate with Google, which invests in Android TV and which allows them to customize the interface (to create a ‘Bouygues experience’),” says Prof Levy.

Google’s interest is to collect behavioral data generated by Bouygues’ customers: for instance what they watch on TV and when, and how they browse the Internet on their TV set. “This kind of data is a not an issue for Bouygues and they are prone to share it. However, I am not sure that car manufacturers want to share their customer data with Google, nor give Android cars the lead in the customer experience of their drivers.

“Depending on the fact that data generated by customers is a key asset or not, and that Google wants to control the customer experience or loose up their control, a collaboration will be conflictual or peaceful. H&M and Google is a case with no conflict in terms of interest or strategy,” says Prof Levy.

But there are plenty of potential downsides to such an arrangement. “Firms that cozy up to one of the contenders for ecosystem leadership are placing a bet on the success of their technology partner,” warns Stanford’s Prof Saloner.

“In the long run, most consumers will not have multiple communication hubs in their homes and if you back the loser you will limit your market access,” he adds.

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