Beaten: An Alliance Out of Tune

Beats by Dre has a newly told story of an alliance partner that did most of the work but lost everything in the process. Monster, a father and son business (Noel and Kevin Lee) came up with the technology but was severely out negotiated by ts more experienced partner. A great cautionary tale for the study of alliances. I use the “Four C” alliance framework to teach alliances:

  • Complementarities. Monster had the engineering chops to design the path-breaking audio. Interscope and Dr. Dre had the marketing expertise and contacts to make them a fashion item. Clearly these complementary capabilities were strong.
  • Congruent goals. While they had a strong interest to cooperate, their interests diverged on the issue of who would own the intellectual property, brand, and on how the value would be split.
  • Compatibility of the Organizations. The larger and professionalized Interscope had a team of experienced lawyers. Kevin Lee had a BA in engineering. They could work together but not necessarily understand each other.
  • Change. Over the course of the alliance Interscope needed Monster less and less. Once the first products were designed and produced, they could hire other expertise to keep the products fresh (much of that was around fashion rather than new technology). This allowed Interscope to shut out Monster altogether.

Contributed by Russ Coff

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