Collaborative innovation is transforming geospatial workflow and industry, finds the Global Geospatial Industry Outlook 2017. By Jyotsana Chuchra and Akshithha KP
The technology industry is always in flux. Frequent new products and category innovation define and redefine the sector’s constantly shifting landscape, affecting the makeup of hardware, software and data companies themselves. This volatility is manifested by massive shifts in relationships and sudden clash of cultures courtesy mergers, acquisitions, partnerships, and divestitures.
Acquisitions and partnerships
Acquisitions and partnerships — the two pillars of a business growth strategy are those organizational activities, which give a company access to external resources, but they differ in many ways. Acquisitions deals are competitive, based on market prices but are risky. Partnerships and alliances are cooperative, negotiated and not so risky. Companies habitually deploy acquisitions to increase scale or cut costs and use partnerships to enter new markets, customer segments and regions. Technology never stands still, it keeps advancing. The growing value of geospatial business is clearly evidenced by the flurry of mergers and acquisitions happening in the domain.
Acquisitions deals are competitive, based on market prices but are risky. Partnerships and alliances are cooperative, negotiated and not so risky. Companies habitually deploy acquisitions to increase scale or cut costs, and use partnerships to enter new markets, customer segments and regions
The year of change
2013 was the peak year for partnerships and acquisitions. It was the year when ‘one-stop-shop’ solution was the driver of the industry. It started with the Hexagon–Intergraph deal that is considered as the most significant acquisition ever in the geospatial domain. The event had a tremendous impact on the existing alignment and the prevailing partnership networks of the industry, which affected everybody in the geospatial technology business in one way or the other. This resulted in a wave of changes, where eventually many of the geospatial players started aligning themselves with other large players, amalgamating their distinct spheres of influence and expanding their product portfolio. Also, around this time, the companies started talking in a big way about comprehensive and integrated solutions for end users. Many companies were actively either partnering with or acquiring another to move toward the goal. Meanwhile, large enterprises were also motivating geospatial and IT companies to get together and integrate their offerings from data acquisition and data management to IT integration and finally delivering valuable solutions. All these factors coalesced to gear the industry for various inward and outward acquisitions and partnerships.
Partnerships leading over the acquisitions
After a great turmoil of both acquisitions and partnerships in the year 2013, there was a shift in the scenario post-2013. Understanding the fact that acquisitions strategies were a costly affair and only few can sustain it for long timeframe, the partnerships strategies started taking a lead over acquisitions (Refer Graph 1)
Bulk of companies were working towards strategic partnerships. This trend was increasing because it delivered access to new markets or customers, accelerated new product development cycles, and improved a company’s competitive positioning in a cost-effective manner. Partnerships help companies to expand their capabilities without the added step of creating those capabilities in-house or increasing business risks by carrying extra cost or assets on the balance sheet. Companies, therefore, perform more efficiently and adapt more quickly than they could have on their own.
Trending towards equity partnerships
A new trend, which started off late in the partnership arena, has termed as equity partnership. It reflects the partners’ ownership interest in the business. One of the great examples is the deal between Siemens and Bentley Systems, wherein the former acquired secondary shares of the latter’s common stock to advance infrastructure project delivery. Similarly, Flipkart acquired a stake in MapmyIndia to sharpen its logistics capabilities.
Partnerships help companies to expand their capabilities without the added step of creating those capabilities inhouse or increasing business risks by carrying extra costs or assets on the balance sheet. Companies, therefore, perform more efficiently than they could have on their own
Why partnerships and acquisitions?
Partnerships and acquisitions are significant aspects of a modern business strategy. The reasons range from delivering competitive advantages, economies of scale, and economies of scope, international expansion, vertical integration and access to unique assets. Of these, the most common today is perhaps the drive to deliver a complete solution. Over time, we can see acquisitions and partnerships moving through a number of ‘waves’ from a strategy point of view in order to pursue ‘system integration and solutions’. The different waves in the value added collaborative business are discussed in the Figure1.
Determinants for partnerships and acquisitions
Partnerships and acquisitions are no longer exceptions for most of the firms — they are becoming central for gaining competitive advantage. The value these contribute to the firm and the society depends on certain determining factors. The factors determining the partnerships and acquisitions in geospatial industry are different trends, which have been observed with these determinants which are shown in graph 2 and graph 3 in the following pages.
Content is the king in the geospatial space. The various partnerships and acquisitions have taken place for delivering applications and solutions with usable insights and information which all require content. Some of the major partnerships which happened for generating content are: Hexagon Geospatial partnered with content providers like Airbus Defence and Space, and HERE. This enabled the company to find and access geospatial content that drives the application Cloud-based M.App exchange platform. Second in line was the partnership between Esri and MapmyIndia, which gave its users an interface for collaboration and sharing a complete geospatial management experience. The partnership, which provided its user, the power of mapping and location intelligence even in the most remote locations was between DigitalGlobe and Trimble.
The scenario is now seen shifting where most of the product companies are creating their own content and these kings of partnerships for content are expected to stabilize soon. The situation demands the convergence of product and content because in today’s scenario the hardware and the software are content-ready.
Following the change are the emerging trends of the solution-centric approach and enterprise orientation that have triggered a transformation in the existing business practices and policies of geospatial companies. The industry has realized the required degree of integration or convergence for integrated systems and developing a solution centric workflow environment. It requires acquisition of technologies, integration of processes, and embedding of workflows, which is possible with a structural reorganization of the existing ecosystem.
Partnerships for system integration or solution are growing, though at differential rate compared to acquisitions, wherein they are almost stabilizing. Companies are finding it more cost competitive to partner for extending integrating systems and providing solutions to the users, rather than amalgamating the entire new technology portfolio in their systems. This system integration and solution-oriented collaboration is driven by an established geospatial player who wants to venture into a specific market, but doesn’t have the domain knowledge edge. And finally, there are partnerships between equals for competitive advantage.
Market outreach has been an influencing factor for partnerships. The company planning to expand into different markets joins hand with the company already operating in that segment. The network gives both companies a wider customer base practically overnight.
Direct engagement has been one of the chief reasons behind acquisitions. By buying out one of its suppliers or distributors, a business can eliminate a certain level of cost. When Topcon acquired one of its significant European dealers GEOTOP, the move not only enabled Topcon to save on margins that the supplier was previously adding to its costs, but also enabled the parent company to have direct engagements with the market. In the software space, emergence of Cloud has enabled companies to reach directly to the customer. These all-direct engagements have affected the revenue model of distributors who now need to move up the value chain.
Market consolidation has seen a downside with the acquisitions, as a large premium is usually required to convince the target company’s shareholders to accept the offer. Acquiring a unique technology platform would enhance the capabilities of the company and produce better results. The acquisition of GeoEye by DigitalGlobe or that of Sokkia by Topcon was for market consolidation, wherein the acquirer aimed to eliminate future competition and gain a larger market share in its product market.
These trends have given way to new business models and workflow efficiency creating more demand. This has been the driving factor as industry readily adapts to the new technologies, applications and business models.