The Hazard Of Having A Dominate Customer (And How To Keep Your Biggest Customer From Controlling You)


UntitledLet’s suppose you want to break Apple’s grip on the smart phone market.  So you build a similar operating system and give it away to everyone for free (keeping the right to advertising revenue, of course).  It works spectacularly.  You beat Apple at its own game but then, just when you thought you cornered the market, you realize that your largest customer is so important to the acceptance of your software that they can demand anything from you and you must concede.

This appears to be what is happening between Google and Samsung.  Google’s Android operating system has become more popular than Apple OS, but Samsung is such a dominant customer (Samsung sells 40% of all smart phones with the Android OS) that it may be able to dictate terms to Google.  If Samsung wants more of the advertising revenue, it can simply demand it from Google or threaten to build its own operating system to take all of the revenue and shut Google out.  Samsung has quite a position of strength!  If Samsung created a new operating system and called it QUARK (or some other name), it might leave Android in the dustbin of forgotten operating systems alongside BetaMax, Atari, Nokia Symbian OS, and BlackerryOs.

So what should Google have done differently to prevent this:

  1. Strengthen the Android brand.  Intel did this with Intel Inside for many years.  Intel Inside was not just a trademark, it was a way of thinking about computers.  Intel convinced computer buyers that the Intel chip WAS the computer and, if it had Intel, it didn’t matter who manufactured the computer.  The computer manufacturers foolishly went along with this program because Intel gave them advertising money which was too irresistible to pass up.  The computer manufacturers paid the ultimate price in that their brands became largely irrelevant (does Dell really matter anymore?).  Google has never been the superb brand marketer like Apple, and now Google has to play brand catch-up.
  2. Promote the importance of the App library (Google Play).
  3. Cover the system with patents that make it hard for Samsung to work around.
  4. Diversify.   Never let one customer get too dominate.

Apparently Google is working on Number 4, but not so much on 1-3.

So, what does this mean to your company?  It means that your intellectual property rights in brand and technology can strengthen and save your company.  Do you have an action plan to make sure you are not caught off guard while enjoying your success?   If you would like more information on business succession planning or any of the items described above, please feel free to contact any of Burr & Forman’s Business Planning and Succession team members.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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