Patterns in business model partnerships

In the research literature and case materials about partnerships and alliances, almost every author attempts to make a classification of partnerships based on the way they are organised. The table below is an example.

Types of Strategic Alliances

Although such overviews are useful for analysing how a process of partnership formation can arrive at certain outcomes, they are less useful when you’re faced with the practical challenge of determining what a partnership should do in the first place. This is a design challenge, where new options and directions need to be created.

The business model canvas is the only tool I have found that directly enables you to design multiple business model innovation options through using partnerships. Some trigger questions that would help to innovate through a partnership would be:

  • How can we increase the size of our market with minimal investment?
  • How can we enter new or adjacent markets with our product/service, without having to create one ourselves?
  • How can we put our resources to use more efficiently, without growing our company further?
  • What can we do to improve our existing competitive position?

By using these questions together with the business model canvas, you can define the rationale for a partnership from your business model’s perspective. But the big question is how you will tie your business model together with your partner’s business model. You will need to make explicit how you will create and deliver value to your partner, as well as how you intend to capture value from your partner in return. It is at this second step of defining the value exchange with your partner, that the business model canvas falls short as design tool. You’ll break your mind over trying to tie the partnership rationale together for both your own, as well as your partner’s business model!

Value exchange between partnering business models.
Specifically for the purpose of enhancing the design functionality of the business model canvas for partnerships, I’ve created the partnership canvas. The partnership canvas enables you to define and design the essence of value exchange with your partner. And it is through use of the partnership canvas in combination with the business model canvas, that I’ve already discovered some distinct design patterns that appear in the value exchange relationship between 2 business models. Unlike the list in the table above, the following patterns indicate what the implications of a partnership are to the design of your business model:

  1. Vendor relation
    The basic pattern here is that two business models are bound by a repetitive transaction of a good or service. The buyer appears as a customer in the vendor’s business model, because she’s buying a certain product or service from the vendor. The other way around the vendor will not appear in the buyer’s business model. Only their product or service appears in the buyer’s key activities or key resources, the cost for which is accounted in the cost structure.An example would be a food company buying ingredients from the world market. The ingredient is a key resource, but this can be acquired from multiple suppliers, who are technically interchangeable on an ad-hoc basis. A vendor relation turns into a vendor partnership, the moment additional value is exchanged on top of the transaction. This could be in an exclusive purchasing relationship, like the one between Samsung and Apple. In their early partnership in 2007, Samsung exchanged rights to exclusive procurement of flash memory, for the sharing of sales projections of Apple’s devices. In this case Samsung and Apple appear in their respective business models as key partners.
  1. Barter relation
    The pattern that shows up here is a partnership based on reciprocal non-monetary value exchange between partners. Unlike the vendor relation, neither partner pays the other any money to exchange value within the partnership. This applies to partnerships like Spotify-Facebook, where Spotify gained access to the US market through Facebook, and Facebook was able to stream music through its channel. Also, Nespresso and its outsourcing of machine manufacturing to its partners applies here. Nespresso in effect gets free access to its partner’s channels, in return for co-branding the machines and providing a technology license for (nearly) free.
  1. Hybrid customer/partnership relation
    In these setups partners contribute to each other’s business models like in the barter relation. At the same time one of them also profits from the customer value proposition as a customer of the other. You find these patterns mostly in matured online platform business models. The sheer volume of traffic that the platform generates is of value to businesses that want to sell something, and they’re wiling to pay for access. The App Store platform is such an example. App developers market apps in partnership with Apple, and split the revenue @ 30% for Apple. At the same time developers are customers through their yearly payment for the SDK app developers’ kit.Amazon Marketplace is another partnership example that shows the hybrid partnership pattern, and a special one called coopetition. Book vendors are partners because they complete the experience of multiple options in book offerings (new or second hand hard cover or paperback, or e-book) to Amazon’s customers. At sale they agree to split on a commission for Amazon. Yet, at the same time vendors are also competitors with their competing book title offerings. As customers, vendors pay for using Amazon’s web service channel in their business model through a vendor subscription.
  2. Joint venture relation
    The joint venture is a curious beast. It’s actually not a partnership in the sense of value exchange between two independent business models. A joint venture is a business model by itself, where two or more companies have decided to combine their resources. The reasoning behind creating a separate business model is that there are many elements involved in the collaboration, and the outcomes are too complex to attribute rewards and contributions to each partner separately. Often you’ll see founders of the joint venture, acting as partners in the joint business model. Examples of famous joint ventures are the Starbucks-Pepsi partnership for canned cold coffee drinks, or the Philips-Douwe Egberts joint venture for the Senseo coffee machines.

In conclusion
A partnership is defined when value exchange takes place between 2 independent business models that goes beyond the transaction relationship. The vendor relation is not a partnership as it only involves the shifting of ownership of goods or information. Only when the strategic importance of a vendor increases to your business model, will the exchange of value beyond the transaction start to make sense, and will a partnership come to life.

The barter and hybrid partnership types enable continuous value exchange between business models, whilst they still keep running independently. These are flexible business model innovations, and can create tremendous competitive advantage.

The joint venture also contains strong innovation potential, but is less flexible in setup. Partners bind themselves to the success of the joint business, and ending of the relation will most likely entail ending of the business.

The key for business model innovation through partnerships is both in finding the purpose of your partnership, as well as the mode of value exchange with your partner. The business model canvas will help you find out why you would need a partnership. The partnership canvas will help you figure out why your partner would also need one with you, and how and in what shape these two innovation imperatives can be linked together.


Interested to learn more about using the Partnership Canvas for transformative business collaboration?
Check out our upcoming Partnership Design Masterclasses

The Starbucks bottled Frappuccino business model

In the early 1990’s, as Starbucks started taking off as a company, Howard Schulz (CEO) was looking out for new opportunities to leverage the brand. One of the options which the company pursued was to enter the (supermarket) retail segment. The idea was to bring cold dairy-based ready to drink coffee to the shelves. The potential for bringing the Starbucks experience to the retail shelves was great, yet this terrain without espresso machines and baristas was also unfamiliar to the company. Starbucks needed to develop an entirely new business model for entry, and forge a key partnership to do so. In this post I will sketch out this business model, and its partnership using my recently published Partnership Proposition Canvas (v0.4).

The business model
After a period of trial and error with cold coffee drinks in the then dawning market for such products, Starbucks made a fit with a bottled version of their infamous Frappuccino. This product proved to be a hit in the Starbucks outlets in the summertime. From 1995 onwards Frappuccino would immediately be available in every home and office with a fridge.

Starbucks Frappuccino business model

The Frappuccino business model

Although it would seem straightforward for Starbucks to manifest itself in this market with its own production line and channels to customers, it realized it didn’t have what it took to pull it off. Starbucks had no capabilities to develop and mass-produce bottled or canned dairy-based coffee drinks, nor to distribute them through the supermarket retail channel. The company knew it needed a partner.

The PepsiCo partnership
In order to launch its Frappuccino product, Starbucks sealed a partnership with PepsiCo (then known as Pepsi Cola) a year earlier in 1994. This partnership was of tremendous value for Starbucks’ new venture. PepsiCo had solid experience in product development, and an extensive sales and distribution network in the retail segment. Also, PepsiCo had access to a dairy bottling plant network through its partnership with Dairy Farmers of America (DFA).

In return, Starbucks could offer PepsiCo a first foothold in the growing non-carbonated soft drinks market, with its brand, and experience in processing quality coffee. Using the Partnership Proposition Canvas (v0.4) the construction of the partnership between Starbucks and PepsiCo can be visualized

The Partnership Proposition Canvas (CC+ license) for the Starbucks PepsiCo partnership.

When overlooking all the pieces of this partnership, it’s interesting to see that Starbucks could potentially have made do with arms-length relations for processing, marketing and sales, as well as distribution. That is job work. It could have been contracted out under an exclusive agreement.

The critical factor determining the close nature of the partnership appears to be that of product development (marked in blue above). Starbucks has the knowledge on coffee, but PepsiCo has better capabilities for developing canned and bottled beverages. Such dependency in product development creates a notoriously vague and sensitive situation in the exchange between companies. Intellectual property boundaries are highly uncertain.

The logical outcome of the tension in the partnership was thus to create 50/50 joint venture between Starbucks and PepsiCo, which was named the North American Coffee Partnership (NACP). Under this construction both companies would be assured that each would profit from the fruits of their product innovations.

The North American Coffee Partnership business model
So it appears that we’re not dealing with a Starbucks exclusive business model with a PepsiCo partnership, but with a whole new company, with its own business model. The NACP is a dedicated company for developing and marketing ready to drink Starbucks-branded coffee.

To make things more complicated, both Starbucks and PepsiCo function as key partners in the NACP business model (below). Starbucks provides a license to its brand. PepsiCo has a more extensive partner contribution. It covers production, advertising, distribution, sales. This last role is significant as PepsiCo takes physical ownership of the product. In effect, NACP only has PepsiCo as paying customer. DFA has the role of processing the product.

The North American Coffee Partnership business model

Since its founding, NACP is continuously developing its portfolio, launching new products like the DoubleShot, and Starbucks coffee beans. Through the PepsiCo network, the joint venture is also expanding to new markets, teaming up for instance with European dairy giant Arla, in the same way as DFA in the United States. Currently the joint venture accounts for about 60% of a global billion dollar growing market for ready to drink coffee; an impressive feat for two companies that started off exploring new terrain.

Key take-aways:

  1. When an existing company designs a new business model to add to its portfolio, it usually enters a whole new market and value network. Partnerships can be used to accelerate and improve on execution
  2. A joint venture is a very tricky type of partnership. Actually, it isn’t even a partnership. A joint venture is an organizational form for a stand-alone business model
  3. The Partnership Proposition Canvas can be used to figure out what value your options for partnering hold, and at what point it starts making sense to share equity with your partner