Abstract
The COVID-19 pandemic required a variety of novel approaches to help combat the spread of the virus and protect the most vulnerable in society. In April 2020, two of the most well-known technology companies in the world, Appel and Google, announced a short-term strategic alliance in order to create a contact tracing technology. As both companies have global reach, their joint project promised great potential and was expected to be widely adopted by the Apple and Google clients. The two companies shared their vast intellectual, financial, and human resources to create the Exposure Notifications System, which was completed in May 2020. From June 2020, national governments of different countries and state governments in the United States began a staggered rollout of applications developed using the Apple and Google framework. However, research indicates that the adoption rate remains relatively low, indicating a partial success of the strategic partnership between Apple and Google.
Introduction
In April 2020, Apple Inc. and Google Inc. announced a partnership to aid governments around the world and healthcare organizations in fighting against the COVID-19 pandemic. Due to the highly contagious nature of the virus causing the coronavirus disease, the government of the United States of America, as well as of other countries, was seeking to invest in contact tracing technology. Apple and Google responded by announcing their partnership aimed at the development of an efficient Bluetooth-based contact tracing technology inspired by the Decentralized Privacy-Preserving Proximity Tracing (DP-3T) and Temporary Contact Numbers (TCN) protocols (Gvili, 2020). In Apple’s announcement of the collaboration, it was stated that its primary goal is to help governments and various health agencies reduce the spread of COVID-19 while maintaining user privacy and security (Apple, 2020). However, a question should be raised about why the two largest Silicon Valley companies chose to collaborate and whether their strategic partnership can truly benefit society while securing revenue for the partners.
Strategic Alliances
Strategic alliances, or partnerships, are mutually beneficial relationships between two or more business ventures. It can be defined as “an arrangement between two companies to undertake a mutually beneficial project while each retains its independence” (Kenton, 2021, para. 1). Businesses can enter such a relationship and combine their resources, including intellectual, physical, financial, and human resources, for a variety of reasons. These can include the common strategic goal of expanding into a new market, improving the existing product line, developing a new product, or gaining an advantage over a shared competitor (Kenton, 2021). In the case of Apple and Google, the strategic alliance occurred as a response to the COVID-19 pandemic and the resultant need to develop efficient contact tracing technology for the new market of medical tracking.
Types of Strategic Alliances
Business ventures can enter into a collaborative arrangement with each other; however, the power balance within these relationships can vary depending on the type of the agreed-upon strategic alliance. According to Abdollahbeigi and Salehi (2021), primary types of strategic partnerships include joint ventures, equity-based strategic alliances, and non-equity strategic alliances. Thus, a joint venture is a type of strategic partnership in which two or more organizations create an entity to carry out an economic activity together (Abdollahbeigi and Salehi, 2021). In a joint venture, the participating companies create a new entity by investing their respective capital into it. As a result, they share in the revenue brought in by the new entity and exercise equal control over it. Such an entity can exist to carry out one specific project or a series of projects or be a continuing business relationship between two organizations. It can be legally structured as a partnership, corporation, limited liability company, or other structure (Abdollahbeigi and Salehi, 2021). Traditionally, a joint venture is undertaken when a significant commitment of resources or substantial interaction is expected from participating enterprises.
Businesses can also agree to an equity strategic alliance. This type of partnership can be defined as a relationship in which “two or more firms own different percentages of the company they have formed” (Abdollahbeigi and Salehi, 2021, p. 410). Abdollahbeigi and Salehi (2021) note that equity alliances occur primarily when a company does not want to dilute itself and seeks to allocate shares into a new entity. The formation of such an entity can be viewed as a strategic move as potential investors and shareholders can be invited to support the new enterprise. In addition, organizations that enter an equity strategic alliance can purchase equity in their partner companies, or both partners can buy equity in each other’s companies (Lopez, 2022). Thus, in an equity strategic alliance, two or more partner companies invest in each other and share resources in order to gain an advantage in the market and develop a particular product.
Meanwhile, in non-equity strategic alliances, partners do not purchase equity in each other’s companies. This type of partnership is an arrangement in which companies enter a contractual relationship to distribute and share their resources and capabilities to create a unique product or undertake a project (Abdollahbeigi and Salehi, 2021). In a non-equity analysis, the respective parties do not establish a separate legal entity and do not take any equity in each other’s companies. Therefore, non-equity alliances are viewed as less formal as they demand fewer commitments than other types of strategic alliances. In general, non-equity partnerships are short-term and do not require a formal management structure (Abdollahbeigi and Salehi, 2021). The contract signed upon entering into such an arrangement communicates the responsibilities of the partners and payment terms. In addition, it also discusses the involved privacy issues, intellectual property ownership, and non-competition provisions (Abdollahbeigi and Salehi, 2021). It should be noted that a non-equity alliance can be extended from a short-term contract to a long-term one or an equity strategic partnership or joint venture.
Advantages of Strategic Alliances
A decision to form a strategic partnership of any type can be highly beneficial for the partner companies. The primary advantage of a strategic alliance pertains to its flexibility and autonomy afforded to partner companies (Kenton, 2021). Thus, business ventures do not have to merge capital or share resources unrelated to the project they are undertaking together. In addition, firms are not required to disclose proprietary information that is not connected to their joint project. Thus, a strategic alliance helps protect the sensitive data of business ventures.
However, partners can benefit from sharing resources necessary for the development, implementation, and evaluation of the project, diluting the individual financial burden of each entity (Delaney, 2019). In addition, a strategic partnership allows for a substantial expansion of the customer base of the participating organizations as they are introduced to the clients of their partners (CFA Journal, 2022). Customers are encouraged to use the product developed in collaboration of two businesses, thus, potentially exposing them to other services or products of the company they are not familiar with. Moreover, the quality of products created in a partnership can be very high due to the intellectual resources of the two firms being merged (CFA Journal, 2022). Overall, strategic alliances can be advantageous to the partner companies and lead to fewer expenditures and an increased customer base.
Disadvantages of Strategic Alliances
Nevertheless, there are several disadvantages to entering a strategic alliance. According to Kenton (2021), although the move to combine physical, financial, intellectual, and human resources enhances the performance of the companies on the joint project, organizations can have differences in how their conduct business. These differences in approaches to management and various business practices can lead to conflict between teams from different companies working on the same endeavor (CFA Journal, 2022). Such conflict can translate into the product or service being developed by the partnership being of subpar quality, adversely affecting the reputation and revenue of the involved parties.
Moreover, despite guidelines and regulations being put in place, the proprietary information of the partners may be at risk. Sensitive data and crucial information pertaining to the operation of the business are critical to a firm’s success, and sharing it or a part of it with a second party presents a risk (Kenton, 2021). In the case of short-term strategic partnerships, one company can misuse the data accessed during the partnership in order to further its reach in the market and gain an advantage over the competitors. Furthermore, a long-term strategic alliance can lead to one company becoming dependent on the other and unable to function outside the partnership (Kenton, 2021). Thus, once the alliance is concluded, one of the partners may experience a considerable decline due to the health of the business being affected by the overdependency on the second entity (Kenton, 2021). Such a relationship may develop if one of the ventures in the partnership has more resources and has a significantly more extensive reach than its partner. In summary, a strategic alliance may potentially harm the participating entities.
Factors Contributing to the Performance of Strategic Alliances
Despite the potential disadvantages to entering a strategic alliance, they offer numerous advantages and possibilities for the associates. Therefore, before starting a collaborative relationship with another business venture, companies should consider how to effectively create value within a partnership and mitigate possible drawbacks. Deloitte (2022) proposes several steps that can help enhance a strategic alliance. The business ventures in the alliance should design the governance model and a roadmap for performance measures, tracking, feedback, and evaluation to avoid potential problems and establish expectations (Deloitte, 2022). Firms need to ensure that the operations unrelated to the strategic alliance are running normally, are not interrupted by it, and do not lack resources to maintain their functioning (Deloitte, 2022). Before a strategic partnership is initiated, the parties need to define their respective responsibilities and ensure all teams and management understand their duties and obligations (Deloitte, 2022). The entities in the partnership should ensure they collaborate on projects that will drive value for all partners and that all collaborators invest a similar amount of resources (Deloitte, 2022). Overall, all steps taken within a strategic alliance should be carefully discussed to ensure its successful performance.
Apple and Google Exposure Notifications System
History
In April 2020, Apple and Google, two of the largest technology companies in the world, announced their joint effort to develop a contact tracking technology in order to combat the COVID-19 pandemic. According to Apple (2020), the Exposure Notifications System is based on Bluetooth technology and includes application programming interfaces (APIs) and operating system-level solutions to track potential exposure to persons diagnosed with COVID-19. Google (2020) notes that in order to ensure the privacy and security of users, the system creates random ID numbers for the device, exchanging the random keys with other devices in the vicinity. Thus, third parties cannot access any private information on the users using the Exposure Notifications System, including their location.
It should be noted that the collaboration between Apple and Google provided governments and health care organizations with the technical framework for the creation of tracing applications. Thus, the financial burden of designing apps based on the Exposure Notifications System fell onto state and federal governments (Barber, 2020; Schumaker, 2020). In September 2020, after the Exposure Notifications System was released, Apple and Google announced a decision to integrate the technology into the operating system to avoid building an additional application (Barber, 2020). However, the majority of governments opted for additional applications being built. Thus, in their non-equity strategic alliance, Apple and Google created a framework that other companies can use to develop contact tracing applications.
Performance (April 2020 – December 2020)
Although Apple and Google developed a working and efficient Exposure Notifications System, it did not perform well after its release. Reports for 2020 released by Apple and Google do not demonstrate the expenses or profits associated with the development and distribution of the system (Apple Inc., 2020a; Apple Inc., 2020b; Alphabet Inc., 2020). However, it should be noted that both Apple and Google showed a meaningful increase in profits in 2020 compared to the fiscal year 2019. In 2020, the revenue of Alphabet Inc, the parent company of Google, showed a 12.77% increase on 2019, rising from $161.857 billion to $182.527 billion (Alphabet Revenue 2010-2022, 2022; Alphabet Inc., 2019; Alphabet Inc., 2020). Meanwhile, Apple Inc. experienced a 5.51% rise in 2020, with annual revenue of $274.515 billion compared to $260.174 billion reported in 2019 (Apple Revenue 2010-2022, 2022; Apple Inc., 20219; Apple Inc., 2020a). As the companies did not reveal the revenue of the Exposure Notifications System, any financial gains made from the development of the systems should not be viewed as an independent variable in alliance evaluation.
Another vital aspect of the performance of the Exposure Notifications System jointly developed by Apple and Google is the scale of its implementation. In the United States, the staggered rollout of the system began in August 2020, with the individual states being tasked with building state-wide applications (United States Government Accountability Office, 2021). It should be noted that Apple and Google completed the framework in May 2020 (Kanowitz, 2021). By June 2021, only 26 U.S. states and territories introduced contact tracking apps based on the framework proposed by Apple and Google (United States Government Accountability Office, 2021). By October 2020, 17 million people, approximately 21% of the population of the United States, had downloaded tracking applications (Leswing, 2021). The download rates remained relatively low, failing to meaningfully reflect the magnitude of the COVID-19 pandemic and the accurate transmission rates. The report prepared by the United States Government Accountability Office (2021) states that download levels ranged from 200,000 to approximately 2 million. However, it is unclear whether downloads lead to active use and accurate reporting.
The Apple and Google Exposure Notifications System was also employed by other governments worldwide. According to Rachman (2021), applications based on the framework are available in at least 39 countries, including Canada, the United Kingdom, Ireland, and Germany, among others. The majority of European countries developed applications based on the Apple and Google’s system (Lanzing, Lievevrouw and Siffels, 2021). According to Hecht-Felella (2021), approximately 40% of weekly cases in the United Kingdom are reported through government applications. Although the download and report rates are relatively high in other countries, it should be noted that 71% of U.S. citizens do not plan on installing an exposure notification app (Hecht-Felella, 2021). Thus, the independent variable of the download rate and use of the applications based on the Apple and Google Exposure Notifications System indicates that the strategic alliance underperformed in its attempts to distribute life-saving technology.
Limitations
As descriptive research, this report cannot be employed to establish the cause and effect relationships between the identified dependent and independent variables. Moreover, it should be noted that most of the resources dedicated to the Apple and Google strategic alliance provide statistical information on implementation rates and the costs of application development to the governments. None of the identified sources provided information on the costs associated with the development of the Exposure Notifications System sustained by Apple and Google. It is also unclear whether governments were required to pay for the acquisition of the framework. However, the discovered sources did provide vital data on the scope of the joint project’s reach.
Conclusion and Implications
In summary, in April 2020, Apple and Google announced an unprecedented strategic alliance to help in fighting against the COVID-19 pandemic. A short-term non-equity partnership resulted in developing a Bluetooth-based Exposure Notifications System that provided a framework for the development of contract tracing applications. Although the companies failed to provide financial information on the development and distribution of the framework, it can be argued that the strategic alliance was relatively successful. The primary theoretical implication of the report lies in the necessity to examine further factors associated with refusal to use such applications. In addition, the report raises the question of whether Apple and Google should develop a contract tracing application based on their framework.
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