Study: Brick-and-Click Alliances Working

Three out of every four partnerships linking a brick-and-mortar retailer with an e-commerce player in the past four years has been successful, according to a study released Thursday by McKinsey & Company.

In fact, McKinsey, which looked closely at 700 deals announced since 1997, found that so-called e-alliances involving online firms are more likely to succeed strategically and financially than deals between traditional companies.

Overall, 55 percent of the e-commerce-related deals that McKinsey looked at were deemed a success , compared to 51 percent of all offline deals.

"Speed and scale remain important in the Internet economy," said David Ernst, the study's lead author. "Alliances are often a faster and less capital-intensive way to gain access to products, customers and business capabilities than building them from scratch."

Deals Keep Coming

While McKinsey indicated that the pace of such deals may have slowed somewhat in recent months -- after 13,000 deals were announced in 1999 and more than 20,000 in 2000 -- so-called e-alliances are "more important than ever," Ernst said.

"Partnerships between bricks and clicks have turned out to be the most successful of the combinations," Ernst said.

In fact, while McKinsey's survey did not include 2001, several recent deals, including the alliance between Amazon.com and Borders, seem to follow the recipe for long-term success.

McKinsey noted that the majority of profitable business-to-consumer (B2C) companies have all embraced a brick-and-click approach to some degree.

Just One Side

While brick-and-click deals have proven to be winners for both parties, deals linking Internet portals with e-commerce firms are often more one-sided, McKinsey found. Fewer than 30 percent of the content or commerce partners involved in the deals met their goals for profits or revenue.

"Portals have generally come out as long-term winners in these deals," Ernst said.

Portal deals were based largely on the belief that Internet traffic would drive long-term success. But many of the deals have been "structurally flawed," McKinsey said, with many partnerships matching companies that did not fit together and many lacking solid basis for measuring success.

Long and Short

The scenario is similar among business-to-business (B2B) companies. Many saw initial run-ups in their stock prices after announcing e-alliances, only to fall back to earth. Fewer than 30 percent of B2B deals tracked by McKinsey had created value or met goals.

Often, e-commerce deals fail because they are not backed by the necessary resources. In fact, McKinsey advises companies considering deals in today's market to be far more selective and choose only deals that it can support fully.

It also advises that alliances be short-term deals at first, with constant re-evaluation of their effectiveness before longer terms are locked into place.