In today's fast-paced and highly-competitive landscape, cutting-edge startups are transforming entire industries, leveraging new technologies, ideas and business models to gain market share. It’s an environment where being the first to seize new growth opportunities can make or break a business putting large (and traditionally slow-moving) corporations at a disadvantage.
In response, companies all over the world are partnering with external startups as a way to tap into their agility, creativity and disruptive ideas to:
- Test new business models
- Access and experiment with cutting-edge technologies
- Launch new products and services
- Generate new revenue streams
Startup sourcing is a critical component in the process, enabling companies like Microsoft, Mastercard, Spotify, Walmart, and more to spot, attract and engage with startups that align with their organisation's long-term growth goals and vision. These companies are building and launching game-changing offerings by merging the best of both worlds:
- The vast resources and reach of established enterprises
- The flexibility, innovation and speed of startups
To give you a better idea of how startup sourcing can help boost your corporate innovation strategy, we’ve listed five inspiring real-world examples below.
1. Microsoft and GitHub
Developers are the lifeblood of the software industry, and open-source communities can be a veritable treasure trove of innovation and collaboration. So it's not surprising that a company like Microsoft would want to tap into that ecosystem. Their sourcing efforts led to the acquisition of GitHub in 2018 for $7.5 B.
GitHub is a leading code-repository service used by millions of developers as well as companies, the likes of Airbnb, Shopify, Netflix and more. The appeal of the startup is perhaps best explained by Microsoft CEO Satya Nadella:
“Microsoft is a developer-first company, and by joining forces with GitHub, we strengthen our commitment to developer freedom, openness and innovation. We….will do our best work to empower every developer to build, innovate and solve the world’s most pressing challenges.”
The deal, which was initially aimed at enhancing Microsoft’s open-source presence, bringing its tools and services to new audiences and boosting GitHub’s use among enterprises, ended up bringing in valuable new talent as well.
2. Mastercard's and RiskRecon
In today’s increasingly digital landscape, data breaches and cyber-attacks are a big threat, putting billions of dollars and customer trust at risk. It was this threat that led Mastercard to scout and acquire RiskRecon back in 2019, a provider of AI and data analytics solutions designed to help businesses protect their digital infrastructure.
As explained by Ajay Bhalla, president of cyber and intelligence for Mastercard:
“The innovations from the talented team at RiskRecon will further accelerate our suite of cyber solutions designed to help financial institutions, merchants, and governments secure their digital assets. Through a powerful combination of automation and data-driven advanced technology, RiskRecon offers an exciting opportunity to complement our existing strategy and technology to secure the cyberspace.”
The acquisition significantly benefited RiskRecon by providing them access to Mastercard's global reach and resources, enabling them to scale their solutions to a much wider customer base. For Mastercard, the benefits include more secure transactions and stronger customer trust, reinforcing the company's position as a leader in secure digital payments.
3. Spotify and Anchor
Spotify has 515 million active users around the globe. That’s even more impressive when you factor in that they came from 68 million in 2015. So how do they keep their users growing and engaged? Short answer: They launch new offerings.
In 2019, Spotify successfully sourced and acquired Anchor (now known as Spotify for Podcasters), a startup that enables users to create, publish and monetise podcasts. As explained by Daniel Ek, founder and chief executive of Spotify:
“We believe it is a safe assumption that, over time, more than 20% of all Spotify listening will be non-music content. This means the potential to grow much faster with more original programming. Our core business is performing very well. But as we expand deeper into audio, especially with original content, we will scale our entire business.”
Here are just a few of the benefits:
- Higher user engagement: The ability for users to create their own podcasts via Anchor led to increased engagement on Spotify's platform. Higher engagement levels often translate into improved user retention and longer listening times, both critical metrics for any streaming service.
- Advertising opportunities: With more podcast content, Spotify was able to open up more advertising slots. This expanded its advertising potential and created a new avenue for revenue, helping to balance the significant costs associated with music licensing.
- User base expansion: Anchor was a popular platform among podcast creators, and its integration attracted these creators and their fans to the service, expanding Spotify's overall user base.
The move is paying off, with Anchor powering 80% of new podcasts on Spotify in 2020 alone. Anchor podcasts also had the highest “time spent listening” than any other third-party podcast hosting or distribution provider (e.g. NPR, Wondery, etc.) on the platform that year.
4. Walmart and Flipkart
In the retail industry, new markets are essential, and a good way to gain access fast is by sourcing the right partners. Case in point, Walmart’s $16 B investment in Flipkart, India's biggest online retailer, back in 2018. The allure? The Indian e-commerce market (worth $38 B in 2017) is expected to reach $200 B by 2027. The deal also enabled Walmart to better compete against Amazon (who also made a bid) in the new market. For more details on the deal, check out this video.
Here are just a few factors that made the sourcing of Flipkart a success:
- Brand Image: Walmart, lacking a strong brand image in India, gained recognition through its acquisition of the highly popular Flipkart.
- PhonePe: Walmart can use PhonePe, Flipkart's subsidiary, and an Indian government-verified Unified Payments Interface (UPI), to grow its online business.
- Access to Talent: The acquisition provided Walmart access to Flipkart's large talent pool, including Indian IT professionals renowned for their skills and ingenuity.
- Addressing Flipkart's Struggles: Flipkart, struggling to generate profits against Amazon's aggressive discounting strategy in India, found a robust partner in Walmart.
As explained by Walmart International’s President and CEO, Judith McKenna:
“Not only is [Flipkart] innovative [with the] problem-solving culture that they have, but they are doing some great work both in the AI space, how they are using data across their platforms but particularly in terms of the payment platform that they’ve created through PhonePe. All of those things we can learn from for the future and see how we can leverage those around the international markets and potentially into the US as well.”
5. Uber and Postmates
During the pandemic, Uber recognised the need to diversify its offerings and reinforce its food delivery arm, Uber Eats. They looked to the startup ecosystem for a solution, setting their sights on Postmates - a food delivery service known for its expansive network and robust partnerships with businesses large and small. The $2.65 B acquisition enabled Uber to expand its array of restaurants and offer the delivery of a wider variety of goods. This diversification was crucial in cushioning Uber against the slowdown in demand for ride-hailing during the pandemic.
The move brought a wide array of benefits for Uber, including:
- Income diversification: The addition of Postmates’ delivery-as-a-service model opened up new sources of revenue, providing a much-needed financial cushion.
- Expanded delivery services: With Postmates under its wing, Uber Eats was able to facilitate the delivery of a variety of goods from local businesses, effectively expanding its market reach.
- Increased market share: Acquiring Postmates allowed Uber Eats to strengthen its position in key areas (e.g. LA and the American Southwest) and gain a larger share.
- Access to established partnerships: Postmates had already built strong relationships with numerous eateries and other businesses. This network was a valuable asset for Uber.
- Greater operational efficiency: With both Uber Eats and Postmates operating under the same umbrella, there were opportunities for operational efficiencies and cost-saving measures (e.g. consolidating delivery routes, sharing technical infrastructure, etc.).
The move highlights the importance of startup sourcing in driving corporate success and navigating market uncertainties.
Final thoughts
These examples highlight the importance of forging the right partnerships, and it all starts with startup sourcing. When implemented the right way, startup sourcing can lead to partnerships that unlock unprecedented growth quickly and with a reduced level of risk.
They can be a game-changer for companies navigating today’s uncertain landscape or having trouble competing due to rapidly changing technologies, outdated business models or the arrival of new players in the market.
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Looking to attract and engage with cutting-edge startups that align with your organisation's long-term growth goals and vision? We can help you tap into the external startup ecosystem, build strategic partnerships, and unlock new opportunities for growth through collaboration.
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