Contents
The Mandala of States is about countries and borders. But markets have neighborhoods too. Whoever competes for the same customers, the same advertising money or the same attention is a neighbor in Kautilya’s sense. In 2007, the map of the internet looked like this: Google dominated search and online advertising. Microsoft was lagging behind. And a new player was growing fast.
The map in 2007
Situation
At that time, Google was the leading provider of internet search and search advertising. Microsoft had been trying for years to catch up with services of its own. Facebook, founded in 2004, had about 49 million users in October 2007, some 59% of them outside the United States. Google had its own social network, Orkut, but it was popular mainly in Brazil and a few other countries.
Link to the principle
Google was Microsoft’s direct neighbor in the advertising market, and thus its rival. Facebook, in turn, competed with Google for users’ time and future advertising money. By the logic of the mandala, that makes Facebook Microsoft’s natural partner.
The investment
Situation
On October 24, 2007, it is announced that Microsoft is investing $240 million in Facebook. In return, Microsoft receives a stake of about 1.6%. This values Facebook at $15 billion. At the same time, an advertising agreement from August 2006 is expanded. Microsoft becomes Facebook’s exclusive third-party advertising partner and from now on will also sell ads on the platform internationally.
Link to the principle
The small stake shows that this is not about control. It is about position. Microsoft secures a place at the side of a player that could become dangerous to its rival, Google. An alliance in the mandala doesn’t have to dominate the partner. It is enough that the partner stands against the same neighbor.
Google is left out
Situation
The trade publication eWeek commented that the deal left Google out in the cold. For weeks beforehand, there had been speculation about whether Google or Microsoft would invest in Facebook.
Link to the principle
In the mandala, the point is not only to win a partner for yourself but to take that partner away from your rival. If Google had invested in Facebook, the map would have shifted against Microsoft. Instead, a potential partner for Google became a partner for Microsoft.
What the partner wants for itself
Situation
Facebook received fresh money to keep growing and an experienced advertising partner. Mark Zuckerberg and Facebook remained independent. In the years that followed, Facebook built its own advertising system and itself became one of the largest advertising companies in the world.
Link to the principle
Your neighbor’s neighbor has goals of their own. If they grow strong, they can become a rival themselves. Kautilya anticipated this: the mandala is not a fixed picture but changes with the power of those involved. If you strengthen your rival’s rival, you have to check what you are helping to grow.
Key takeaways
Key lessons
- Ask who poses a danger to your competitor on its own turf.
- A small stake can have a large strategic effect.
- A partner you win is a partner your rival loses.
- Assess how strong your partner might become.
- Review the alliance when the map changes.
Summary
In 2007, Google was Microsoft’s great rival online. Facebook was a growing competitor of Google for users and advertising. Microsoft invested $240 million, became the exclusive advertising partner and kept Google out. That is the Mandala of States in business: strengthen your rival’s rival, but keep an eye on where they are growing.
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