Value creation using alliances within the software industry

Successful companies in the information technology sector pursue alliances and acquisitions as a way to compete and grow. It is, however, not clear if these strategies work in all situations. In this study we look at 103 alliances in the packaged software industry over a period of four years (1999–2002). Combining the economic theory of complementarities with a concept that captures the relationship between software products offered by firms to the market called software stack, we show how firms create value using alliances. Applying the events studies methodology, our analysis shows that firms generate greater value when forming alliances within the same layer of the stack when compared to results from alliances made across layers. This finding is opposite to what was found in the case of mergers and acquisitions. We discuss the implications of our findings.