InformationWeek

hen Maryland businessmen Douglas Becker and David Oros get to talking, the theme often turns to the belief the two share that every child should have access to a computer. But last spring, the duo took things a step further: They decided to form a joint venture between their companies aimed at developing an affordable wireless network for schools, over which they would deliver educational applications to students with handheld devices.

For Becker and Oros, turning that vision into reality proved relatively easy. As the CEOs, respectively, of Sylvan Learning Centers Inc., a $317 million education services company in Baltimore, and Aether Systems Inc., a $58 million wireless information-services provider in the nearby suburb of Owings Mills, Md., they put up $70 million of their companies' money, drafted key people from their organizations to work out the details, and launched MindSurf Networks Inc. The system debuted in February with a business plan that called for 75 school-customers by June. So far, 77 are on board.

MindSurf is one of a small-but-growing crop of joint ventures blooming this spring between businesses and technology suppliers. Rather than purchasing technology from vendors when developing a new business line, companies either partner with IT providers as co-owners of the new venture or devise a plan to share revenue and risk. In recent months, pharmaceutical company Pfizer Inc. teamed with Microsoft and IBM to form a company to develop software and services to handle administrative chores for physicians' offices. A unit of the Canadian life-sciences concern MDS Inc. formed an alliance with IBM to create a database for cancer research into human proteins. And the parent of the A&P grocery chain partnered with retail software maker Retek Inc. to develop enterprise resource planning systems for supermarket chains.

For user companies, these partnerships bring early access to technology that could shape the way they and their industries conduct business for years to come, as well as give them a chance to profit from a new product line while sharing the risk of a new venture. The alliances help vendors gain entrée into markets on the arm of a popular insider and provide a venue for their products.

Alliances are becoming more popular, perhaps because about a fifth of all revenue generated by the top 1,000 companies worldwide comes from partnerships--and analysts expect that to double in the next five years, pushed by the trends of globalization and outsourcing, says Mark Gordon, co-founder and director of Vantage Partners, a consulting firm that focuses on relationship management.

MindSurf, the Sylvan-Aether partnership, is the first noteworthy undertaking to emerge from Sylvan's recently unveiled E-learning venture unit, Sylvan Ventures, which develops and invests in educational-technology companies. Sylvan brings to the partnership branded consumer educational services, close contacts with school districts, and an understanding of how schools operate. Aether, as a wireless data provider, offers MindSurf expertise in communications infrastructure and know-how in providing wireless systems for a wide range of businesses. Sylvan and Aether each own 42% of the venture, with a 16% stake held by Critical Path Inc., a provider of wireless messaging and collaboration systems. "A joint venture is a great way to go because you bring enormous resources to a single organization spawning the venture," MindSurf CEO Bruce Davis says.

During the newlywed period of the venture's first eight months, MindSurf not only drew on the technology expertise of Aether and the curriculum expertise of Sylvan's educators but also the marketing, sales, business development, and financial-planning resources of both companies. Perhaps the biggest boost came from human resources at both companies, from which a number of key people were drawn, including Davis, who had been a principal at Sylvan Ventures and senior VP of operations and technology at Sylvan Learning Systems, as well as Becker and Oros, who sit on the board. "A venture capitalist would give you money and then pester you for profits, but a true joint venture gives you all the resources of the two companies, including virtually limitless access to [your partner's] technology group and the benefit of [its] purchasing organization," Davis says.

Less than a year after its founding, MindSurf has a product on the market: a wireless instructional network that provides a handheld computer for each child, instructional software, teacher training, and technical support under a four-year service contract for $250 per student per year. MindSurf provides basic collaboration, communication, and messaging applications over a wireless LAN. Students gain access to the information they need, such as schedules, assignments, activities, and reference materials. The system lets teachers establish access and security settings.

Davis acknowledges that Sylvan is taking a risk by gambling on a technology venture, but he clearly thinks the benefits outweigh the concerns. "You can't underestimate the power of the resources made available and the market position that's established when two well-known companies come together, as opposed to an entrepreneur with a good idea starting from scratch," he says. "We've saved years."

While the Sylvan-Aether partnership has definite short-term goals, the point of many alliances is precisely the opposite: to share the risk of huge projects that will take far longer than a few quarters to come to fruition. That's the essence of the deal in January between IBM and MDS Proteomics, a cancer research offshoot of MDS, a $1 billion life-sciences company in Toronto. Under terms of the partnership--each company invested nearly $3 million in the venture--the two will create a public database for medical research into human proteins and the clues they hold for early cancer detection.

Genetic research is a hot field, but scientists are beginning to look in a new direction: at the proteins the genes produce. It's a field that requires vast data crunching. Humans are born with 35,000 genes, each of which remains static throughout life. But those genes produce millions of proteins, each of which changes over time. For scientists, the study of these proteins holds the promise of discovering early changes in the proteins that signal the advent of cancer even before it shows up in genetic markers.

For MDS Proteomics, IBM's participation provides the processing punch needed to speed the development of products and services the company can offer. MDS Proteomics is deploying three superclusters of IBM's eServer systems running Linux and Unix, as well as other IBM technology, including the DB2 database.

"Large pharmaceutical companies are under significant pressure to increase the productivity of their drug-discovery process and shorten the drug development time frame in order to meet the annual growth rates expected by their shareholders," MDS Proteomics CEO Frank Gleeson says. "Through our strategic alliance with IBM, we're applying breakthrough information technology to improve our understanding of how proteins function in order to put drug design and development on a faster track."

For IBM, the field holds the promise of a new market for high-end hardware. "In the end, we're not selling anything," says Carolyn Kovac, VP of IBM's Life Sciences practice. "But we believe that the database they're building will showcase our technology in a highly challenging environment."

Formed last year, the mission of the Life Science unit is to build relationships with, and make investments in, growth areas of the market. With "several hundred million dollars" behind it, the unit is looking for biotech partners "for sustained mutual benefit over time," Kovac says.