Businesses venturing into unrelated fields
While businesses try to rush online to get more business, many companies are expanding their product offerings in order to rely on multiple sources of income. Google is one such company, expanding its offerings from search services to instant messengers, online email and a variety of other online services. Last week, Sawai talked about the concept of “Sticking to core specialities“, and points to some very good things. In it, Sawai talked about sticking to a basic business model and not expanding one’s products into different areas simply to be more fancy or to get more customers. Such things might backfire, and I agree. Most of what I’m saying here is deduced from a comment I left for Sawai’s original post.
Companies have to focus on gaining additional revenues and profit based on the skills they have, and not just on the possibilities that might see. A possibility can be converted into reality by acquiring the required skills to excel in an unchartered territory. Gillette, the name synonymous with shaving products, once ventured into items such as alarm clocks and watches, and it also bailed out of such areas fast. Venturing off thins down the efforts a single company can put into actual production and might affect the entire company negatively. Even right now, Gillette owns Duracell, the most famous brand of batteries competing with the famous Energizer, and it seems to be handling that business well so far. It uses those batteries as a way to power up its own electrical shavers and battery operated products, therefore working on owning a product that falls within the products that it itself carries. Thus, even though batteries are something that are not related to shaving, Gillette has adopted the business and done it well, quitting its watch and alarm clocks ventures and sticking to something related even remotely to shaving, and doing it well.
We can also take a look at ebay as an example: ebay bought Skype for $2.6 billion. In the beginning, it was unclear as to how an auction business would benefit from a voice call service. Ebay has promised since then that Skype will be integrated into all auctions, allowing buyers and sellers to interact with each other. So far, such a plan has yet to be materialized, and the money that could have been used to give back to customers has instead been spent on a business that is simply not related to ebay’s core business. In the meantime, ebay fees keep going higher and higher. Ebay has basically passed on the cost to the customers and is making customers pay for the purchase of Skype. It’s just like what you see in real life; a company makes it easier only for new customers to start using the company products. Once you’re a customer, you’re just another transaction since the company keeps focusing on getting new customers and not on keeping the current ones happy.
What is your opinion on this? Do you think there should be great caution taken by companies venturing into a different direction? Do you think business should even try to venture off at all from their original and already succesful products? Do you think companies should venture off but should do it at no cost to existing customers? If possible, I would request you to please read and comment on the original post by Sawai also, since my post is a type of a response to his post. It’s a short post, so it should be easy to read. Thank you.
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( August 15th, 2006 at 12:54 pm )
Reading this feels like the time when I was studying Economics in American Degree Programme.
Anyway, I don’t think it is a bad thing for business venture as long as they provide what the consumer wants. but the main problem always clashes - company for maximum profits, consumer for low price. because of the goal that companies are trying to maximize their profits, they engage in business venture.
i dont think theres any negative effect for business venture if the business are incidental. for example, a toothpaste company decided to venture with a tootbrush company. in that way, it enhance the quality of the product.
however, like gillette combining with duracell…i’ll see it more like avoiding competition.
business field is like a piece of land to me. everyone is trying to expand its empire. so if you venture with another territory, your power will be more influencial. therefore, i can say that currently, companies are only venturing for the sake of expanding their territories.
on the other side, i notice that a company with secret ingredient will never venture with any other company.
( August 25th, 2006 at 2:43 am )
Jerine, maybe your professor was using my notes as a guideline?
Yes, the clash is inevitable, and one or the other has to come on top in the end. Good point using piece of land and secret ingredients. Regarding secret ingredients, those give companies an edge over competition, and thus allows them to be innovative and in control at the same time in their respective territories.
( August 26th, 2006 at 3:41 pm )
I personally believe that it’s not necessarily a bad thing for companies to expand into other territories as long as they can stay connected with their customers and their needs. However, I can see that there is always a risk of expanding too agressively and thus neglecting a certain fraction of the customer base.
( August 26th, 2006 at 8:42 pm )
Michael, you have an interesting point regarding the neglection of certain portions of the customer base.
( August 27th, 2006 at 3:02 pm )
One example that I can think of is arguably Microsoft. It has a known reputation of expanding horizontally into new markets. First the Xbox, then search engine and now the Zune MP3. Although some of its efforts could be considered successful, I personally believe that when they expand horizontally like that, company resources are lost for its core specialalities, i.e. Operating Systems. I’ve read pretty bad reviews on their upcoming Windows Vista OS. Aparently a lot of people think that it’s an improvement from XP, but not nearly as good enough for 5-6 years of development.
( September 26th, 2006 at 4:35 pm )
Good point. Xbox and Zune are great examples of this.