(Chapter 11) Corporate strategy: Diversification

Corporate strategy: Diversification

-          New market with new products/services.

-          2 types - Related/Unrelated

-          Vertical integration – along your value chain

-          Horizontal diversification – moving into new industry

-          Geographical diversification – open up new markets

Cases:

Google acquires innovative companies to diversify Into new areas or to add value to existing technologies and services.

From 2001 to 2011 Google acquired over 100 companies based in USA, Australia, Brazil, Canada, China, Finland, Germany, Greece, Ireland, Israel, South Korea, Spain, Sweden, Switzerland, UK.

Android. Acquisition of Android, the mobile phone platform, for approximately US$ 50 million in 2005 was Google’s one of the best deal ever. Only two years after launch, Android has become the second-most-popular mobile platform in the world, with almost 25% share. Android generates revenue indirectly. Google gives the OS away, but it provides a built-in user base for mobile search and mobile advertising, which generate more than $1 billion a year.

YouTube. When Google bought the video-sharing service in 2009, YouTube was full of copyrighted content that users uploaded without permission. Google skillfully instituted a reasonable takedown policy and negotiated contracts with content owners to make YouTube safer and highly profitable.

On2. Having bought On2 video compression company for US$133 million in 2010, Google open-sourced the VP8 video codec it acquired with On2, and renamed it WebM. Google’s objective was to push WebM as a replacement for H.264, a much more widely used standard for Web video.

Slide, SocialDeck. Google bought two social gaming companies in 2010 to develop new social initiatives.

In late 1980s, Toyota , Nissan, and Honda moved into adjacent market segments. They launched luxury cars Lexus, Infinity, and Acura respectively to compete with BMW and Mercedes. The Japanese cars were priced about one-third lower and had a superior service network.  The value proposition was solid enough to win over potential and current BMW and Mercedes customers, despite the power of their brands.