Archive for the ‘Business Expansion’ Category

Last week, I wrote a piece about extending one’s core business. One recent and very high profile example of this is Facebook’s “Places” application. To review, it is a Foursquare-like “check in” service so that users can let their friends know where they are at any given time by checking in to a location. For users, it lets them broadcast (or brag) to their friends where they are and what they are doing. For Facebook, it gives them geographic data to challenge Foursquare and puts them squarely into the local advertising game along with Yelp and Google.

Most everyone knows Facebook and uses it. I do. I think it is a great way to keep in touch with friends and to find old friends. I use it passively and would never be considered a power-user. There are actually days that go by when I don’t check it, and I have very few mobile alerts activated (only when someone posts on my Wall). Of the 500 million active users in Facebook, I am probably in their bottom 5% in terms of what they would consider a valuable user from a business standpoint.

When they announced Places, I did a little head scratching. Part of the reason was because they launched it right around the time when the great privacy debates began happening. Facebook was in the line of fire on their privacy policies in a very public way, putting their CEO on the defensive, and then seemingly days later they launched this service. The first things I thought were: “Why?” and “Why now?”

I’ve been in the advertising and marketing businesses for well over a decade, so I get why. When you wrap data, targeting and local advertising together, it becomes a potentially powerful mix for any merchant; and it allows Facebook to leverage their huge audience by putting them squarely into the growing local advertising business.

However, given the timing – where privacy concerns, tracking, cookies and the like are front page news – I’m not sure this was a prudent move for them now. Since I know the business well and understand exactly what information I give Facebook and how they’re using it, I probably have a higher tolerance than most. But “Places” even gave me a little bit of pause.

All of these points are probably moot if a huge swath of people used the service, so I wanted to wait to write about this to see if users would adopt it in masses. I, for one, disabled the “Places” function right away but wanted to see if others would too. It looks like I’m not alone.

When evaluating your core business, it is important to consider not only the business model behind it, but the timing and overall media climate since what the media covers informs the general public. Most importantly, though, you need to have reliable data or market research that suggests usage by your core customers. If a business tries to extend too aggressively they risk alienating their core users. I’m not saying this will happen to Facebook. But why didn’t they focus group this more? Why didn’t they ask their users if they would use such a utility?

Maybe a lot of people I don’t know are using Places, in which case I’ll be the first to say I’m wrong. But the bottom line for me is two-fold: Do people really care where I am and what I’m doing all the time? Do I really care to let people know where I am and what I’m doing all the time?

Even my very best friends would answer “no” to the first one. And I would answer “no” for the second one.

There are countless examples of businesses which seek to grow by introducing offshoots or other businesses that are an extension of their core. AOL is (and has been for quite some time) attempting to do this by moving beyond their dial-up subscription business. Google, which we all know is the leading search engine on the planet, has expanded into a number of somewhat-related businesses. Even Epic Media Group, the company for which I’m CMO, is the result of a merger between two companies with similar online marketing businesses; while not exact replicas of each other, they do signify an extension of each other’s core business the result of which offers greater capabilities to its clients.

It is always interesting to me to see new businesses being launched that stray – dramatically or closely – from a company’s core. Some new launches or expansions are successful; some aren’t.

An interesting case study that struck me the other day was something I saw while at the New York Jets season-opening game: Jets Uncorked. It is a Napa Valley Cabernet crafted by a well-known winemaker to commemorate a “new era in Jets football”, to go along with the team’s new stadium, new ticket prices, and everything else they’ve done over the last year.

There are always reasons why companies, or in this case professional sports teams and winemakers, choose to extend their brand or business. It is because they think there is a lucrative business behind “Door #2”. The supporting reasons often sound compelling when the idea is hatched. But how does one know if they have strayed too far from the core to be successful or to actually sell anything? In this case, I’m guessing the folks behind this new wine are banking on a few things which made this launch appealing:

1)      The team just built an expensive new stadium and tickets are not cheap. Fans initially exposed to the wine at the stadium most likely will have some discretionary income or ability to afford a high-priced wine. They better have some discretionary income to be able to afford $18 a glass!

2)      The team has marketed the wine so far in “Club” or VIP sections alongside other atypical offerings like sushi, salads, and health food. If hot dogs and beer go together, so do sushi and wine they figure.

3)      Mimicking the home experience. Fans of today are not like fans of a decade or two ago. With the advent of high-definition TV, most fans can see the game likely a lot better at home. The fans that DO show up at the stadium likely want a better overall “experience” with more food and drink choices. Kind of like being at home (so the stadium is actually trying to mimic what one could eat or drink at home with a ton of choices). Mark Cuban does a great job communicating what I mean here.

4)      Overall exposure and broader appeal outside the greater New York area to create a bigger marketplace. If the wine could only be marketed to 80,000 fans for 8 or 10 Sundays a year, that wouldn’t be much of a market. But the team was featured on HBO’s Hard Knocks which gained them more notoriety (for better or worse) and presumably their stature could be a catalyst to more wine sales outside the Metro area as well as a future retail presence.

5)      One of the bigger Jets fans out there with a public persona is none other than Wine Library TV’s own Gary Vaynerchuk. I have to believe someone involved in the making of the Jets wine saw some potential tie-in with the example he has set with his rabid audience. He is a football fan that happens to love wine, and loves talking about both subjects with equal passion. If the people behind this wine were smart, they would get Gary in their corner pronto. Send him a case!

6)      Data and market research: As a ticket holder, I know that there was a survey sent out to me months ago asking about my lifestyle, and there was an entire section on wine and whether or not I have ever traveled to wine country. Very smart. Speaking for myself, I’m likely to TRY this wine sometime, and if I like it, I will likely tell my friends and be very passionate about it.

If at least some of my assumptions are correct, this seemingly odd example of extending one’s business provides a few great examples of what other businesses can or should do to leverage their core brand or product.

First, you have to make sure you have great data – from customers, research and internally amongst your sales team or from market research people. The data has to point to there being a great market opportunity – the rule of thumb I use is the “80%” certainty rule. Opportunity doesn’t always mean success, but if 80% of the signs point to the expansion being potentially strong, you have a better chance.

Second, there has to be a broad platform to announce and promote your business line extension. Promoting to core consumers (like Jets fans already at the stadium) is a great start, but there should also be secondary and tertiary consumers planned out in advance.

Third, there needs to be great cross-sell and up-sell opportunities potentially in place, with the audience all opted-in of course. These can be mailing lists, phone numbers and text message alerts, email addresses, social media pages and the like, all at the ready.

Perhaps the biggest point, though, is to not try and expand too fast. Start small and viral. Get some initial data and feedback from core users. In fact, invite feedback from people and involve them in the process. It is cheaper with significantly less monetary risk than trying to market to the masses out of the gates and your eventual consumers and early adopters will be loyal to you.

Now, we can only hope the Jets wine tastes better than the team has played so far in 2010. Because it certainly helps your offshoot business to have a core product that is successful on its own!