Monday, May 22, 2006

 

Google: Is it over diversifying?


One of the lessons that we learn from looking at conglomerates in the industrial era is over diversification--going far away from the core business. It has been called by many different names--conglomerate diversification, unrelated diversification and so on. Academic studies have documented the pitfalls of conglomerate diversification that stray far away from a firm's core competence.

I was stuck by the breakdown of Google's hits posted by Richard MacManus from hitwise. Google (mainpage) has 80% of share of Google properties. If you add Gmail and Google Image search (which account for 15%), you get to about 95%. The remaining 5% is made up of 17 subdomains within Google.

This raises a question: should Google even bother with the other 17 subdomains? The answer is yes--because it is in the best spirit of ambidexterity: working to maximize current operations while creating future capabilities. Successful companies fail not because they do not execute well. They fail because they are trapped into thinking that their success will prevail over time. They succumb to their competency traps.

We can not (and should not) look at Google Lans with 0.01% share of Google properties as anything but the fact that few care to even visit Google Labs and have an early peek into the product/service pipeline.

More important is the fact that these are all somehow related (at least to me) to Google's core business. It is not like the unrelated conglomerate diversification that we saw in the 1970s and 1980s. I posted earlier about Google's ambidexierity. This chart simply reinforces their underlying focus on balancing today and tomorrow.

Understanding diversification in the post-industrial age is an interesting and useful challenge. This table should be interpreted in a way beyond share of visitors to Google properties.

Comments:
Hmm, I think that you are right, that all dominas are related to their core business. Nevertheless, I have the impression that Google’s has more a “chaos” strategy, which can be misleading in the long-run. Is Google too much in love with technology?

Nobody knows where Google wants to go and it is questionable if employees know so much more about the overall strategy than we do. The creative and flexible working environment in Google does help to innovate, but at the end of the road everybody should work to achieve the same goal. The 20 domains, and there are more, shows that they encourage employees to play around, but does that create value?

Google has enough financial resources to invest in several areas, but they should start to promote their services. Right now, only a minority of customers knows more than the standard search function of Google. Higher investment in marketing activities would help to see where all these “question marks” go to.

Google is too much in love with technology. They have to ask themselves if these services help to create future value. Mapping these result in common matrixes, like BCG or McKinsey, would not show a healthy product portfolio. One cash cow finance more then 20 risky domains

My recommendation would be to promote the existing domains and reveal what users want. This would help to bring the “chaos” development into a more focused strategy and enable a healthy company growth.
 
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