Recently, the Conference Board asked 704 CEOs to rank a number of business priorities. The No.1 priority of their list: "Business growth."
Who can argue with that objective? But the real question is "How?" Conventional wisdom suggests the way to grow the business is "More." More products, more services, more markets, more distribution.
Look at AOL. In 2010, revenue was down 26%. In 2009, revenue was down 22 %. In the past three years, AOL reported $2.1 billion in losses on revenues of $9.9 billion. So with all the bad news from the past, what is AOL's current marketing strategy?
More, of course. "Tim Armstrong, AOL's chief executive," as reported in a February Reuters article, "has been trying to transform the company into a media and entertainment powerhouse."
How do you transform a company into a media and entertainment powerhouse? Apparently, you buy the parts and put them together. Like The Huffington Post for $315 million. StudioNow, an online platform for creating, storing and distributing video for some $36 million. The technology blog TechCrunch for about $30 million. Patch Media, a network of local-community sites for $7 million (plus a commitment of $50 million to build out the network).
More vs. less
AOL is not an isolated example. More and more business leaders base their strategies on "more," yet history suggests that the road to success is "less."
What many business leaders are missing is the effectiveness (or lack of effectiveness) of brands. When you expand your brand, you weaken your brand. When you narrow your brand, you strengthen your brand.
Take AltaVista, the first search engine. But "search" wasn't good enough for AltaVista, so it added email, directories, topic boards, comparison shopping and loads of advertising on the home page. It also spent more than a billion dollars to buy a portal-services company, Shopping.com, a comparison shopping site, and Raging Bull, a financial site. In essence, it turned AltaVista into a portal.
Hasta la vista, AltaVista.
By focusing on search, Google became the fourth most-valuable brand in the world (after Coca-Cola, IBM and Microsoft), worth, according to Interbrand, $43.6 billion.
So what did Google do next? Naturally, it expanded the Google brand into a host of new businesses, including targeted ads in TV, radio and newspapers.
Strong vs. weak brands
But here's the difference between AOL and Google. Expanding a weak brand like AOL won't make the brand successful. Expanding a strong brand like Google will weaken the brand, but the Google brand itself is so strong that the differences are going to be hard to measure.
The three most valuable brands in the world (Coca-Cola, IBM and Microsoft) have all been expanded. Yet these brands were exceptionally strong before the line extensions took place.
Take Google. Potentially, the most valuable Google expansions are not Google brands at all. They are YouTube and Android, both the result of acquisitions.
Currently, Android leads all smartphone operating systems with 33% of the market. BlackBerry is second with 29% and the iPhone is third with 25%.
It's odd. If a company buys another company, it normally keeps using the acquired company's brand names. If a company develops a product or service internally, it normally introduces the development as a line extension.
Why the difference? There seems to be a feeling that if you introduce an internally-developed product with a new brand name, you are in some way "disloyal" to your company.
But loyalty or disloyalty has nothing to do with it. Brands don't even make their primary residences inside your own company. A brand is nothing more or less than a name that stands for something in consumers' minds. That determines the value of a brand, not the opinions of insiders.
Friendster, MySpace and Facebook
Take the first big social-media sites. Friendster was launched in 2002, MySpace in 2003 and Facebook in 2004.
Facebook has become a powerful brand, valued at $82.9 billion on a secondary exchange, SharesPost. The other two sites are worth a small fraction of the value of Facebook.
What did Facebook do differently than the other two sites? The same thing that Dell, Enterprise, FedEx, Subway and dozens of other brands have done: Facebook started with a narrow focus.
Facebook membership was initially restricted to students of Harvard, and within the first month, more than half the university's students were registered. Then it was expanded to other colleges in the Boston area, then the Ivy League, then Stanford University.
Facebook also launched a high-school version and later expanded its eligibility to employees of several companies, including Apple and Microsoft. Finally, it was opened to everyone ages 13 and older with a valid email address.
Early on, as compared to Friendster and MySpace, Facebook was perceived as more exclusive, an extremely important attribute for a social-media site. It's only human nature to want to join the more-exclusive club.
That's exactly the strategy that has built many dominant brands.
First, start narrow and build the brand. Then expand the distribution only after you have built a strong brand. In grocery products, for example, you might restrict distribution to Whole Foods. In hardware products, you might restrict distribution to Home Depot.
Instead of a national launch, you might consider a regional launch. Or perhaps launch the new brand in one city only. And then, after its initial success, roll out the brand to additional cities.
Invariably, today's strong brands started narrowly and expanded only after winning the initial branding battle.
You can't expand your way to success. You can only narrow your way to success and then hope you don't spoil that success by overexpanding the brand.
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