High-profile acquisition: Strategies against brand dilution

By webadmin on 10:49 pm Apr 01, 2012
Category Archive

Martin Roll

Some brands have an almost magical nature to their being so powerful that they successfully manage to appeal to a very wide range of customers across various different segments. Not only that, they seem to have very strong staying power , so much so that they become iconic brands that come to define a generation.

IBM, Coca-Cola, General Electric, Ford, British Airways and the Tata group are a handful of brands that have maintained their brand image and equity resonating with customers across time and space for nearly or more than a century. These brands have defined the broader dynamics of businesses, created enormous following among customers across segments, and paved the way for many best practices of branding and business.

However, with the technological revolutions in the early 1970s, followed by the many crowd and cloud-based media and computing respectively ushered in by the internet explosion of the early 1990s, many new companies have come to prominence. Unlike the behemoths of the earlier era that predominantly sold products in manufacturing sectors, these new technology-centered companies such as Microsoft, Apple, Google, eBay, Amazon, Groupon, and the Huffington Post offered a combination of products and high-tech services, reached out to a much wider customer base and faced a much tougher competitive landscape.

Not only have these brands challenged the fundamental business practices of the earlier era, but they also introduced effective management of a much-empowered customer pool, hyper-competition, simultaneously managing and nurturing a multitude of market cultures.

One brand that has captured the imagination of the world based on the simple idea of offering highly organized, scientific and wide-ranging content on the internet for free is Google. Such has been the influence of Google on the broader business landscape that popular media has been abuzz with the “before-Google” and “after-Google” eras. Furthermore, what started as a brand centered around offering a free search engine has grown to a mammoth technology company that has diversified to both related and unrelated domains.

Humble beginnings as a formidable search engine along with the likes of Yahoo!, Altavista and others, Google has fundamentally transformed customers’ experience on the internet through the multitude of businesses it currently manages in its portfolio. An obvious extension to the search engine was the email service, Gmail, with literally unlimited storage.

While many other online brands then merely included news aggregation, Google innovated to create the comprehensive mapping database with Google Maps and Google Earth. Finally, recognizing the emerging trends in the technology sector, Google became one of the pioneers in cloud computing and open-source platforms, and Android for mobile communications.

This creates an enormous portfolio of businesses for Google. Some of these expansions have been very well aligned with the company’s core business while the others have been expansions beyond the core. As has been witnessed by the business world time and again, massive growth outside of the company’s core business can indeed by a threat to the long-term viability and competitive prowess of companies. Multiple global brands in their quest to continuously expand given the pressures of competition, have expanded way too far from their core competencies and their capabilities, resulting in massive downturns and dilution of the brand’s equity.

Limits to growth

The reason for such argument is quite simple. Despite the growth aspirations of companies, they are constrained by their resource endowments and their inherent dynamic capabilities. All companies are compelled to balance their resources with their strategies to growth via expansion. In such scenarios, what helps companies is the extent of synergy they can achieve via related businesses and strategic initiatives. When companies do deviate quite far from their core businesses, brands are stretched too thin, resulting in an ineffective management of resource demands resulting in the eventual downturn.

Such logic may seem conventional in the context of technology companies. As most technology companies are based on one- or two-core, guiding technologies, and because most of these technologies can be leveraged for a wide array of products, what could seem like an unrelated diversification viewed from the conventional business lens may actually be a natural progression for technology-based companies to expand their strategic scope and exploit more bottom line growth out of the same set of inputs.

In the context of Google, the brand is strategically leveraging its massive presence on the internet to offer new services to customers without committing its limited resources to fundamentally different initiatives.

Despite the increased strategic similarity among these many different business lines/markets that these technology companies straddle, managing the spread of resources effectively across these many businesses, responding to the differing competitive threats across these many fronts, and managing a portfolio of brands with quite different brand positioning, brand value propositions and brand image can be quite daunting to any brand. Especially challenging will be the multi-point management of competition with differing levels of competitor involvement, prowess and competencies.

While Google has been very effective in managing its many businesses so far, the recent news of its acquisition of Motorola Mobility for $12.5 billion to access its impressive 17,000 patents has garnered mixed reaction from the market, analysts and competitors. The gradual morphing of Google from the leader of internet search providers to a company that is leading the charge against Apple in both cloud computing and mobile telecommunications through its open source Android platform has indeed been quite impressive. Strategically collaborating with millions of open-source software and app developers on the one hand, and investing billions of dollars in developing a cutting edge platform for other value co-creators to utilize, Google has indeed taken on the charge to fundamentally alter the mobile communications industry.

How can Google ensure that its acquisition of Motorola Mobility facilitates its future growth in mobile communications industry while ensuring that its core businesses are still driving Google’s growth engine? What are some of the most important bottlenecks that Google will have to look out for, and to strategically manage?

It is important for CEOs and managers of brands to understand clearly the need for effective deployment and utilization of resources in the context of market expansion, especially beyond what has been the traditional core of the business.

Protect the core before expanding

First, Google faces the classic business challenge of protecting its core while expanding beyond it. While the acquisition of Motorola Mobility will further Google’s march in the Android space by equipping it with the software to accompany the hardware, Google should still prioritize this business segment as a temporary periphery complementing its core of search, cloud computing and its other Google-powered ancillary services.

Its new position of power in this market should also be leveraged to forge new strategic alliances with third-party value creators. Finally, it becomes very important for the brand to exploit the efficiency-related advantages of its core while simultaneously exploring the potential advantages of its new ventures. Such exploration and exploitation activities would immensely benefit the brand.
Carefully strategize for competitive posturing

Second, with the acquisition of almost 17,000 patents, Google is bound to experience increased competitive pressures from the likes of Apple, Samsung, Research in Motion and Microsoft.  Google has already claimed that it will demand that Apple pay 2.25% of every iPhone sale due to patent sharing and overlaps. Such posturing, while beneficial to convey its seriousness of the acquisition, may not serve well to manage the competition.

As such, while the acquisition should be leveraged to boost its market position, it should also tread carefully to tackle the competition well. Competitive posturing becomes highly crucial in the brand’s decision to deploy its resources across multiple market points. While it is necessary for the brand to convey its intentions to the competition, it should carefully evaluate the inherent costs from such a strategy.
Strategically nurture collaborative networks

Third, it is becomingly increasingly clear that in the era where competitive advantage is increasingly being defined by the technological advances which companies can achieve, the playing ground among companies is rapidly being flattened as access to these innovations becomes easy.

In such a scenario, what distinguishes the market leader from the other players is its extensive network with value co-creators that can not only advance Google’s mission by popularizing its mobile platform but also by acting as Google’s ambassadors in tackling the multipoint competition.

As such, it is imperative that despite the rapid expansion of Google, it should squarely focus on building new networks in every business it enters in order to attain and maintain sustainable competitive advantage.