How to diversify your product portfolio?
In my previous article, I talked about why companies should diversify their product portfolio. Now, I will show you how to do this.
The first option is the search for new markets. When we think about it, we remember the Google map, which we saw in the previous chapter, which shows the presence of its offices in various countries.
This is the most common way of thinking about looking for new markets, and — again, in due proportion — is what Locaweb and Caelum have also been doing. Both Locaweb and Caelum are still nationally searching for new markets in Brazil, but it is nonetheless similar, that is, the search for new geographic markets. Gympass is another good example of a company that decided to diversify by opening operations in new countries. As of 2019, besides Brazil, Gympass operates in 13 countries in Europe, Latin America, and the US.
However, when we think of new markets, we should not restrict ourselves to geography. There are other characteristics that define new markets:
- Age range: If you have a product for young people, can you fit it for older people? Will these be of interest? And the kids?
- Individual vs. Legal entity: If your product is made for business, could it also be used by end consumers?
- Business size: Is your product suitable for small businesses? What would it take to suit it for large companies? Or is your product made for large companies? Is it possible to do something to suit you for small businesses? It was precisely the pursuit of this new market that motivated Locaweb to acquire All In. As I explained in the article about how to prioritize the roadmap, Locaweb had the Email Marketing Locaweb product focused on small businesses. Often, we received demands for features typical of large companies that trigger large volumes of email. It was a new market that was opening for us. We looked at the options we had to do: do nothing, evolve the product, develop a new product to serve this new market, or acquire a company that already had a product that would serve this new market. We opted for the third option and acquired All In, which has an email marketing product made for large companies.
- Niches: Do you have a product for dentists? Can it also serve doctors? What about physical therapists?
That is, it is not just geographical differences that characterize new markets. Ethnographic, social, and cultural differences also help define market segments, and a product manager must be able to understand and identify these differences in order to explore new opportunities for her products.
Remember that when you are going to explore a new market with your existing product, there is a good chance that you will need to make adjustments to it so that it can be accepted in that new market. Just see what I described about Email Marketing Locaweb. In the search for a new market of larger customers, it became clear that we needed to adapt our products to meet these new market segments. Hence comes the second option for product portfolio diversification.
The other option is to develop new products to serve the market you already know or even to serve a new market, as I described in the case of Locaweb Email Marketing.
The articles from Innovation: what is it? to Innovation: next steps talk exactly about the topic of developing a new product, and present the techniques for discovering a problem or need for a group of people and how to develop a product to solve such problem or serve them.
Just remember, here comes again the importance of empathy, understanding well your customer, and the problems and needs he has. This is the way to find new product opportunities. A very simple but very powerful technique for discovering new opportunities is to keep track of one or a few days of your client. What does he do during that day? When does he get frustrated to do a certain task in his day? What makes him happy? What tasks could be accelerated, improved, or even eliminated with the help of software?
Caelum is a great example to illustrate new product development for existing customers. Initially, they had face-to-face software development courses in Sao Paulo. They then expanded to Rio de Janeiro and Brasilia, meaning they seek to diversify new geographic markets. Over time, they began to notice demand in other cities, but it was a very scattered demand, with no specific focus on one city or region. Hence came the idea of launching Caelum’s online course service, which was most recently renamed Alura.
Over the course of several years giving training to developers, or people who wanted to learn about software development, Caelum people realized the demand for quality books on software development and related topics in Portuguese. This gave rise to the idea of founding Casa do Código, a publisher of technology books.
In addition to the techniques I have cited in the innovation chapters, there is yet another strategy used by many companies for product portfolio diversification, including Google and Locaweb, which is the company acquisition strategy. Several of Google’s products were not developed within Google, but rather by small companies that developed a product that caught the eye of Google product managers and motivated them to purchase them. Some well-known cases are Waze, YouTube, and Android.
Locaweb has also started doing this recently. Locaweb always had products for customers who wanted to have their online store. We started with a Payment Gateway product, launched at the beginning of Locaweb in 2006, so that website developers could create online payment shops. In 2010, we launched WebStore, a complete e-commerce product, and in 2012 we met a company called Tray, the founder of another e-commerce company, Pagamento Digital, which was acquired by Buscapé and recently renamed bCash.
Tray was a complete e-commerce company with e-commerce, payment gateway, checkout and marketplace products. They were way ahead of our e-commerce products, with more mature products that we didn’t even have in our portfolio. Therefore, at the end of 2012, we announced the acquisition of Tray, an e-commerce solutions company. Another area we have always been interested in is online video streaming, an important addition to our customers who want to have an online presence. As a result, in late 2012 we acquired the webinar startup Eventials.
So, there are two ways to diversify your product portfolio. One is looking for new markets. We should not restrict ourselves to new markets from a geographical point of view. We should also think about new markets thinking about other parameters such as company size, customer age, niche market etc.
The other form of diversification is the creation of new products for existing customers.
It is worth noting that these two strategies are not exclusive. Many times it is necessary to create a new product to be able to serve a new market.
How to expand a marketplace?
To answer this question we need to understand the dynamics of a marketplace. Basically, there are 3 types of elements in a marketplace:
- Supply: goods or services available for consumption
- Demand: people or businesses that may need goods or services offered by the supply
- Marketplace: where demand finds supply and a transaction happens
These 3 elements relate to each other in the following manner:
- Value delivery: marketplace delivers value to both demand and supply. The value delivered to supply is people or businesses interested in its goods or services. The value delivered to demand is a varied number of goods and services suppliers.
- Payment: in order to have access to the goods and services offered by the suppliers, the demand pays the marketplace and marketplace pays the supply. Normally the marketplace retains a fee per transaction. This fee can be fixed or a percentage of the payment.
Let’s analyze Uber as an example. Supply is the drivers. Demand is the riders. The marketplace is Uber. Uber delivers new riders to drivers and delivers transportation services to riders through its supply of drivers. Riders pay Uber who then pay drivers and retain a fee.
Another example is Uber Eats, a 3-sided marketplace where supply is both the restaurants and the drivers who deliver the food to the user. Demand is the users who order food through Uber Eats, which is the marketplace. Uber Eats delivers demand to both restaurants and drivers and delivers a food ordering service to its users. Uber Eats charges the user and pays both restaurants and drivers, retaining a fee. In this case, Uber Eats connects 2 types of supply (restaurants and drivers) to one type of demand (users).
A 3rd example is Gympass, a 3-sided marketplace where supply is gyms and studios and demand are companies and their employees. Gympass delivers new users to its supply while delivering a network of gyms and studios that are offered by the companies as a corporate benefit to their employees. Companies and employees pay a fee to Gympass, which pays gyms and studios. In this case, Gympass connects one supply (gyms and studios) to two interconnected types of demands (companies and their employees).
Expanding the marketplace
So you run a marketplace and want to expand it. There are some different paths you can take to expand your marketplace:
- Demand diversification: you can offer the goods and services of your marketplace to new segments and geographies. Uber did that in its international expansion. Uber also offered its transportation services to companies, besides its regular offer to end-users.
- Supply diversification: you can offer new goods and services to your demand. Uber did this with Uber Eats. Amazon started out offering only books. Now it offers almost anything.
- New value delivery: you can offer new value to both your supply and your demand. Uber offers many services to its drivers like car rental, car maintenance, phone plans, and health insurance. iFood, a Brazilian company similar to Uber Eats, offers a PoS system to its affiliated restaurants. MercadoLibre, an Argentinean marketplace similar to eBay, offers to its sellers MercadoShops, an eCommerce site builder and becommerce, a back-office management solution.
- Payment financial management: since the payment from demand to supply goes through the marketplace, you can offer financial services to both your demand and your supply like advance payment and credit, and you can manage the spread. iFood is offering through its app the ability for its users to pay the bill when they are in the restaurant. Uber partnered with Intuit to offer financial management services to its drivers. Both MercadoLibre and eBay offer a payment solution for its sellers and buyers. MercadoLibre offers MercadoPago and eBay acquired Paypal. Most recently MercadoLibre decided to offer loans to its sellers in Brazil and Mexico.
The image below shows the 4 types of marketplace expansion.
So there you have it, 4 types of marketplace expansion. These 4 types are not excluding. You can explore all 4 options simultaneously, but remember that each can be a new business on its own, so be careful not to distract too many resources from your existing marketplace business.
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