The aim of this article is to explore when it makes sense to be a multi-product business and when it doesn’t. I’ll do this by looking at several companies who make many different products.
Almost every company sells multiple products, but in a lot of cases they’re variations on the same product. An example of a single product company is Jaguar. They sell cars. I’m simplifying somewhat, because they also sell t-shirts and other branded merchandise, but it’s a small part of their overall sales.
Compare this to BMW. They sell cars and motorbikes. They’re a multi-product business. Conceivably BMW can leverage the supply chain, distribution channels, and technology of the car side of the business to have a competitive advantage in the motorbike business.
An example of an extreme multi-product business is Google. Between 2011 and 2013 they closed 70 services. Google’s product strategy has historically involved trying lots of different things, and seeing what sticks. This is fuelled by the 20% time given to engineers to work on their own projects, some of which become new Google services.
Why could Google justify having so many products?
- They could attach their adverts to any new products / services, which gave them instant access to a business model.
- They could leverage existing infrastructure to easily deploy and scale new services.
- Demand for new services can be driven from existing services (e.g. featuring them on the Google homepage).
In the digital world, there are many mini Googles when it comes to product strategy. Companies develop their brand and infrastructure, and then the number of products they have proliferates.
37Signals, which began with Basecamp, expanded to have 7 other products/services before paring it back to just Basecamp. Having so many services was spreading their efforts too thinly.
One company which has benefited greatly from a multi-product strategy is Apple. Their core products are Macs, iPods, iPhones, and iPads.
The release of the iPod was a boon for Mac sales. This is because the iPod was more affordable than Macs, so many people had their first experience of an Apple product via iPods. Subsequently a percentage of these iPod customers became Mac customers. This is known as the halo effect.
Other terms which can be used to describe this effect are cross pollination and up selling.
When the iPhone was released, it was marketed as containing an iPod. This meant that many iPhone customers were upsold from iPods.
What is fascinating with Apple is the forced cross pollination which takes place through their ecosystem. Apple products are designed to work well together, meaning the functionality of an iPhone is boosted by owning a Mac, and vice-versa. The sum of the products is greater than the individual components. This is a strong multi-product business. However, with the addition of the iWatch they might stretching themselves too far.
Here are some generalisations about multi-product strategy.
The importance of cross pollination
Multi product companies work best when a customer for one product is likely to be a customer for another product that the company sells. 37Signals sells software to businesses. If they started a new product aimed at music producers, there’s very little cross over, limiting the amount of potential cross selling, and ultimately confusing the company’s positioning.
If the products integrate well together then this drives cross sales.
A company might use one product as a way of upselling to another product.
When Google creates a new product, they already have a lot of infrastructure in place. This is undoubtedly a big advantage. For example, Google have their own infrastructure for deploying web apps. They’ve already put all of the effort into developing this tool - utilising it for other products is effectively free.
However, there’s a risk with software companies having new product addiction. Once the ‘plumbing’ is in place for building and releasing web apps, why not just keep on releasing apps? The problem is it divides attention, and means there’s less energy to devote to existing products.
To use another example, just because BMW can build engines, it doesn’t mean they should be in the lawnmower business.
When a company releases a lot of products, it becomes less clear to the consumer what they stand for. One example is 3M, which produces more than 55,000 products. Most people might think of Post-it notes when they think of 3M, but this is only a small fraction of what they do.
All of the previous examples were for established businesses with pre-existing assets. What about a startup?
It’s unusual for a startup to immediately pursue a multi product business. For example, a startup selling sports shoes, shouldn’t launch simultaneously with a range of sports clothing. They should establish a reputation with a single product, then use the existing customer base to expand into complementary product lines. Ideally these complementary product lines will be at a different price point, to provide a halo effect for other product lines.