In the previous chapter, I discussed 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 we saw in the previous chapter, which shows the presence of its offices in various countries.
This is the most common way of looking for new markets, and – again, in due proportion – is what Locaweb and Caelum have also been doing. 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, we should not restrict ourselves to geography when we think of new markets. Other characteristics define new markets:
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 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 the Email Marketing Locaweb product. 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 chapters from Innovation: what is it? to Innovation: next steps talk exactly about 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 fulfill their need.
Remember, here comes again the importance of empathy, understanding your customer well and his problems and needs. This is the way to find new product opportunities. A very simple but 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, seeking 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 several years of training 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, many companies yet use another strategy 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, Payment 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.
To answer this question, we need to understand the dynamics of a marketplace. There are 3 types of elements in a marketplace:
These three elements relate to each other in the following manner:
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 two 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 offered by the companies as a corporate benefit to their employees. Companies and employees pay a fee to Gympass, which pays for gyms and studios. In this case, Gympass connects one supply (gyms and studios) to two interconnected types of demands (companies and their employees).
So, you run a marketplace and want to expand it. There are some different paths you can take to expand your marketplace:
The image below shows the 4 types of marketplace expansion.
So, there you have it, four types of marketplace expansion. These four types are not mutually exclusive. You can explore all four 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.
Now that we know how to diversify your product portfolio or your marketplace, you will most likely reach a point where you will have 4, 5, or even more products in your portfolio and start wondering how to manage these different products. How to allocate product development efforts to each of them? How to allocate marketing investment in each of them? This is the theme of the next chapter.
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