Many large technology companies are usually known by one product, out of many in their solution offerings. And that one specific product is typically their best product. Also, most times, the product is what gave them the new basis upon which they competed and became successful. When they were startups, that product provided the elements that enabled market disruption or simply facilitated the capacity to take market share from incumbents. Also, in some cases, that product engineered their pioneering of a new technology category. It does not have to be the first product of the company, but most times, it is always the one that everyone comes to associate with the firm, over time.
Apple is an iPhone company, Google is a search advertising business, and Facebook does its social connection. The old HP was a printer company and Amazon of today remains an e-commerce business, despite the Alexa (voice assistant), Echo (speaker),and Whole Foods (grocery chain). While Google makes most of its revenue from advertising, Amazon generates most of its market capitalization due to its e-commerce operation even though it may be losing money on ecommerce. Yes, the Amazon ecommerce is a loss-making business but which is a very critical anchor of Amazon’s home run on market capaitalization.
At the end, Wall Street will push the stock upwards because the metrics for valuations are convoluted. Google parent company, Alphabet, made $7.8 billion profit on $27.8 billion quarterly revenue, largely from advertising. Google remains an advertising firm and that is what matters. Apple will remain an iPhone company and that is why iPhone X matters to Apple. Yet, at the same time Google was bringing billions in profit through its one-product company (search), Amazon had only $256 million profit on $43.7 billion in revenue. Yet, the markets cheered as Amazon beat analyst expectations. Now you know why staging expectations is more important than the actual results!
So, for all the leading technology companies globally, there is always the one product that defines that company. That one product is the best product that helps the company to drive growth. Sure, these companies are expanding and branching into new areas to create diversification, but when the quarterly statements are released, you will notice that the other things are simply to keep investors at peace. Go deeper into the financials; you will notice that nothing is really happening in those other products.
Very brilliant companies design their businesses so that new products serve that one product, at least initially. In other words, even when you diversify, you make sure that everything you do drive the success of that one product. That means that the one product is the first customer to the new products which are launched to drive diversification.
Let me give an example to explain: when Amazon built its cloud computing service, the first customer to that service was Amazon ecommerce operation which needed such capacities to deliver the best possible user experience. So, with that readily available customer, the cloud service had a reliable customer. Then, over time, the cloud solution was made public as a service: the Amazon Web Services. Today, it is the driving force to Amazon’s profitability.
Growing with One Product
Amazon wants growth and it moves into new markets with its best product: ecommerce operation. With that key product, it introduces new solutions, most especially the Amazon Web Services, to new markets. So, as Amazon pursues its market domination, it relies on its one product to drive it. The messaging to the world and media remains that Amazon is an ecommerce company. But when you look critically, Amazon does many other things. But that image is central to its ability to manage its messaging. That is something you must learn in your business: you must be known for something and let it be your best product.
Besides, when technology companies struggle as a result of competition, what usually happens is that the one product has been attacked. And when they need to overcome the stasis, they need to find another product. The old IBM was known for its computers but that was severely wounded by Dell and others. IBM is reinventing itself with a combination of AI powered by Watson. HP, the printer business, is looking for a new product for an edge in technology services.
Note that it does not mean that the company must have one product. What happens is that most times, it is one product that defines how we view most technology companies. SnapChat remains known for its disappearing posts despite efforts to diversify into hardware. We know that Microsoft will remain a Windows business despite anything it is doing with HoloLens and cloud computing. At any phase, we have a one-product company in most technology businesses. They always work for growths around that one product.
Amazon is a great company that uses its main product (the ecommerce) to keep the expectations of investors low, but uses other products to turn quarterly surprises. So, everyone expects losses, but with cloud and other services, Amazon comes up with small profit, and when that happens, markets rejoice. That has been the driver of the market valuation of Amazon. It is only Amazon that will make $256 million profit on $43.7 billion quarterly revenue without being punished by markets. For any other company, investors will shout that costs must be cut to improve the profitability. But Amazon understands one thing: ecommerce can deliver the huge revenue, even at losses, and investors will be fine, provided there is something that will flip those losses into profit.
Amazon is large and it is also efficient. I do think that it has no rival in its operational excellence. The way it does everything today is peerless. This company has been good in seizing the moments. Examples abound:
- It has superb marketing stunts where American cities competed for the opportunity to host Amazon second headquarters as though they were auditioning for American Idol, a singing competition. That stunt made Amazon more local as the news were everywhere in America. That was free publicity and marketing at scale. The message was an ecommerce company was coming into town.
- Few years ago, 60 Minutes, a TV program hosted on CBS, profiled Amazon’s drone distribution project, providing massive earned media. That was a technology that was not even ready but Amazon was able to inject itself into the most elite TV program in America as shopping season was about to start. The stage of this drone was the best product, ecommerce, and its efficiency.
- Another brilliant messaging by Amazon was tying its best product (the ecommerce business) with its low pricing and the quality of Whole Foods, a high quality grocery chain. For most Americans, the message they got was that Amazon was going to offer them the best possible grocery at the lowest price possible. Amazon took that home when it announced massive cuts that were largely marginal. Nothing of value really happened in the cuts but Amazon wanted some unbelievers to believe that the grocery chain, nicknamed Whole Paycheck because of its expensive products, is now affordable.
Every company must discover its one product and build its image around it. Using that one product, marketing and customer acquisition could be more impactful. Also, as the company diversifies, it is also critical to see how the one product can tax those new areas or products. In other words, you need to make the one product the first customer of new products. Doing that reduces investment risks and ensures that as funds are invested in new products, there will be positive impacts in the one product, even before the new products can make real financial contributions.
And Fasmicro – Zenvus, Interswitch – ATM; you can add your own. Perhaps deliberately or accidentally, the idea is to rally support and have a flagship product. It may not necessarily be the first product launched by the company, but somehow the lot is bestowed on one of the ‘shining’ products of the company. Just as P & G and Pampers are one and the same. Again it’s difficult for any company to do extremely well in all its products categories; so there will always be those ‘also run’, the ‘buy one and get one free’ families.
---Visit our Store for my books, cases, notes, etc. Now, enjoy our consolidated subscription for all contents (past, present and future).
-- We offer Advisory Services (tech, strategy & Africa).