Archives for posts with tag: business

Vertical and Horizontal Business Expansion

October 29, 07 //
0

When developing an internet business you will always be looking for ways to maximize your revenue, and expanding your fields of operation is often a possibility that surfaces when you are evaluating the future of your businesses. While common to most of those who have formally studied business management, the concepts of Vertical Expansion and Horizontal Expansion are not always recognized by small time internet entrepreneurs such as myself.

Generally when facing the option of expansion, you will have two initial paths to choose from, and the way we usually seperate them is by classifying them as horizontal or vertical. So what separates these two options?

Horizontal Expansion is defined as expanding a business beyond what is presently known as its core functions. Best illustrated by example, a typical case of horizontal expansion was when ProBlogger decided to introduce their Job Boards. While ProBlogger’s core functions was providing bloggers with tips on how to make money through their blogs, the team behind the site identified that a job board could compliment what they already provided their “customers” (readers) with, and at the same time create a new cash flow and increase their revenue (by charging for the listings on the job board).

This is a type of horizontal expansion where you expand on your already existing brand and go beyond your core activity in order to create new and (hopefully) rewarding cash flows that by calculation will, at some point, make your business more profitable.

Another type of Horizontal Expansion is to create a completely new section of your company, and only tie them together under an umbrella. In the world of small, independant online publishers a feasible example would be that if you run a popular blog on a certain videogame, you can start a completely new blog on another videogame, and tie them together only by a company/network blog or website. Of course, the other method of expanding horizontally would be to simply extend the topic of your current blog to include the additional new videogame.

Vertical Expansion is often referred to as Vertical Integration (see WikiPedia) as well, but as I will point out shortly, for independant online publishers, expansion is a far more accurate word than integration. When you expand your business vertically, you try to increase your profits by expanding and improving on your existing core activities, and moving tasks you’ve previously outsourced inhouse.

For larger companies an example of vertical expansion could be to purchase or merge (hence the term Vertical Integration) with the company that handles their logistics. Similarly a possible vertical expansion for a blogger could be to sell his own ads instead of using AdSense, but seeing how buying AdSense off of Google is probably not very likely, the term expansion makes more sense in this case than integration.

And such the overall purpose of vertical integration for a blogger would be to minimize the costs of outsourcing (TextLinkAds for instance claim 50% of what they sell your links for), and make thus expand your own profits. Another goal of vertical expansion is independance. Your business will be less dependant on outsourcing services, and naturally also less dependant on 3rd party service providers.

Common to both types of expansions are that they both involve a certain amount of risk, horizontal even more so than vertical. When expanding horizontally as an online publisher you will be required to either outsource the information you will provide, or climb a steep curve of learning in order to gain the proper insight in order to be able to provide quality content on the new subject.

When expanding vertically, the curve of learning can be equally steep, or even steeper, because often it means that you will have to learn a completely new trade that you don’t have any prior experience with what so ever. Your already existing access to knowledge, whether it is in yourself or already employed people, should therefore be considered when considering either forms of expansion.

In future posts I will further investigate specific examples of both forms of expansion, and I will highlight certain types of expansion (in particular vertical) that I recommend all online publishers to make, and even included a detailed how-to. If you want to be sure not to miss it, I recommend that you subscribe to my blog, either by RSS or Email. That way you will never miss any of my articles again!

You can’t establish an online monopoly!

August 22, 07 //
5

Two of the blogs in my feedreader recently wrote articles about how you should try to achieve a status as a monopoly, as this will in turn lead to greater profits. I first saw an article about it over at Dosh Dosh, and then a spin-off article over at NetBusinessBlog. Anyone who has taken business 101 and seen the price and demand model for a monopolist will know that this is not wrong, mainly because you will have complete market control.

While the idea of a monopoly online is good, it’s practically impossible actually establish one. There are certain fundamental requirements that must be in place for a monopoly to arise, and in my humble opinion it’s nearly impossible to reach these online. The most important factor is obviously complete market control, and this is where most websites will fall off the radar immediately.

There is an infinite number of markets on the internet, and one would think that it should be possible to be the sole supplier in one small, obscure market, but in reality it hardly is. No matter what type of product you supply to your customers, there is a 99,99% chance that somewhere out there on the internet will be able to deliever a perfect substitute, should you for some reason not satisfy your customers. And if there isn’t, you can be quite certain that as soon as you’ve paved the way and started making money, someone will step in and want a piece of the cake.

I shouldn’t even have to mention the case of online publishers. No matter how quick you are with news thanks to great contacts, or how extremely well written your content is, thanks to the nature of the internet and free flow of information, someone will always tap into your marketshare by rewording and republishing your information.

In order to establish a true monopoly, you need to be in control of something that is extremely valuable / expensive, so much in fact that it is impossible for someone else to get a foot in to your market (think railways, telephone landlines and similar, and even then you don’t have any guarantees unless you actively work to stop potential competitors from entering your market), and quite frankly that isn’t possible online. Just look at Google, they arguably have the best, most intelligent search engine algorithms of all the search engines, but yet they are nowhere near a monopoly.

Of course, the fact that you’ll never become a monopoly shouldn’t discourage you from working on improving your market position. The articles I referred to in the start give some great tips on how you can approach this matter, but I just thought it was worth pointing out the inaccuracy in claiming that you will actually be able to create a monopoly for yourself on this glourious thing known as the internet. Of course, if anyone disagrees with my claims, I’ll be happy to hear your arguments!