Vertical and Horizontal Business Expansion
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!