What is unrelated diversification
Is Google Addicted to Diversification?
By Steve Scheidecker -- Get free updates of new posts here
Over the past week Google has announced its involvement in several interesting projects that could not be further from it’s basis as a search engine. The first of these announcements was in regards to Google’s development of technology designed to allow cars to drive themselves, completely automated and un-manned vehicles. The second was their announcement today that they have invested $5 billion in the first off-shore wind project in the United States. In the past Google has also invested in biotechnology companies, an electric car manufacturer, a wind farm in North Dakota, a company that produces computer processors, a company that helps teach people English, and more. Even Google’s software related businesses seem to be drifting away from a clear-cut centerpoint. Google now offers Health Record Management, 3D modeling, telephone routing, and 411 service.
Its obvious that Google likes diversification and has a hard time turning down opportunities no matter how un-related they may be… They are addicted to diversification. But, over the long-run how will this impact their business? Almost every company struggles with a diversification addiction
at some point. When times are good diversification puts unused cash to work. When times are bad companies diversify to re-invent themselves.
The reason that Google will succeed in even the most bizarre acquisitions while other companies fail is that they take care of their core competency first. Most companies diversify before they perfect the core business on which they were built. Microsoft is a perfect example of a company that has diversified into other products before perfecting their core competency, operating systems. Microsoft has branched off into a bunch of directions (search engine, game consoles, internet access, touch-screen kiosks), doing each of their new efforts poorly. At the end of the day it has made Microsoft perceived negatively among its customers.
Companies or investors should always evaluate acquisition prospects in terms of the business’s core. If the core business is operating smoothly then diversification makes sense, if there are outstanding improvements needed to the core business then there should not even be a thought of diversifying. Small business owners can heed this advice as well, look at your core competency first and only think of diversifying when your core no longer needs significant revamping.Source: www.ignition3.com