3.1 Why portfolio analysis?
Tools like the McKinsey model or the Boston Consulting Group model are created to make things easier. Managers use them to structure the brands of a company in order to make decisions about whether it is worth investing in those products or if it is better to withdraw them. But they always do this carefully with an analytical mind. One can say that these models are only the starting point for further research. It is useful to compare all brands within the business with each other to see the strengths and weaknesses of the company. A problem within portfolio models is that the results are never objective and can be manipulated. Who defines for example whether a market is attractive? Different managers might have different opinions whether a brand is still a “cash cow” or already a “dog”. The results are very vague and always need many other analytics (Doyle and Stern, 2006, p.107-113).
It is also useful to analyse competitors in putting their brands in the same matrix. With this method companies run for example benchmarking and use these models for a direct comparison to improve their position in the market. The main problem here is that normally the data from the competitor is missing, so it can only be estimated where in the matrix you put in the competition’s brands. Together with the above-named problems arises a very hazy image. But it is still sufficient to make a first overview in order to plan next steps (Kaisers Associates, 1988, p.11).
3.2 Portfolio analysis and Google
Google has a lot of large brands which are known worldwide and have the absolute leadership in the market. Most of their SBUs are unique and difficult to imitate for the competition. Customers have very strong brand awareness for their main products the search engine and YouTube. They often do not even think about other possibilities. For example since 2004 you can find the verb “Googeln” as a synonym for a search in the official German dictionary Duden. Another myth assumes that everything is found available on the web, but in reality the web is 500 times bigger than the Google index (Devine and Egger-Sider, 2009, p.7).
This makes Google a very powerful company which at the moment does not have to fear competition for its main brands. It is likely that it does portfolio analysis as well, but they are certainly not the basis for strategic decisions. Most of Google’s products are free, only supporting the brand image and for generating visitors on those web pages which use AdWords or AdSense. In fact the main strategy is to be innovative and create new products in order to increase their AdWords impressions (Lynch, 2009, p.3-4). At the moment the weakest product in Google’s portfolio is its browser Chrome. Google does not have the chance in the following to increase its market share considerably because of the strong rivalry among existing browser suppliers. Nevertheless Google keeps advertising it and is willing to design its own operating system. This would be another free service to underline brand power it already has (Fischer, 2009, p.457-465).
The matrices should be used to identify products which do not make a profit in order to withdraw them out of the portfolio. But almost all of Google’s products are free and are not aimed to make a profit. Those products which are not successful in the market will be identified by the customer who tells Google, directly or indirectly, that it has to be withdrawn. Google does not need a portfolio analysis to identify its weak brands. There are millions of users who discuss daily in blogs and internet communities about Google’s products and its next steps, even during the development phase. This means that for example Drucker’s “Seven types of products” model does not play a role in the strategy of Google because “investment in managerial ego”, “sleepers” or “failures” do not have a chance from the start. Potential weak products are sorted out even before Google invests in them.
The financial risks to fail with a new brand are low as well, because it is an online-based company which does not have the same infrastructural costs for buildings and employees as an industrial company. At the end of 2008 Google only had 20,000 employees, whereas Volkswagen had 370,000 employees. But the market value of both companies is just over 100 billion for both (Financial Times, 2009).
By means of these examples one can say that Google does not need portfolio analysis to identify weak products. At the moment they neither need them to compare its products with the competition. Surely, the portfolio tools are interesting methods to bring all the brands in very easy structure, but they are not vital. Google uses analytical tools which are far more complex than theses matrices (Spiegel, 2007).
3.3 Companies like Google
There are two main differences between strategy in the last century and nowadays’ strategy. Firstly the supply chain has become easier because of the information age. A product is often delivered from the factory to the end customer directly or there is no tangible product, but a virtual one. The second main difference is that the customer nowadays interacts with the companies. Formerly the customer had no opportunity to give his opinion about the product and how to improve it. Today every modern company, it does not matter if they sell virtual products or real products, offers various channels for the customers to criticise the product. It is no longer a one-way communication (Johnson and Whang, 2002).
Companies like Google which have close customer contact are the winners of the 21 century. They do not need portfolio analysis to identify weak products, since the customers do this for them. And they do it for free. The only condition is that these companies also have to accept critique which sometimes could be violent as well. But a crowd of people who tell their opinion anonymously is always a true opinion. This data is much more useful than matrices (Chaffey et al, 2009, p.336-337). The matrices are compiled by managers who work for the company. They often have a wrong view of the brands and cannot identify exactly why the brand looses acceptance in the market. From the academic point of view the portfolio analysis still provides a good overview of the brands, but the models need revision for the companies which are very innovative without high financial risks because of selling virtual products. Although they have brands in the lower sector, which they normally should withdraw, they stay with these brands to support the more important ones.
Other companies which have similar strategies are for example Amazon, EBay, Nokia or Microsoft. They all have products in their portfolio which are not worth further investments, but they are needed for creating brand awareness for the other brands. For example the unlocked Nokia 1208 mobile only costs £15 at a retailer (Tesco, 2010). This product is only worth having in the portfolio because Nokia wants to sell mobiles for everyone. They do not make a profit with it.