In pursuit of Growth by Diversification
The Hits, The Misses & The Insights
Google started (and shut) its cloud gaming platform - Stardia, Uber started (and thrived) its food delivery service - Uber Eats, and Swiggy recently announced its foray into D2C marketplace - Minis. What is common between the three? Answer - All attempts made in pursuit to achieve growth by diversification!
Tech-businesses have a unique advantage of leveraging ‘optionality’ inherent to their model. Optionality in business means an ability to leverage multiple discrete or single-point solutions eventually to build a platform that can solve for new problems. Businesses often build technical or operational adjacency by creating new products/ features and integrating it with capabilities that previously existed.
Uber’s drive from Ridesharing to Food Delivery to becoming Global Logistics Company
Consider example of Uber. Back in late 2013, ride-sharing was already going through the roof when Travis Kalanick and the management team believed that there is going to be more happening at the local logistics level than just rides. They decided to figure out what other businesses there could be - and that’s when they roped in Jason Droege.
Though Jason mentions that he didn’t exactly get it right immediately, while sharing the journey behind building Uber Eats. In fact they initially ended up burning about $30 million to build UberFRESH and UberRUSH till they hit the Product-Market fit with UberEats. And today Uber records about a third of its revenue from Eats, second highest after the ride-share segment. Uber arguably aspires to be the company that does ‘delivery of everything’ - people, products, and food.
When Google failed at hitting the home-run with Stadia
In 2019 Google had ambitiously announced its foray into video game industry with the launch of Stadia - cloud gaming service. It promised to disrupt the industry by developing original exclusives that would make use of the platform’s existing cloud computing advantages.
Fast-forward to 2022, Google decided to axe Stadia. The company is undergoing a serious cost-cutting effort at the moment owing to the current economic downturn. And Stadia was expensive: it spent tens of millions of dollars just to secure rights to a single big-budget release like Red Dead Redemption 2. However, it failed to gain the traction!
People working at Stadia reportedly said that the concept of game development within Google was an unusual concept in contrast to building out the technology to operate Stadia, and never had the full support of the company.
Cloud gaming is still available on platforms operated by Microsoft, Nvidia, and — for the time being — Amazon, too. But developing games is costly, difficult, and multidisciplinary work that takes years, and streaming those games over the cloud has yet to be accomplished in a sustainable fashion with an attractive business model. Google found this out the hard way, and let’s hope Stadia’s shutdown provides the road map that helps keep its competitors alive.
— Nick Statt in Protocol
💡 In an endeavour to leverage the optionality, when a company attempts at diversifying - 2 factors contribute to deciding its outcome:
company’s ability to fuel the new business till it starts showing any signs of efficiency
market forces of the sector that are in play where company is attempting to make a dent
When the company continues to struggle on either of these fronts, it may eventually decide to kill the project.
What does it mean for Swiggy’s Minis?
Similarly, Swiggy is attempting to leverage its seamless ordering experience and provide that capability to local brands with its recent initiative, Minis - a zero-commission platform for small brands. With Minis, local brands will be discoverable by Swiggy’s ~25 million userbase upfront.
However, there seems to be a catch here! Minis despite being built with a seller-first approach, the responsibility of setting up and designing the store, creating and updating product catalogs, funneling and communicating with buyers, and choosing the logistics partner lies with the seller.
It would be interesting to see if what has started as a seemingly low-hanging fruit for Swiggy, turns into becoming a preferred D2C shopping platform for buyers. But before that Minis has a colossus task ahead of proving its value to sellers at a scale.
Rightly put ! Technology based companies have the advantage of diversifying, testing and coming back. Basically, speed of execution matters and next what matters is to know when to pull the plug. Good read!