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To Diversify or Not to Diversify

Ques> A big question in business is: To Diversify or Not to Diversify? Some corporations (e. g. , Amazon, 3M and General Electric) have diversified broadly over the years and have had great success. Other diversification attempts (e. g. , Time Warner’s purchase of AOL) have taken companies away from their core businesses and their experiences are less successful. Research two corporations that have had different outcomes (one successful and one unsuccessful) with their diversification strategies. Compare and contrast each corporation’s diversification strategy and evaluate the reasons for each one’s success or failure in the venture.

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Write a 4-6 page paper in which you: 1. Compare and contrast the two businesses—core business, their size, financials, global presence, use of e-business (marketing, sales, etc. ). 2. Compare and contrast their outcomes (one successful, one unsuccessful). 3. Analyze the three primary reasons for the different outcomes. 4. Recommend two actions the unsuccessful one could have made to make their diversification venture successful. 5. Use a minimum of three (3) quality external resources from the last five (5) years to support the content of the paper. Note: Do not use Wiki sites. ) Ans. > Diversification is a risk management technique that mixes a wide variety of investments within a single portfolio. The basic rationale behind this portfolio is to divide the investment in different kinds and on average it will yield higher returns and pose a lower risk than any individual investment found within portfolio. Diversification can result in success of the business and can also result in failure. For example Amazon started as a online book retailer company and now retails all kinds of things and has revenue over $34 billion.

On the other hand AOL and TimeWarner merged to diversify and result in biggest failure of merging. They lost 70% of their shares in just two and a half year. Here below the Amazon is considered as a successful diversification example and AOL TimeWarner or TimeWarner Inc. as unsuccessful example of diversification Amazon:- It is world’s largest online retailer company. It was founded in 1994 and was officially online in 1995. Amazon has different websites for many countries such as USA,Canada ,UK,India,Russia and many other European countries.

Amazon was started for the online retailing of books initially but it diversified by also offering sale of DVD’s ,CDs,MP3 song downloads ,Softwares, Games and other products. Amazon recently diversified into electronic market with launch of its tablet Kindle fire. The Key to success of Amazon is low prices of products, they offer convenience, expanding selection and increasing availability are interrelated which is called as virtuous cycle by the company which together make up the foundation of the fabulous growth that has taken Amazon from bookseller which was started in a garage and now it is holding a 14 billion dollar retail machine.

Amazon’s direct-to-customer online model allowed to keeps its inventory in a small number of strategically located large house, which let the company to offer a vast selection of goods and without capital investment and inventory risk that traditional brick and mortar retailer faces. The Amazon is get paid before it has to pay to its retailers which enabled Amazon to build a retail business with a negative operating cashflow cycle The Amazon has expanded its category of products over 40 different products but still their 64% of revenue of Amazon comes from media categories.

The expansion of product categories represents the growth opportunities for company, given the lower online penetration rates in most of these categories. The digital media store of Amazon has a substantial investment and investors anxiously await for the launch of new initiatives in downloadable music, video and text. Amazon has a significant growth through international businesses. Even Amazon almost ships to any country in the world; it has selectively chosen to establish the websites for different countries.

Beginning with expansion into UK and Germany and later to France, Japan, Canada and china. It has expanded its geographic footprints into the world’s major e-commerce markets. Amazon used its experience of US market and eventually replicating the most successful ventures in international markets. At the end of 2010 the net revenue of Amazon was $34. 2 billion which was increased by 39. 6% and net income increased was $1. 15 billion which is 27. 7% increased from last year.

Some of other business that Amazon through internet are * Selling its technology to other retailers (E-commerce platform sales) * Selling its fulfillment and customer services capabilities to sellers (Fulfillment by Amazon) * Selling its technology infrastructure via a set of web services technologies that enable developers to use Amazon’s servers (EC2, S3, SQS) * Operate a family of other websites: * A9. com (search subsidiary) * Alexa. com (web search and metrics subsidiary) * IMDb. com (Internet Movie Database) * Endless. om (shoe and handbag store) * Clickriver. com (internet advertising platform) * Mechanicalturk. com (human task marketplace) * Askville. com (question/answer marketplace) * Amapedia. com (product wiki) Time Warner Inc:- It is formerly known as AOL time Warner and its brand name is TimeWarner. It constitutes one of the largest media company. TimeWarner is formed with combination Warner communications Inc, and Time inc. along with assets of company Turner Broadcasting system. The company also uses the assets of telecommunication through Time Warner Cable and AOL.

They have many leading brands The company classifies its business in three following reporting segments 1. Networks consists basically of cable television networks that provide programming 2. Filmed Entertainment consists basically of feature film, television and home video production and distribution 3. Publishing consists basically of magazine publishing At 31 December, 2009, TimeWarner had 31,000 employees approximately The company has two types of networks domestic and international and also it has premium television services . The networks which are owned by Turner Broadcasting System Inc. as Premium pay television programming which consists of the multi channel HBO and Cinemax pay television programming services collectively operated by Home Box Office Inc. The programming of the Tuner Networks and the Home Box Office Services is distributed via cable systems, satellite distribution systems, telephone companies and other distribution technologies. The principal revenues generated by Tuner are from proving programming to cable system operators, satellite distribution services, telephone companies and other distributors which are under contract to receive and distribute this programming.

In domestic networks Tuner in U. S. consists of entertainment and news networks. For the international network the Tuner entertainment and news networks distributed to many distribution platforms such as cable Internet protocol television systems, satellite platforms ,mobile operators and broadcasters for delivery to households, hotels and other viewers around the world. Tuner also operates various websites that generate revenues basically from advertements. CNN has multiple number of websites including CNN. om and several localized editions that operate in Tuner’s international markets. Tuner also published several Apps in Apple Inc’s iTunes App store which include CNN mobile. Time Inc. published 21 magazines in the U. S. as of 31 December, 2009 including people, sports Illustrated, Time, InStyle, Real Simple, Southern Living, Entertainment Weekly and Fortune, and over 90 magazines outside the U. S. , primarily through IPC Media (“IPC”) in the U. K. and Grupo Editorial Expansion (“GEE”) in Mexico.

Time Inc. generates nearly half of its revenue from advertising primarily from its magazine and with a smaller amount of advertising from its websites. In 2009 Time Inc’s US magazines accounted 20% as compared to 18. 4% in 2008 of the total US advertising revenues in consumer magazines. Time Inc. had six of the top 25 leading magazines based on PIB measured advertising revenues . Ques:- Compare and contrast their outcomes (one successful, one unsuccessful). Ans-Outcomes of Amazon due to diversification

Amazon. com was founded by Jeff Bezos in 1994. It was started as a online book store but now Amazon website has almost anything that you want to purchase. In 17 years the Amazon has grown exponentially. At start the growth of company was slow. But when the Internet bubble burst and many e commerce companies went out of business, Amazon preserved and gained a profit in first quarter o 2001, Amazon revenues more than 1 billion dollar at that time. * In 1998 Amazon acquired U.

K based internet bookstore bookpages limited. The bookpages acquisition enabled Amazon to quickly offer U. K and European consumers the same combination and selection, service and value that they provide in USA * In 1999 Amazon launched Internet Movie database(IMBD) which now has over 100 million unique users each month. * In 2004 Amazon purchased joyo. com which is Chinese e commerce website and has became 7th regional website of Amazon. com * In 2008 Amazon bought Audible. om which is one of the biggest provider of spoken audio entertainment, information and educational programming * In 2009 Amazon bought Zappos which is leading shoe and apparel retailer * In 2011 Lovefilm became the subsidiary of Amazon. In januar 2012 it reached 2 million subscriber So diversification for Amazon from book store retailer to sale of DVD’s ,CDs ,MP3 song downloads ,Softwares, Games and other products Since its first profit in 2001 when they had revenue of 1 billion dollar has increased exponential and in 2010 Amazon had revenue of 34. 2 billion dollars

Outcomes of AOL TimeWarner merge:- In 2000 AOL and TimeWarner merged. AOL TimeWarner was touted as the largest corporate merger in history one coming from mass media and other from the internet. At the time of merge the AOL was at the peak of internet boom its stock were value at $200 billion, which were more than double of the TimeWarner’s . But not after a long time the new company signs went up, the stock went down and so did the confidence of investors. Due to merging of 2 companies the internal politics started and the stocks of AOL TimeWarner start declining.

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