"Uber, Airbnb and Snapchat are creating side businesses to (each) show their company can move beyond its central business," according to a recent article in the Wall Street Journal (WSJ). The article suggests a key motivation for this brand stretching by tech companies is justifying sky-high valuations, such as Snapchat's $18billion price tag, ahead of expected initial public offerings (IPOs).
I suggest below that these three cases of digital brand stretching are in fact quite different and have varying chances of success. I start with the least promising, Snap sunglasses, go on to Uber Eats and finish with the most promising, Airbnb's travel offering.
Snap Sunglasses: PR-led brand stretch
Until recently Snapchat was know for a simple, highly popular messaging app. In September 2016 it shortened its company name to Snap and launched into hardware with $130 camera-equipped sunglasses and began calling itself a camera company, as reported here. "We believe that reinventing the camera represents our greatest opportunity to improve the way people live and communicate," states the company's website.
This brand stretch has taken Snap into a totally different category from the core app business. This has created some buzz for the brand, with WSJ reporting that "roving vending machines around the U.S. have inspired Snapchat fanatics to wait for hours in line to buy the device". But beyond the PR value, this feels like a bit of a gimmick:
- Size of prize LOW: how many people are really going to want to walk around wearing Snap sunglasses? This is a highly competitive market with a plethora of highly aspirational brands, from sunglass experts like RayBan to fashion labels like Tom Ford and Prada
- Ability to win LOW: just as importantly, this is a digital app business who knows nothing about hardware creation, production, distribution or marketing.
Google, with all its resources and brand equity, failed to make Google Glass a big success, so I struggle to see how Snap will do any better.
Uber Eats: technology-led stretch
Uber has an even bigger job to justify its valuation, which is reported to be a mind-boggling $68 billion! The brand has stretched from its taxi hailing core business into food delivery with Uber Eats, with the rather lofty ambition of “changing the logistical fabric of cities.” This is what I would call a 'technology-led' stretch. It is based on finding new uses for the company's capabilities in online ordering, scheduling and transportation, rather than building on what has made the brand famous from a consumer stand-point. I'd rate the chances of Uber Eats becoming a significant, profitable long term business as medium to low:
- Size of prize LOW: there is a clearly a need for food delivery in major cities, and there is a link, albeit weak, between the Uber brand transporting people and transporting food. But the market is highly competitive, with Uber up against specialists for whom food delivery is their core business, such as Deliveroo and Just Eats in the UK
- Ability to win MED/LOW: Uber has tech for order placing and navigation. But the Uber Eats platform is more complex to run, as it now has to manage thousands of relationships with restaurants and cafés, not just the drivers. It has to persuade these food providers that it is a better bet than the expert food delivery brands mentioned above.
Airbnb Trips: stretch from the core
Last, and most promising, is Airbnb stretch into offering travel services with Airbnb Trips. The site plans to become "a one-stop shop offering excursions, restaurant reservations and eventually flights and car rentals", according to the WSJ report of a recent conference for thousands of the site’s hosts, where CEO Brian Chesky said his company would “make travel magical again.” The home-rental site has been testing for the last two years new travel-related services such as skateboarding lessons and nude photo shoots (huh?). This seems to be a much more promising stretch:
- Size of prize HIGH: first, there is a chance for some additional revenue, with Airbnb taking a cut of any additional services sold. But what is really powerful about this brand stretch is how it strengthens the core, making the home rental offering even more attractive, and adding to the core brand idea of 'Don't stay there, live there', that I posted on here.
- Ability to win HIGH: the stretch builds on the brand's expertise in travel, and can also leverage the knowledge of the company's thousands of hosts. Also, many of the services such as hire cars and flight can be seamlessly and easy integrated into the website. This can be done via a handful of big, strategic alliances in contrast to the nightmare take of Uber negotiating with thousands of restaurants.
In conclusion, these new-age digital brands attempts to stretch illustrate the fundamental and enduring principles of brand stretch: leverage your band equities and capabilities to add value in a new market, in a way that reinforces your core business.