Tech Brand Tie-Ups: Yahoo/Ebay and Google/Dell
by KMF Kamal (26 May 2006)
The tech world has been abuzz this week. Google has signed an agreement with Dell. The main thrust of the initiative involves Google delivering its own software on Dell PCs, as well as advertising. The cost to Google is estimated to be up to 1 billion dollars. Meanwhile, Yahoo has also been busy. They have decided to spend an enormous amount of money on a tie-up with Ebay. For Yahoo, the main initiative is securing advertising space on Ebay's marketplace search engine. In return, Ebay will also advertise Paypal and its marketplace on Yahoo's portal.
These cases bring up the issue of brand extension and brand equity in the form of the risks and returns the respective parties involved will receive. In order to understand the implications, we must understand why these strategic partnerships are necessary for the player brands. Tie-ups often can have unexpected consequences for brand equity, and in this case, some parties clearly have more to lose than others.
Google has recently stepped out on a campaign of diversification. Once purely generating revenue from its search engine, it realizes that it has to create new media spaces in order to spread their business risks and returns. Hence, Google Earth and the Google Toolbar are new opportunities to create blank spaces with new forms of loyal visitors to leverage off.
To Google, it would seem, spending $1bn on putting these new spaces on Dell PCs - the most prolific manufacturer on the market - is worth the loyal visitors they require to survive and attract more revenue. The "Google" brand will now be found in a new kind of experience that increases and extends the contact points for customers to interact with the brand. Hence, Google brand equity will go up and Dell gets receives monetary compensation.
Yahoo also has a loyal user base and want to increase it. Their strategic partnership will extend the brand across a completely new and untapped audience – the Ebay marketplace. Ebay will receive space on Yahoo for Paypal and their trading marketplace. For Yahoo and Ebay, the relationship appears to be complementary.
However, all is not as it seems. There are inherent risks involved in allowing another brand into your space. All of the parties have invested much into creating unique brand experiences for their stakeholders. By allowing outside experiences into their space, the companies may find that their carefully established brands are profoundly affected.