Wednesday, October 11, 2006
Carphone warehouse goes the same way as Time Warner
So, Carphone Warehouse has bought AOL UK after Time Warner decided to get rid of it. In a deal worth £370m, Carphone Warehouse has acquired the name and the 2.1m customers of AOL UK. Plus the deal will allow cross selling of each company’s products. However, ask yourself why did Time Warner want rid of the business? Over recent years, we have seen traditional publishing companies, like Time Warner, rushing into the online sector. Time Warner realised that having a broadband supplier and online portal was not core business. Carphone Warehouse has a broadband business – on numbers alone, the third best in the country. On customer service, you might think different. Their launch of free broadband was more successful than they predicted leading to huge customer relationship problems. It makes you worry about the forecasting capabilities at Carphone if they got this so badly wrong. The new AOL UK deal also makes you worry about the business – even though the City rewarded Carphone Warehouse with a 5% share price increase. Carphone Warehouse succeeded in the mobile phone market where others had failed. Why? Because it had a focused, niche – just car phones and mobiles. Competitors didn’t survive – they offered office phone systems, mobiles, computing and the like all under one roof. The focus of the Carphone Warehouse made it successful. Now it has added broadband, with huge difficulties and an extra £20m cost above budget. Furthermore, it’s going into the online portal business with AOL UK. Be warned: Time Warner got rid of AOL UK partly because it took it away from its focus. Carphone Warehouse’s addition of AOL UK takes it away from its own focus. If there is one thing that running an e-business teaches you very quickly, it is the need for focusing on a narrow niche. Successful entrepreneurs always do that - at the outset. But the lure of expansion and growth often takes businesses away from the very focus that got them their success. Is that what is happening with Carphone Warehouse?
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