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This Wall Street Journal (WSJ) article discusses the entrepreneurial history of Eric Baker, co-founder of StubHub and Viagogo, and the recent merger of these firms. The idea of starting a ticket resale business came to Baker when he and his girlfriend were trying to find tickets to “The Lion King” on Broadway (Steele, 2019).
In 2000, he and his colleague Jeff Fluhr founded a company which is now known as StubHub. However, Baker left the company due to differences with Fluhr and founded Viagogo in 2006, which provides similar services in Europe. This company had multiple problems with regulators, but Baker made an effort to make the business more transparent. The StubHub, acquired by eBay in 2007, was eventually sold to Viagogo, enabling Baker to distribute its services globally.
Vertical Integration and Diversification
In this case, the merger of StubHub and Viagogo is the forward type of vertical integration. According to Liu (2016), “vertical integration increases industry profit only when innovation is important at both upstream and downstream markets” (p. 112). The primary customer value of the services provided by both companies is the opportunity to acquire tickets to events if they have already been purchased.
At the same time, StubHub and Viagogo guarantee the authenticity of the tickets and refund the money otherwise. This business idea has initially been innovative, and Baker states that many people considered it crazy (Steele, 2019).
The merger of StubHub and Viagogo will allow to unify the process of providing these services and achieve a broader range of clients, including Americans and Europeans. Forward vertical integration involves the acquisition of assets that bring the business closer to the endpoint of the value chain (Rothaermel, 2016). In addition, customers will be able to purchase tickets for more events as Viagogo will inherit the partners of both firms.
StubHub, as well as Viagogo, has been a single-business firm as it has received all profits from ticket exchanges and resale. However, at the moment, the united business has considerable potential for corporate diversification. According to Selcuk (2015), “corporate diversification, in its broadest sense, can be defined as the entry of an existing company into a new business activity involving new products and markets” (p. 294). The Viagogo team, being professionals in the ticketing business, can expand its activities into related areas, such as event management. Given its extensive client base and relationships with partners, this activity can increase Viagogo’s presence at the global level.
It should be noted that these principles also apply to more local businesses, for example, operating in different districts of the same city. In my city, there are two large chain bakeries that compete with each other, but most of their outlets are located in different parts of the city. If one of them acquires the other, it could be considered a monopolist that has access to a vast number of customers in the city. In this case, the focus of the company’s management will shift from competition to closer relations with clients and the consideration of opportunities for corporate diversification.
It should be emphasized that the acquisition of StubHub by Viagogo strengthens its position and makes it a global market player. Business relations with event organizers in the US and Europe allow the company to give customers a unique opportunity to purchase a wide range of tickets. A related diversification strategy will allow Viagogo to increase its global market presence and to occupy adjacent business niches.
Liu, X. (2016). Vertical integration and innovation. International Journal of Industrial Organization, 47, 88-120.
Rothaermel, F. T. (2016). Strategic management: concepts (3rd ed.). McGraw-Hill Education.
Selcuk, E. A. (2015). Corporate diversification and firm value: Evidence from emerging markets. International Journal of Emerging Markets, 10(3), 294-310.
Steele, A. (2019). The tale behind StubHub’s sale: How Eric Baker bought back the ticket seller. The Wall Street Journal. Web.
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