If you’ve spent years building up the authority on your website’s domain, you know how powerful this authority can be when ranking for competitive terms. The more trust and authority, the easier it will be for your SEO to rank your website if you decide to get into new areas of business or launch a new product. The usual way of attacking this challenge is to build new category pages or subdirectories. So if your website is abc.com, then your new product might show up in a new catagory page names abc.com/newproduct/. This works very well and you are probably using some variations of this approach on your website right now.
The other option, that is using a subdomain, is something that national franchises have been doing for years to give a boost to their local franchisee sites. Using the example from above, let’s say you are opening an ABC franchise in Boise, ID. Your franchisee would have a URL like this: boise.abc.com. The letters in front of the first period is the name of the subdomain. You can see how powerful this particular approach might be for ranking locally for a particular product. Further, the mother ship can give control of the subdomain to the franchisee with no ill effects on the root domain should something go awry or get screwed up by the franchisee. Taking this example even further, a company could add a subdomain for all their products or services, giving them a lot of power to get search terms within the url. This can be especially helpful if you wanted to use a different theme or design on subdomains than on the root domain.
The power of subdomains and the flexibility they offer should not be underestimated. Even Matt Cutts has weighed in on the subject as you can view in the video below.
Subdomainsas explained by Wikipedia can be accessed through the link.