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Industrial conglomerates are not permanent, but the AAPL will – WSJ


Breaking up a bunch of old-school industrial conglomerates leads some to question the very long-term prospects of “new conglomerates” – technology giants like Apple, Amazon, Facebook and Google.

But a piece of u WSJ claims to have two advantages over companies like General Electric, which could take longer…

Traditional conglomerates – large companies whose business activities encompass a range of business types – were based on two ideas. First, good management is good management, so if they can be successful in one sector, they can be successful in others. Second, the financial impact of creating very large enterprises means that they benefit from economies of scale when it comes to both the purchase of raw materials and the functioning of production processes.

But WSJ says it looks like yes industrial conglomerates had their day, which led to the question of whether technology giants would implode in a similar way over time.

The dismantling of General Electric, Toshiba, Johnson & Johnson, Siemens, DowDuPont, United Technologies and other major business empires in recent years has been heralded as the end of conglomerates and the collapse of the idea that brilliant management teams can succeed in a wide variety of industries. But just as these giants of traditional industry are falling apart, today’s technology giants have emerged as conglomerates in recent days – what some even call “neo-conglomerates.” They boast an estimate higher than any other company in history, and they have diversified their business through acquisitions and new beginnings just like conglomerates of old […]

Smartphones, laptops, wearables, advertising and self-driving vehicles are now under construction or on the market by both Google’s parent Alphabet and Apple.

However, while some suggest that the same fate awaits them, others argue that technology giants have two advantages – especially Apple.

First, while the company can now operate in sectors that are as diverse as smartphones and video streaming, the ecosystem is what brings it all together.

“For Apple, all of its products are connected to this one platform,” says Kim Wang, assistant professor of strategy and international business at Sawyer Business School at Suffolk University.

Second, doc industrial conglomerates rely on the economics of production, technology giants benefit from what one investment expert calls “economies of scale on the demand side”. In other words, the more customers you have and the more interconnected services you sell to everyone, the more each customer is worth to you.

A characteristic of platform companies, says Kai Wu, founder and chief investment officer of investment company Sparkline Capital, is that they take advantage of “network effects” so that each additional user they add potentially brings greater value than the previous one. […]

In that light, Apple’s move to cars also makes sense. Cars, especially those that drive themselves, have the potential to become the next popular place for companies to deliver services and applications to the screen, after phones, personal computers, TVs and wearables, where Apple is already doing well.

(I like “pretty good.”)

Wu says this indicates a dramatic increase in technology giants.

All the evidence from the study of platform economies suggests that they will only grow. In other words, Amazon, Microsoft, Apple, and Alphabet may be right where GE was in the mid-20th century, at a time when it dominated its industries, but, in terms of revenue and market value, it has only just begun.

Wu, however, acknowledges that while pure economic models point to a bleak future, antitrust actions are a potential stumbling block.

The only real obstacle to their growth, he says, would be government antitrust action – a threat that is increasingly prevalent in China, Europe and the United States.

This, as “pretty good”, is a bit of an understatement.

Photo: Bryan Low / Unsplash

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Naveen Kumar

Friendly communicator. Music maven. Explorer. Pop culture trailblazer. Social media practitioner.

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