Remember Commodore computers? Wildly successful in the 80s, they built their success on the principle of vertical integration – the aggregation of all production processes in the supply chain under a single firm. Commodore designed and manufactured their own components; and their Commodore 64 personal computer became the best selling single computer model of all time.
Vertical integration works in markets where the components for success are not readily available from other vendors. Often, a disruptive innovation is at the core of the vertical integrators strategy. The budding personal computer market of the 80s was perfect for Commodore’s business model.
As markets mature, specialists enter with the ability to deliver individual components at lower cost; and with singular focus, specialists often out-innovate vertically integrated firms. So it’s no surprise that Commodore’s star faded and was replaced by companies like Dell – assemblers of components purchased on the spot market from specialty suppliers.
This changing-of-the-guard, from a few vertically integrated firms to a market full of specialists, delivers greater value to consumers in a circular fashion – specialty firms offer lower component prices, and just as importantly, they absorb a portion of the capitalization required to produce the final product – thus the barrier to market entry is reduced and more specialists enter, placing additional downward pressure on prices.
During the 90s, large integrated job boards (Monster, HotJobs and CareerBuilder) flourished, leveraging the budding Internet (another disruptive innovation) to deliver lower-cost recruiting options that undercut newspaper classifieds. But as the electronic recruiting market has matured, new specialists are emerging to deliver customer-focused innovation at much lower cost than the big job boards.
In the long run, the big integrated job boards will fade away, replaced by specialty firms assembling and delivering custom recruiting solutions that meet individual employer’ needs at a price far below the old model. Yes, there is room for everyone, and a name like Monster may live on, just as the name IBM lives on. But IBM, considered the father of the personal computer, is no longer in the personal computer business.
Predictably, as markets go through this lifecycle, from a few vertically integrated firms to a sea of specialists with disruptive business models, there is much gnashing of teeth. The losers cry foul. No matter – consumers choose the winners and losers.
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