Consolidation of Industries

There were several announcements recently that got me thinking. There is an acceleration of consolidation in high tech industry going on today. First Cisco announced that they will be making their own servers to sell to their customers. Then there is the on and off relationship between IBM and Sun. Amazon entered the ebook market with a Kindle, a hardware product which the company never produced before.

In the past, companies started to enter a synergistic markets to go vertical in their offerings. IBM got in to the PC market because Apple was selling a lot of their personal computers. Apple purchased several companies, like NeXT, to get in to several side businesses, like the PDA with Newton, iLife multimedia software suite, iWork, Final Cut Pro, Aperture, Logic Studio, etc. Then they entered the MP3 player market with the iPod, then the cell phone market with iPhone.

There are many stories in the industry in the past 30 years. What is the motivation of these moves? Is it a sound strategy to make better offering to their customers? Is it a pure defensive move to counter some of the competition? Or is it just continual push to grow the company as fast and biggest they can? I believe the answer is more latter than former.

My bold prediction is that there will be 3-4 corporations in high tech that will own it all. They will overlap in many areas of competition but they are too big to die on their own. They will continue to survive, each leading a large segment of a market and compete as long as they can.

This should sound familiar to the US citizens. This is what happened to the automobile industry. During the first quarter of this century, there were literally hundreds of automobile companies in the US. Currently, there are three. All the consolidation made each big enough to survive for a long time and entrenched themselves in a cocoon.

Similar thing happened overseas as well. If you look at Korea, the chaebols, they are all pretty much in a similar industries and fiercely compete with each other in many areas.  Samsung, LG and others compete in industries like cell phone, ship building, card, trucks, telecom, appliances, LCD, etc.

Is this a good thing? Well, I don’t believe so. If you look at the US auto industry, they got fat and lazy. They lost the leadership to Japanese automakers because they failed to move quickly on market demands. When the consumers wanted fuel efficient cars, they were selling SUV and Trucks. I believe GM killing EV1 was the biggest mistake they made. Now they are scrambling to catch up with Volt but will it be enough to catch up?

Korean chaebols are not much better either. While they are wildly successful in their fields, there are much talk of illegal activities that took place behind the closed doors. They transparency was non existent. Several heads of Chaebol has been indicted on certain charges and even jailed. If those type of practices existed in the US, they would have been dealt with much more harsh penalties.

The candidates I see that could control the high tech industry are MS, Intel, HP and Google. They have the resources to enter any market they desire, albeit with mixed records by them. Each made a mistakes in their investments in the past. However, they have the muscle to eventually succeed in the market.

However, one thing about the high tech industry is, there are always the rebels who will bend the rules to be beat the big player in the market. They are the game changers and can shift the power of the industry. One example is Google. If Google’s exit strategy was to be bought by someone else, I believe they would never have grown to their size today. Innovation will most likely win out over big companies. I just hope they don’t follow the automobile industry example in the future.