Definition and Brief Overview: Vertical Integration is the process of a company owning different businesses in the same industry. The most common example of this in real life is the Walt Disney Company. The Walt Disney Company owns the rights to the theme parks but also stations such as ESPN, ABC, NBC, and streaming platforms such as Disney Plus. Vertical Integration has played a substantial role in the uptick of Monopolies we see in the modern-day compared to the amount we saw in the past. This can be seen in newer businesses such as Amazon, Facebook, Apple, Microsoft.
History of Vertical Integration: Vertical Integration was first invented in the late 1800s by the Carnegie Steel company based out of Pittsburgh PA. At this point in time, the Steel industry was a huge business in the US because of its use in construction. The company demonstrated vertical integration by controlling all aspects of the mine involved in creating steel, coal, transportation, and steel mills. Carnegie Steele's ability to own each branch involved in the steel industry ensured their success. Carnegie Steele's ability to vertically integrate their business laid the blueprint for many modern-day businesses to incorporate the same model. One example of this is Exon Mobile's ability to be involved in exporting the crude oil, drilling for the oil, shipping it to refineries, refining it to gasoline, distributing it to gas stations, and operating gas stations. Steele's success in incorporating vertical integration into his own business has made it possible for us to have the success we do today of incorporating it into our own businesses.
Advantages/ Disadvantages of Vertical Integration: Vertical Integration has allowed businesses to earn additional money from different firms of their business. Additionally, this has challenged businesses to take more of a creative approach when they are selling their products. Vertical Integration has also made it easier to expand your business on a geographic level. A disadvantage of Vertical Integration would be the harm it has caused in the competition in our marketplace. Vertical Integration has caused an uptick in Monopolies making it harder for other businesses to compete. This system also presents a high degree of difficulty when people are considering opening up their business for the first time. Vertical Integration presents difficulty in this department because the business has to account for the potential for a big corporation to be earning revenue off of a product they want to sell.
Effects on the Media Industry: Vertical Integration has had a profound effect on many of the businesses involved in the Media industry. The most notable example involves the film industry. Companies such as Warner Brothers and 20th Century Fox have owned movies, theaters, and even merchandise from the movies they own. Their ability to vertically integrate their business in this respect has allowed them to earn more revenue by earning money from different areas of their supply chain. Unfortunately, their ability to vertically integrate has created unfair negative effects on competing businesses. An example of this is could be Warner brothers prohibiting 20th-century fox from showing a film in a specific movie theater owned by Warner brothers because it is not promoting their film company. This measure is unfair because it limits the amount of revenue a film company can make on a movie they created because of their inability to showcase it in all theaters. Another media corporation utilizing vertical integration is Netflix. Netflix, originally founded by Reed Hastings and Marc Randolph in 1997 only served as a way to buy movies online and have them delivered to you. This stayed the case for many years while the main option Blockbuster films remained the most profitable DVD distribution. The process of getting a movie from Blockbuster films involved you going to the store, buying the movie, and getting your candy.
In 2007 Netflix completely revolutionized the experience of watching a movie by offering streaming services. Instead of adapting to this change by vertically or horizontally integrating Blockbuster relied on their loyal customers to provide business. Unfortunately by the year 2014 all remaining Blockbuster stores were officially shut down in the US. As Netflix continued to grow they recognized their ability to make even more of a profit was hindered by their selection of movies and TV shows only consisting of preexisting films belonging to another company. Recognizing this Netflix decided to vertically integrate their business by inventing their own content known as Netflix original. This decision has allowed Netflix to earn revenue from viewers watching the content on their platform and from Netflix owning the rights to the content they have watched. Additionally, Netflix's ability to provide more content has benefitted the consumers by providing them an even greater variety of shows. If Netflix did not vertically integrate they would be at a greater risk of losing viewership with the invention of new streaming platforms such as Disney plus.
Impact on the future of our Country: If the growth of large corporations in our country over the last 20 years has taught us anything it has brought reasoning to expect this trend to continue. The continual growth of technology will also enable businesses to employ this feature in a more efficient and easier manner. This growth will make it even more imperative for corporations to use this feature in their business one way or another. Unfortunately, the consequences of businesses not implementing this model at all or not soon enough could involve bankruptcy. Due to this, I expect certain preexisting corporations to grow in the future at the expense of many dying out. Unfortunately, Vertical integration will also make it more difficult to start up new businesses. This is the case because large businesses will have to compete against more large corporations for revenue. As a 19-year-old college student, Vertical Integration plays a big role in what job industries I will explore and what industries this trend will caution me to stay away from.
Sources: https://open.lib.umn.edu/strategicmanagement/chapter/8-3-vertical-integration-strategies/
https://abcnews.go.com/Technology/blockbuster-shut-remaining-stores-dvd-mail-service/story?
https://www.britannica.com/topic/Netflix-Inc
https://blog.iqoption.com/en/the-walt-disney-company-5-key-facts-to-learn/
https://www.timetoast.com/timelines/vus9-william-mckinley-the-imperialist
https://venturebeat.com/2016/06/20/netflix-made-a-new-logo-thats-designed-for-mobile-devices/
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