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Get Horizontal
One of the joys of being a VC is you learn so much from the entrpereneurs you back.
One entrepreneur who has taught me a ton is Tom Evslin. And one of his greatest lessons is about the superiority of horizontal integration over vertical integration.
He laid this lesson on his board a number of times during my tenure on it and I always walked away feeling like I had just been in a lecture hall at MIT or Wharton. Tom is that good.
Well, you don't have to be in Tom's boardroom anymore to get some lessons from him. He's blogging now and he's got his first rant (and hopefully not the last) on the subject of horizontal vs vertical integration up on his blog right now.
Horizontal integration is what has made the technology industry grow like a weed for the past 25 years. At one time IBM provided everything a customer might need. Today, you get the chips from Intel, the box from Dell, the OS from Microsoft (or from the open source world), the apps from a host of companies, the services from others, etc. That's horizontal integration in action.
Vertical integration was AT&T's model. And look where they are now.
That's why this subject is so important. And Tom's a master at explaining all of this and why it happens.
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Posted February 12, 2005 in Venture Capital and TechnologyComments
I'm not so sure about horizontal integration - I think that companies should merely "integrate" around their products and the people that use them - and not be distracted by the rest.
What I do agree with is the concept of looking to horizontal markets that span traditional verticals when building a product roadmap in a new space. This allows you to define new customer segments and expand your business within a single sphere - which as Tom so rightly points out is the secret to being the gorilla in any new space. I honestly think that only 1 company in history has acually done this - and gone on to be the platform on which a revolution is built - it's Microsoft - who stuck to the Information Systems domain and discovered consumers way beyond the enterprise - namely, in the workgroup, the office and the home.
Thanks for A VC
Have you read "Blue Ocean Strategy"? Highly recommended! Strong parallels to "Vertical Integration"
http://www.amazon.com/exec/obidos/tg/detail/-/1591396190/qid=1108284088/sr=8-1/ref=pd_csp_1/103-2075677-9537464?v=glance&s=books&n=507846
Posted by: David Gibbons | Feb 13, 2005 3:44:52 AM
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