Thursday, June 28, 2012

The Return Of Vertical Integration

Yesterday Google announced a number of hardware initiatives. Microsoft has already unveiled its own Surface tablet. It seems that tech companies are once again following Apple's lead and vertically integrating, realising that control over all aspects of manufacturing provides the best experience for clients.

But vertical integration needs to go further than this: Amazon has launched its Kindle Fire with the Amazon Prime subscription service; Apple obviously has iTunes. Google and Microsoft currently lack a content layer, and will, I predict, be forced in this direction.

Google has teamed up with Sony for its UK launch of Google TV, but the fragmented nature of the content market leaves Apple and amazon miles ahead of the rest.

And the business model for mobile networks is fast emulating that of television, with bundles of content and device features selling contracts.

And the model now extends to service providers. Offering hosting or bandwidth is nothing more than a commoditised service with weak margins.

We are seeing a glacial, but large scale shift in the business model of the whole media industry that will result in some major new winners, and lots of old losers.