Vertical integration is when one company controls everything needed to produce and deliver its product to consumers.
Total end-to-end control.
‘Vertically Integrated’ companies are big, hard-to-compete with juggernauts.
The first ones were the big oil companies. They owned or controlled the oil wells, pipelines and tankers, gas stations, and everything in between.
Today, tech companies have taken their place as the biggest vertical integrators.
Amazon owns and controls the biggest shopping website, huge server farms and distributions centers, delivery trucks and airplanes and even drones. Apple controls a browser and operating system plus the app store, physical stores, and many of the apps you use constantly, like mail and photos and streaming music and news. Not to mention the machines (phones, laptops) you use all those apps on!
Is vertical integration the wave of the future? Maybe, or maybe not.
Most businesses aren’t big enough to try to vertically integrate, so instead must focus on one or two things they’re really good at (core competence).
Say you’re an apple farmer. You can’t make the seeds, the fertilizer, the tractors, the delivery trucks, the markets, and all that stuff needed to grow and deliver apples. You have to just focus on growing great apples!
But some smaller companies try to vertically integrate anyway. Because vertical integration gives you more end-to-end control over your product and the customer’s experience.
Others believe specialization is better, and that more focused companies will beat competitors who try to do everything, but don’t do any one thing extremely well.
In business there’s no one right answer. Which is why businesses try everything, including vertical integration, to see what happens.