horizontal-vs-vertical-integration

Horizontal Vs. Vertical Integration In A nNutshell

Horizontal integration refers to the process of increasing market shares or expanding by integrating at the same level of the supply chain, and within the same industry. Vertical integration happens when a company takes control of more parts of the supply chain, thus covering more parts of it.

Quick glance at Vertical Integration

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In business, vertical integration means a whole supply chain of the company is controlled and owned by the organization. Thus, making it possible to control each step through consumers. in the digital world, vertical integration happens when a company can control the primary access points to acquire data from consumers.

Vertical integration is about moving upward, or downward the supply chain to either get closer to product sourcing and manufacturing, therefore improve quality or quality control over the steps it takes to make the product.

Or moving toward the end customer, thus getting closer to the customers . Or both ways.

Luxottica case study

vertically-integrated-business-model

Luxottica business model is a great example of vertical integration, and how over the years it managed to control the overall supply chain, both from a manufacturing standpoint, and a retail standpoint.

Google KaiOS case study

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KaiOS is a mobile operating system built on the ashes of the discontinued Mozilla OS. Indeed, KaiOS has developed a robust standalone mobile operating system that turns feature phones (so-called “dumb phones”) into smartphones-like phones. As feature phones powered by KaiOS have access to mobile apps, connectivity and voice search. KaiOS feature phone business model wants to bring connectivity and the digital revolution to those developing countries (like India and Africa) that have missed out on the smartphone wave due to too high costs of those devices. Besides, KaiOS might be well suited for the IoT revolution!

When Google put his assistant on millions of phones running the KaiOS operating system, those feature phones turned smartphones, became the basis for Google’s assistant to gather valuable data.

That is how a digital vertically integrated pipeline looks like.

Quick glance at Horizontal Integration

types-of-horizontal-integration

Horizontal integration refers to the process of increasing market shares or expanding by integrating at the same level of the supply chain, and within the same industry. Perhaps, a manufacturer who buys or merges with another manufacturer, in the same industry, is an example of horizontal integration. 

Facebook acquired Instagram and kept it as independent product (for a few years)

instagram-business-model
Instagram makes money via visual advertising. As part of Facebook products, the company generates revenues for Facebook Inc. overall business model. Acquired by Facebook for a billion dollar in 2012, today Instagram is integrated into the overall Facebook business strategy. In 2018, Instagram founders, Kevin Systrom and Mike Krieger, left the company, as Facebook pushed toward tighter integration of the two platforms. 

Back in 2012, Facebook acquired Instagram, for a billion dollar. What seemed expensive at the time, for a mobile app that wasn’t profitable, it became among the most valuable products for the Facebook portfolio.

The horizontal acquisition of Instagram enabled Facebook to dominate the social media industry for yet another decade.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which target is to reach over two million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get in touch with Gennaro here