Thursday, April 12, 2018

Vertical Integration Might be Necessary Now

The news that Google is considering getting into the business of in-flight internet access illustrates one important aspect of the internet ecosystem, namely that growth opportunities have participants looking at different roles within the value chain.

To be sure, vertical integration has high value for consumer-facing participants: platform, access or app.  

To be sure, internet access as a product has value only as internet applications exist, just as app providers depend on widespread internet access adoption to create their own revenue models, while platforms depend on the ubiquity of both access and apps.

That has key implications for notions of proper antitrust and vertical integration efforts. If business strategy--and in some cases survival itself--hinges on either vertical integration or movement into new parts of the value chain, then it does not make sense to take antitrust action “too soon.”

By blocking expansion moves (vertical integration or across the value chain), regulators could choke off growth needed to offset declines or maturation of existing roles within the ecosystem.

That is most clear for internet access, voice, messaging and mobility suppliers, which face declining or mature markets in all those core areas.

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