Those who cannot remember the past are condemned to repeat it.
- George Santayana
There was a time in the 60s and 70s when the bean counters convinced the bosses that "economies of scale" was the lever needed for the big boys to clobber the competition: thus the "conglomerate". Every Fortune 500 company had to get into every business, being all things to all people. Even Exxon got into the copier business.
So you had companies like Midland-Ross and Allegheny International that weren't companies at all; they were collections of acquisitions that had nothing in common except for infrastructure and support functions (including IT). They were into heavy industry, consumer products, real estate, you name it. Imagine the convenience of buying your tractor and your toaster from the same company!
Fast forward 30 years. Except for General Electric, with its immense defense contracts, the conglomerate is dead, long sold off when its parts became more valuable than the whole. The entire "economies of scale" myth has long since been blown away by technology when smaller nimbler players have taken over the world.
Today, its hard to tell the difference between Yahoo and those conglomerate dinosaurs. When your balance sheet is still healthy but you have trouble answering the question, "What business are you in?" it's time to beware the raiders.
"Economies of scale" are a great idea - it refers to the concept that the more of one thing you produce, the better you get at it (and the cheaper you can make it). Take Google and online ads as an example.
"Economies of scope" are when you try to be everything to everybody.
One interesting thing about those three companies (if I'm not totally on crack) is that Yahoo and eBay have made a whole ton of really high profile purchases, to the point where it almost seems like flailing. Amazon's always seemed a whole lot more deliberate about that stuff, and generally ended up buying small, complimentary companies.
None of this "Skype is cool! we might be able to do something with it!"
- George Santayana
There was a time in the 60s and 70s when the bean counters convinced the bosses that "economies of scale" was the lever needed for the big boys to clobber the competition: thus the "conglomerate". Every Fortune 500 company had to get into every business, being all things to all people. Even Exxon got into the copier business.
So you had companies like Midland-Ross and Allegheny International that weren't companies at all; they were collections of acquisitions that had nothing in common except for infrastructure and support functions (including IT). They were into heavy industry, consumer products, real estate, you name it. Imagine the convenience of buying your tractor and your toaster from the same company!
Fast forward 30 years. Except for General Electric, with its immense defense contracts, the conglomerate is dead, long sold off when its parts became more valuable than the whole. The entire "economies of scale" myth has long since been blown away by technology when smaller nimbler players have taken over the world.
Today, its hard to tell the difference between Yahoo and those conglomerate dinosaurs. When your balance sheet is still healthy but you have trouble answering the question, "What business are you in?" it's time to beware the raiders.