Conglomerates are dead, but tech giants are conglomerates in training

Big technology is busy building quasi conglomerates and can do well because the growth is there. However, the music eventually stops.

Conglomerates are dead. Will big tech get the memo?

Consider these recent developments:

  1. GE is splitting up into three public companies.
  2. Johnson & Johnson is separating its consumer goods from its medical devices and pharmaceutical businesses.
  3. Toshiba is breaking up into three standalone companies.

We could toss in a few other examples, such as AT&T separating from its media business too.

The rationale for these conglomerate breakups is pretty straightforward. These giants became large and cumbersome and were weighed down. By splitting up, these companies' offspring can perform better with more focus. When the growth goes, so does the rationale for a conglomerate. The argument for conglomerates--the idea that magic management can run any business -- fades away.

Ray Wang, author of Everybody Wants to Rule the World, said in a recent interview that the conglomerate playbook is flawed. But conglomerates can compete. They have to form joint ventures, build an ecosystem and bring in investors. Think about the Honeywell Quantum-Cambridge Quantum deal.

"A lot more of these like existing companies need more joint ventures to end up with a portfolio of innovation startups in these industries," explained Wang. "That's how they're going to be successful. Legacy players should be portfolio holding companies."

How legacy companies can compete with tech giants

The big question here is when tech giants become legacy players. Big technology is busy building quasi conglomerates and can do well because the growth is there. However, gravity still exists, and it's a safe bet that big tech will do some breaking up at some point. Think Hewlett-Packard's split into HP and HPE.

Consider the following tech giants.

  • Amazon. The company is best known for its e-commerce operations, but Amazon Web Services, a cloud giant, makes the profits. At some point, shareholders and activists will question why the cloud unit is subsidizing retail. Amazon is also expanding into advertising too. You could argue these businesses are loosely related (until the music stops).
  • Microsoft. Despite Microsoft's obsession with being cool, it's a giant enterprise software company. Microsoft is about productivity. However, Xbox isn't about productivity. Would Xbox do better on its own?
  • Apple. All things being equal, Apple is the most focused of the bunch. Apple is about melding software, hardware and experiences. From there, Apple is about locking you into services and its ecosystem. This plan only becomes an issue when Apple does something absurd--like launching an Apple Car and becoming an automaker.
  • Google/Alphabet. Google has gone semi conglomerate but has set up a structure that enables it to make big bets via its Alphabet structure. Google will remain more focused, but you can argue that Google Cloud can ultimately be the search giant's version of AWS. Alphabet will make big bets and possibly spin-off independent companies.
  • Meta. The company formerly known as Facebook has built a conglomerate focused on capturing your time and attention. In that construct, the metaverse is in line with Instagram, WhatsApp and Facebook. However, don't be surprised if someone starts asking whether Oculus should be a part of Meta or a separate entity.

Today, these giants are conglomerates in training with a relatively strong belief in magic management and duopolies. Fast forward a decade or two, and they're likely to become breakup stories.

ZDNet's Monday Morning Opener 

The Monday Morning Opener is our opening salvo for the week in tech. Since we run a global site, this editorial publishes on Monday at 8:00am AEST in Sydney, Australia, which is 6:00pm Eastern Time on Sunday in the US. A member writes it of ZDNet's global editorial board, which is comprised of our lead editors across Asia, Australia, Europe, and North America. 

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