|The future of conglomerates is in the cloud|
December 16, 2018
United Technologies is breaking up. General Electric is a shadow of its former self. The great conglomerates of the past, names like ITT and Gulf + Western and Hanson Trust, are dim memories at best.
The bottom line: Maybe the big cloud providers — Amazon, Microsoft, IBM, Oracle — are in some way the new conglomerates. They don't own the companies they power, but they deliver impressive and valuable synergies all the same.
The big picture: One of the few conglomerates still alive is Berkshire Hathaway. And it won't long survive the death of its founder, Warren Buffett, who's 88 years old. The other claimants for conglomerate status are the private-equity shops, but they, much like Berkshire Hathaway, are ultimately built on financial engineering rather than genuine economies of scale.
What they're saying: Edward Hadas reckons that conglomerates are far from dead. "Without the ability to bring disparate businesses and skills together, costs in most firms would be higher, revenues lower and many new and improved products would never have been created," he writes for Reuters. "Diversified enterprises, by one name or another, will play a big role in the business world for a long time."
-- Hadas doesn't mention the cloud; he should. The reason to build a conglomerate is to centralize certain skills and apply those skills across multiple business lines. You can do that the laborious way, via acquisition and regular senior-management retreats, or you can just move a large part of your business into a cloud that provides state-of-the-art services on demand.Go deeper: The end of industrial conglomerates