The moment we see the word “conglomerate”, we began to associate it with companies that have multiple business divisions doing all sorts of stuff. General Electric, Siemens and Keppel are some examples of conglomerates. Most of these known conglomerates have a very long history. Jardine Matheson started off in the 1830s as a trading company in the Far East; Philips was founded in the late 19th century manufacturing lamps.
Over the years the name of these companies became great intangible assets. Think “Mitsubishi” and the things that pop out of our heads will be cars, air conditioners and the WW2 Zero fighter planes. Or when we talk about Samsung, smart phones, televisions and shipbuilding will come to mind.
While these conglomerates took a long time to become what they are now (so-called traditional), there is a new breed coming up fast and hard, and from a sector that we did not expect it; technology. Recently we are seeing some tech firms rapidly becoming conglomerates, doing (or about to do) things that are not what they were in their beginnings.
Amazon came about as an online bookstore in 1995, but now they have become a huge e-commerce powerhouse and ventured into traditional sectors such as supermarkets (through their acquisition of Whole Foods). Grab originated as a taxi-hailing app in 2012. Today, besides being a ride-hailing company, Grab also has a food delivery network, a payment platform and is about to offer loans to companies1. What are the main factors for their rapid rise to conglomerate status as compared to their traditional counterparts? Three reasons: platform, data and network, and they work in synergy with one another.
Reason #1: Platform
A platform (in my definition for tech) is an integrated system that encompasses backend processes, front-end interface by consumers and any supporting components in between that make it work. The key attributes of the platform are that it should be scalable and adaptable to suit different situations and business needs.
Apple’s platform (or ecosystem as most called it) allows seamless integration between one’s computer, mobile device, entertainment and even exercise regime. The Grab app now includes looking for a ride, topping up your electronic wallet and scan QR codes to pay for your purchases (and earn some points).
Reason #2: Data
In the 21st century, data is the new gold. Why is this so? Sieving through data carefully, you will get information. Digesting that information, you will gain useful knowledge. Now you know why data analytics is so “in” now.
Tech firms, through their platforms, have amassed tons of data from consumers. With this and through data analytics, they can roughly estimate the “5 Ws and 1 H” (what, where, when, why, who and how) of customers. With these outcomes, they could provide new products and services, and/or improve on existing ones.
Amazon, by using data collected from customers buying from its website, would further recommend products that they think the customers may be interested in.
Reason #3: Network
“Network” here means a slew of things, ranging from collaboration with other firms to the outright buyover of companies. Big businesses, both traditional and technological, carry out the “networking” to venture into a new sector and/or to gain some product, service and/or expertise to synergise with their operations.
The earlier cited example of Amazon buying over Whole Foods is one aspect of “network”. In 2002, eBay acquired PayPal to better integrate the latter’s online payment service to the former’s e-commerce operations.
So What Do All These Mean?
As an investor, these things present opportunities for your investment portfolio, although I must say it is not so simple as it seems. Admittedly I did not foresee Grab’s move into the online payment sphere, even though I had mentioned that payment solutions are trending in the days to come. Though I had written on looking for the next big thing, these only provide some partial guesstimates and half-baked clairvoyance into the future.
Then on the political front we have an American politician wanting to break up big technology companies. Just a few days ago, Elizabeth Warren, a senator who may be running for the United States Presidential Elections next year, was quoted in an interview2:
"Amazon operates this platform. That's cool. I'm for that. But Amazon does a second thing. They suck up information from every single transaction — information about buyer, information about the seller. And they then can use that information to make a decision to enter the marketplace themselves."
And this was directed at Reason #2 above.
In the meantime, disruptions are still ongoing, and who knows we may see a “network” between traditional and technological conglomerates working together.
1 – Cheng Wei, Aw. Grab offers firms loans of up to $100,000. The Straits Times. 14 Mar 2019. https://www.straitstimes.com/business/grab-offers-firms-loans-of-up-to-100000 (accessed 17 Mar 2019)
2 – Taylor, Jessica. Sen. Elizabeth Warren Blasts Big Tech, Advocates Taxing Rich In 2020 Race. www.npr.org. 15 Mar 2019. https://www.npr.org/2019/03/15/702707734/sen-elizabeth-warren-takes-longtime-fight-for-a-level-playing-field-to-2020-race (accessed 17 Mar 2019)