Author Marcela De Vivo is the CEO of Gryffin Media, an online marketing company that specializes in SEO, Social Media, Analytics and much more. Gryffin Media has used the vertical integration model in their omni-channel marketing approach, incorporating elements of content, video and paid search to amplify services.
When Americans think of e-commerce giants, names like Amazon come to mind. But Amazon is a dwarf compared to Alibaba, a juggernaut that is dominating China -- and the world -- as China comes into its own Internet age. Alibaba dominates 80 percent of China's booming online shopping market. Its three main sites host millions of businesses and sellers, who sell to hundreds of millions of buyers. Alibaba totaled $248 billion in transactions in 2013 alone -- more than Amazon and eBay combined.
And what is Alibaba's secret? Consolidation of services.
Alibaba Supersizes the Consolidation Model
Alibaba is, among other things, a search engine, a marketplace and a bank -- all in one company. By uniting a payment platform, an online marketplace and more than a dozen other B2B, B2C and C2C services under the same umbrella, Alibaba has redefined the concept of consolidation.
"Investors are interested in Alibaba because the company dominates many businesses in China that, here in the U.S., are run by individual companies. Alibaba owns the websites Tmall and Taobao, which are similar to Amazon.com and eBay, respectively. The company also earns money from transaction fees related to its various businesses through Alipay, which is like PayPal. That's just three of Alibaba's many subsidiaries."
Through Alibaba's Tmall, companies can sell directly to the public. Through Alibaba's Taobao, members of the public can sell directly to each other. Although its enormous, product-thirsty Chinese marketplace enabled it to sprint past "giants" like Amazon, Alibaba certainly didn't invent the consolidation model -- even if it supersized it.
Amazon -- the Prototype of Consolidated Services
Amazon appears to be winning an
against Google for domination of cloud-based web services. But Amazon -- which now offers streaming video subscriptions, a marketplace for freelance writers and its own payment service -- started as an online bookstore.
When it realized its customers wanted more, its founders had the foresight to recognize that they had the infrastructure to combine other services that their customers needed. Books led to DVDs, computer software and retail merchandise, which led to express shipping services, mp3 downloads, its own e-reader and just about any retail merchandise imaginable. From Apple to Google, the most successful companies in the country -- with the exception of energy firms -- can trace their success and stability to the fact that they offer multiple unique services under the same umbrella.
Consolidation as Bait -- and a Weapon: The Southeast Asia Model
In an
of regional startups in Southeast Asia, a pattern emerges of young companies using consolidation as a means to position themselves as potential strategic acquisitions for larger companies overseas. But consolidation has the added benefit of creating enormous barriers to entry for other startups looking to enter the market. Consolidation ripens them for consideration by hungry buyer corporations while insulating them from competition.
Consolidated Southeast Asian companies are able to secure a larger share of institutional funding, freeing them from the frantic scramble for scarce venture dollars that plagues so many startups.
The Secret Is Out -- And Smart Startups Will Embrace It
Asian companies aren't alone in embracing this trend. Uber is attempting to blaze a similar trail on the western front. Less than a month after
, the popular taxi app launched a food delivery service in select neighborhoods of the Los Angeles area.
allows customers in Beverly Hills and West Hollywood to order lunch and dinner through the same app they would use to order a cab. Regardless of whether this experimental service ultimately succeeds, the attempt is ambitious and indicative that we are living in an era of consolidated needs.
So how can consumer-facing startups continue this trend? They can start by changing their peripheral scope. Entrepreneurs have conditioned themselves to develop business models and marketing strategies based on others in their industry: Who else is doing what I do and how can I do it better? This horizontal scope has worked great in the past but limits innovation to established industry boundaries, boundaries which only exist for lack of more profitable alternatives.
Instead, startups should aspire toward nuanced vertical integration. Now that the customer is in my cab, what other needs can I provide to improve their experience? It's this kind of peripheral that brings services like Uber and Spotify together; two unrelated industries that contribute to a single user experience. The more emerging startups implement vertical integration into their business plans, the more we can expect to see Alibaba-style consolidation happening on the ground levels.
The concept of vertical integration can be applied at any level, from the smallest startup to multinational corporations. From simply identifying needs that could be integrated to reduce silos, to partnering with other companies that offer relevant services, it can allow startups to maintain a lean profile while retaining customers by expanding their offerings.
The secret is out on the benefits of consolidation of services for B2C startups, but consolidation isn't always easy. Seamless integration between consolidated services -- especially when it comes to issues surrounding corporate structure and ownership -- like the kind achieved by Alibaba is a rare, remarkable feat. But the example has been set -- the companies that find a way to service all of their customers' needs find a way to expand and profit.
Support HuffPost
Our 2024 Coverage Needs You
Your Loyalty Means The World To Us
At HuffPost, we believe that everyone needs high-quality journalism, but we understand that not everyone can afford to pay for expensive news subscriptions. That is why we are committed to providing deeply reported, carefully fact-checked news that is freely accessible to everyone.
Whether you come to HuffPost for updates on the 2024 presidential race, hard-hitting investigations into critical issues facing our country today, or trending stories that make you laugh, we appreciate you. The truth is, news costs money to produce, and we are proud that we have never put our stories behind an expensive paywall.
Would you join us to help keep our stories free for all? Your contribution of as little as $2 will go a long way.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. Would you consider becoming a regular HuffPost contributor?
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. If circumstances have changed since you last contributed, we hope you’ll consider contributing to HuffPost once more.
Already contributed? Log in to hide these messages.
Author Marcela De Vivo is the CEO of Gryffin Media, an online marketing company that specializes in SEO, Social Media, Analytics and much more. Gryffin Media has used the vertical integration model in their omni-channel marketing approach, incorporating elements of content, video and paid search to amplify services.