Tech firms are big. They are not conglomerates

A chorus of business commentators has declared the “end” of the conglomerate in 2021, pointing to decisions by corporate behemoths such as General Electric and Toshiba to split into smaller, more focused companies.
No, that’s not the case. In reality, the real conglomerates — the ones that gave rise to the term in the postwar US — perished many years ago. That they went the way of the dinosaurs is understandable: These chimerical corporations took diversification to levels that make today’s giants look laser-beam focused.
Today’s corporate downsizings, then, don’t represent the end of anything. They’re just a faint echo of something that happened 50 years ago.
When corporations get big, they do so in predictable ways. They might acquire competitors in the same field in the hopes of controlling a critical share of the market. It’s a strategy that monopolies like Standard Oil
perfected over a century ago. There’s also vertical integration, where a company acquires suppliers or distributors and retailers to better control production from raw materials to end consumer. Think Ford Motor Company in the 1920s.
Then there’s diversification, where companies go into other different fields. That accurately describes today’s big, diversified companies.
But for the most part, the different pieces of contemporary mega firms have some subtle relationship to one another. Most of the constituent companies might be defense contractors, for example, or represent
different applications of a core business such as computing power.
In the immediate postwar era, though, large corporations adopted a very different version of diversification. The new paradigm was ostensibly born of a desire to balance seasonal fluctuations in the core business, or the vicissitudes of the business cycle. When one part of the company struggled, another flourished. Or so the theory went.
In reality, the new emphasis on eclecticism was driven by a desire to avoid government scrutiny. In 1950, Congress passed the Celler-Kefauver Act, which sought to strengthen enforcement of antitrust laws, particularly any attempt at vertical integration that might squelch competition. For corporations seeking to get bigger without risking regulatory scrutiny, the response was obvious: acquire utterly unrelated business. The farther afield the new acquisition, the better.
So began a very strange chapter in the nation’s business history. In 1956, the New York Times noted some of the odd bedfellows born of these unions: “An asbestos products concern went into aviation equipment. Dry batteries went into sun glasses. Carbon steel went into beer. Coal mining went into underwear. Textiles went into airborne radar equipment.
Recovery of placer gold went into wine.” And so on.
But these initial feints at diversification could not compare to the scale of the acquisitions the following decade. In the 1960s, “conglomerate” became a household word, one that showed up in popular culture as shorthand for the incomprehensible bigness of American business.
The endless acquisitions of random companies accounted for most of the conglomerates’ growth. Acquisitions temporarily juiced their stock prices on Wall Street, but it wasn’t a sustainable model, particularly as many newly acquired subsidiaries struggled to find their place in the sprawling, incoherent enterprises to which they now belonged.
By the early 1970s, the conglomerate began to fall out of favor, as stock analysts belatedly noticed that the sum total of the value of each component of a conglomerate was often more than the value of the conglomerate itself. The sum of the parts was greater than the whole. Over the remainder of the decade, giants like Ling saw their fortunes and reputations collapse, along with their stock values.
Some of the conglomerates disappeared altogether. Ling was deposed from the company he created in a corporate coup known as the “Palace Revolt,” but the conglomerate now known as the LTV Corporation would eventually go under in 1986, the largest bankruptcy in American history until that time.
The skeptic might argue that the conglomerate form is still alive and well, particularly among today’s tech giants — that they represent so-called “neo-conglomerates.” But a closer look at the acquisitions of companies like Apple or Google or Amazon betray an underlying logic: The pieces are meant to work together.
—Bloomberg