72. Scams Favor Vertical Integration 🔗

True or false?

Scams are more likely to be vertically integrated.

This feels true

Okay I’ve talked myself into believing this. The logic is simple. Vertical integration lends itself to more powerful branding and differentiation. This moves positioning from concrete commodity features to abstract woo and aura. Much friendlier to grift.

In Charles Fine’s Clockspeed there’s a model (dated; book is from 90s) about how industries cycle through vertical/horizontal. You get vertical phases when knowledge is more complex than orgs and highly tacit. Sectoral pioneer phases and macro disruptions drive verticality.

You get horizontality when org structure catches up, tacit knowledge gets codified, stack layer interfaces of formerly vertical structure get opened up. Brands weaken, horizontal products/ services compete on features and industry benchmarks rather than differentiation aura.

There is of course grift in horizontal eras too. But the type is different and solution is different.

In a declining vertical era you get eroding brand promise. Brands go from standing for superior differentiated quality aura to overpromise/under-deliver and monopolistic apathy.

In a horizontal era, knockoffs and unbranded sketchy quality things compete with branded things. Price premium is commanded by relationship trust and QA guarantees.

Vertical eras are driven by distant marketing pull, horizontal by relationship sales push.

Vertical marketing is built around customer belief in secret sauces, the horizontal sales is built around customer beliefs in quality guarantees.

We’re at the tail end of a 13-year vertical phase. Brands are eroding. Every major brand is being hollowed out. Claims of differentiation are increasingly bullshit and get called out as such. Cunning buyers develop market intelligence in cheaper grey market products and services.

Horizontal integration I strongly suspect is on the rise. Supply chain uncertainty is an accelerant for what was already ascendant.

Pick a horizontal slice. Aggregate demand, compete on quality/features, forget differentiation, mostly ignore brand marketing, focus on sales trust

Call it h-commerce.

I’m now open for h-commerce consulting. You’ll get ISO-certified, industry standard benchmark-leading advice on how to go horizontal, with 30% more features than other consultants offer at my price point. Call now for free samples.

Kidding aside, if I were to consult horizontally what would I consult on? And is consulting pro or countercyclic?

The two axes of consulting specialization are sectoral and functional. Functional tends to align with vertical eras, sectoral with horizontal. This margin doesn’t have enough room for the proof.

I’m mostly functional and therefore a natural fit to vertical eras.

I’ll have to check but most of my clients have been vertical. Where I’ve worked with horizontal clients it’s been despite my own positioning not because. I myself am pretty vertically integrated. There’s nobody upstream or downstream of me in the value chain besides platforms.

I do have some sectoral preferences and strengths, but it is shallow and accidental. If I went deep on a sector, my whole approach would have to shift. Dunno if I can. There’s other ways to go horizontal as a consultant but they are not as obvious. And harder to pull off.

When you see a sketchy vertical player, ask: what are you hiding under apparent differentiation?

When you see a sketchy horizontal player, ask: what are you hiding under apparent substitutability? tweet^[1]