Thursday, September 22, 2005

e-Bay, Skype- what ever happened to 'Virtual integration'?

Hmmmm. We took some pride at Travolution at having coined the term 'virtual integration' a few months ago. This was an observation that Vertical Integration- buying elements of supply and distribution up and down the chain- was old hat- look at the problems VI has caused the big 4 travel operating companies. In the online world the network of affiliates, portals and the component-ised nature of inventory and content means that you don't have to own anything- apart from brand and the relationship with the customer. This is the world of 'virtual integration'.

And then e-Bay go and buy Skype for $2.6 billion. Wouldn't a licensing deal have been easier and, erm, cheaper? Can someone please explain the rationale, because it suggests that owning channels in the new the online world (in this case IP telephony)is in some cases more important than accessing them. This sounds like history repeating itself, and e-Bay aren't alone: By owning online aggregators (Expedia,; a search engine(Ask Jeeves) and trusted content (Trip Advisor), Interactive Corps have pursued virtual integration by acquisition- their scale has allowed them to acquire some of the key customer relationship points that underpin online travel.

Is this vertical or virtual integration? Are we too bothered by semantics? What does e-Bay and Skype have to do with travel anyhow........

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