Vertical integration is dead, or is it?

Given the prevailing sentiment over the ineffectiveness of vertical integration (VI), it is surprising how resilient this type of strategy has proven to be. Shedding more light on its continued appeal in today's business environment, this article argues that such popularity marks a departure from the traditional motivations based on manipulating industry structure or minimizing transaction costs. Instead, contemporary vertical integration, especially downstream integration of the customer interface, is motivated by the associated learning benefits. The challenges associated with VI are indisputable. Above all, firms contemplating such a strategy must find ways of retaining strong market incentives and flexibility; where they pursue a form of tapered VI, they must make sure to keep their existing buyers/suppliers on the side. Despite these formidable challenges, in many cases VI is a viable strategic option, justified by powerful advantages.