As banks, brokers and insurance companies swallow one another up, it's hard not to wonder whether technology is in fact starting to favor bigger and more diversified players. For most of the past 15 years, the market has rewarded businesses for becoming more specialised and more focused. Has that begun to change?
Whether financial services supermarkets are a good idea or not is almost anyone's guess. I tend to think there will be both highly diversified and highly specialised players. It's being in the middle that will prove difficult.
But the more important question is whether financial industry diversification is a precursor to a larger business trend. As specialised companies mature, there's always the temptation to expand services around a particular competency, community or brand. But is that a better idea now than it was a decade ago? Consider the following 10 hypothetical questions, which will help determine whether Citicorp/Travelers is indeed the model for the future:
1. Should Amazon.com extend its expertise in online retailing to sell CDs, videocassettes, software or similar consumer products?
2. Should Dell leverage its ability to sell and support expensive and complex hardware by expanding into online sales of televisions, stereos, VCRs or video cameras?
3. Should Century 21 or other major real estate brokers sell landscaping, painting, renovation, decoration, insurance or other services to new home-owners?
4. Should airlines expand their interest in selling hotel, car rental and tour packages? Should they seek to make frequent-flier miles the Web's common currency of exchange?
5. Should managed health care companies provide vitamins, exercise equipment, self-help books, nutritional counselling or health club memberships?
6. Should automobile manufacturers expand into insurance, repairs, navigation systems or driver's education?
7. Should Federal Express offer pagers, copiers, Internet access or other business and communications services?
8. Should universities expand into personal finance or vocational training?
9. Should computer trade publications expand into conferences, seminars, industry research or similar information services?
10. Should computer hardware companies expand into software and services?
Clearly, some of that is happening already. But the real question is whether that type of expansion will become an important competitive advantage. Although the desire to leverage brands and competencies is nothing new, the Web does provide important, enhanced capabilities. Once a community is actively established, it can become a powerful platform for delivering related services.
The appeal of bundling and integration is seen in the IT industry every day. Although it's now possible to build complex software through individual components, most consumers tend to go for an integrated application, even if it's one of Microsoft's "monolithic hairballs", to use Scott McNealy's phrase.
In the end, the question comes down to the relationship between core competencies and community service. If a company has clearly established the former, the Web provides an unprecedented ability to expand into the latter.