vs. NeueHealth
Oscar Health
Own claims and data systems, not vendors
- What it did
- Schlosser dropped the plan to assemble vendor APIs for full stack (2016)
- NeueHealth
- Prospectus touted a platform; 40-50% of 2021 claims processed in Q4
Vertical Integration Strategy
What is Vertical Integration Strategy?
Vertical integration strategy is when a company owns or runs a stage of its value chain that it could otherwise buy from a supplier or hand to a distributor, such as making its own inputs, financing its own sales or delivering to customers itself. The goal is control over supply, cost, quality or coordination.
Also calledvertical integrationbackward integrationforward integration
How Vertical Integration Strategy works
The reason to do it is control. Owning the stage lets the company secure supply, change several stages at once, set its own quality bar and keep the margin a supplier would have charged. Carvana runs its own reconditioning, car loans and delivery trucks so the whole purchase can happen online. Tempus built its own lab after outside sequencing labs refused to share the data its service needed.
The price is commitment. The company ties capital and management time to work a specialist could do, and it loses the option of switching to a better supplier later.
Source the carBought from outside sellers
ReconditionIts own inspection and repair centers
FinanceOriginates and sells its own loans
DeliverIts own haulers and vending machines
How companies won with Vertical Integration Strategy
From the win chains in Strategy Canon case studies: what the winner did, and what its rival did at the same step.
vs. Shift Technologies
Carvana
The whole purchase online, with Carvana owning the loan and every step
- What it did
- Atlanta launch (Jan 2013): pick, finance, buy and schedule delivery in 30 minutes, with 360-degree photos showing every flaw and a 7-day return
- Shift Technologies
- Built around staffed home test drives, with loans from third-party lenders for a fee and mostly third-party transport
vs. Earnest
SoFi
Own bank and core tech under the loop
- What it did
- ILC withdrawn 2017; OCC charter via Golden Pacific (2022) replaced 200-400 bps warehouse funding
- Earnest
- No deposits; Navient-sponsored securitizations
vs. Ro · 2019–25
Hims & Hers
Own pharmacies and compounding facilities
- What it did
- Columbus fulfillment pharmacy built to cut reliance on third-party pharmacies (2019)
- Ro
- Ro Pharmacy revenue grew 150% (2021) while Ro spent on in-home care
Also tagged: Fortinet · LendingClub · Navan · Netflix · NeueHealth (Bright Health) · Peloton · Tempus
Vertical Integration Strategy vs. End-to-End Workflow and Vertical Specialization
| What it is | How to tell it apart | Example | |
|---|---|---|---|
| Vertical Integration Strategy | Owning or running connected stages of the value chain: supply, production, distribution | Ask who owns the assets and directs the work at each stage | Tempus building its own sequencing lab |
| End-to-End Workflow | A product that covers more steps of the customer's job | It's about the customer's workflow; outside suppliers can still do the work behind it | Datadog putting metrics, traces and logs in one view |
| Vertical Specialization | Building the offering around one customer industry | It's about which customers you serve, not which stages you own | Veeva's CRM built for life-sciences sales teams |
How to tell if a company has it
- A stage brought inside the companyName the stage it now owns or runs and the stage that stage feeds.
- Real operating controlIt owns the assets or directs the people. A supply contract or API access doesn't count.
- An outside option it passed upAn independent supplier, distributor or partner it could have used, or tried first.
- A benefit that came from the controlSecured supply, lower cost, better quality or tighter coordination than the outside arrangement gave.
Who names it
| Author | What they call it / where it appears |
|---|---|
| Porter | Vertical integration decisions |