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The Conglomerate Paradox: As GE splinters, Facebook becomes Meta

Are diseconomies of scope becoming more prevalent in the old American conglomerates while economies of scope are emerging in the technology spaces? (Planet Money, Nov. 2021)

Why Conglomerates Split Up

Sounds like diseconomies of scope is at work (WSJ Nov 2021).

FYI: A driver for conglomerates has disappeared. One reason that conglomerates were the rage in the 1960s is that the firm's stock served as a diversified portfolio of income streams from different sectors in the economy. A key lesson in finance is not to put all of you eggs in one basket. By buying shares in a conglomerate, an investor automatically had many baskets. Now, with lower transactions costs and ETFs and index funds, investors can easily and cheaply purchase a diversified portfolio AND can tailor to their individual preferences.   

Ford Steps Into the Chips Business

Ford is (sort of) integrating backward (WSJ Nov. 2021).

1. Are specialized investments large?
2. Are contracting costs high?

GE and the Belief in Management Magic

This report describes the history that led to GE's decision to split into three companies (WSJ Nov. 2021). To me the attitude at GE contrasts with Porter's definition of strategy. Here are some money quotes:

1. GE’s corporate culture prided itself on elevating management to a kind of science. The dissolution of the company, however, points to a reality many executives don’t like to admit:
   
   Management matters a lot, but it doesn’t matter as much as you think (especially if you are management).
2. Business historian Leslie Hannah, analyzing the 100 companies that had the largest stock-market value in 1912, found that only 21% remained among the top 100 in 1995. Almost half had disappeared ...
3. The struggle to integrate some of those lumbering acquisitions, and sluggish growth elsewhere at the company, forced GE Capital to become ultra-aggressive. Management had no choice; smooth earnings growth had to come from somewhere when other parts of the company were faltering. GE Capital “could get higher returns only by shouldering more risk,”
4. Decades of success had bred complacency. Rita McGrath is a management professor at Columbia Business School who studies corporate change and has consulted for GE. In the early 2000s, she says, a common attitude among the company’s managers was: “It doesn’t matter what we make; it’s how we manage.”
   
   GE was betting that “management technology would always save them,” she says.
5. But a management system optimized for wringing out incremental efficiencies couldn’t make the leap from the Industrial Age to the Information Age.
6. So industrial conglomerates are on the wane, at least for now. The myth that great management can always work miracles should be, too.

Rivian Prices Shares at $78 in Highly Anticipated IPO

This report from the WSJ states that Rivian is "backed by Amazon.com Inc." and that "Rivian has said it will launch three models by the end of the year. Among those is an electric delivery truck designed and built for Amazon. The e-retailer has an order for 100,000 of the trucks". 

The article raises several questions.

1. Is Amazon integrating backwards? 
2. If so, does the move make sense? 
1. Do transactions between EV truck manufacturers and Amazon require specialized investments? 
2. Are contracting costs high? 
3. If not, what other cost efficiencies might accrue? 

Another report. "The upstart auto manufacturer is backed by some big names, including Amazon.com Inc. and Ford Motor Co."

Update: "Ford Motor Co. F -0.87% and Rivian Automotive Inc. RIVN 4.23% have decided to go their separate ways rather than collaborate on future electric vehicles, backing away from an earlier strategic pact that led to a multibillion-dollar windfall for Ford."

Ford remains an investor. Its $500KK investment + "subsequent infusions" is now valued at $12.8KKK.

Rivian's market value > Ford's. Rivian delivered 42 cars in the last 5 weeks or so and its revenue = $0 in the third quarter of this year.

General Electric to Split Into Three Public Companies

The stock price of GM rose when it announced the split (WSJ, Nov. 2021). Does the increase in market capitalization indicate that producing all three divisions under one roof creates economics of scope or diseconomies of scope?