Classroom Companion: Business

Definition 14.4 Vertical Integration
The motive of vertical integration is to capture or secure a larger part of the com-
pany’s supply chain. It is convenient to distinguish between two types of vertical 
integration:
5
Backward or upstream vertical integration implies that the company acquires con-
trol over suppliers producing input to the company’s own product; for example, 
an application service provider merging with a content provider.
5
Forward or downstream vertical integration implies that the acquires control over 
the delivery of services to the customers; for example, a network provider (NP) 
offering direct access to the users—that is, integrating with an ISP.
Google’s acquisition of parts of HTC in 2017 is an example of backward vertical 
integration since Google took control over the production of mobile phones (user 
equipment). Forward or downstream vertical integration implies that the company 
acquires control over parts of its delivery chain or enters related business domains, 
in which its prime services are used as an input. Examples of forward integration 
are big film studios (e.g., MGM) owning their own theaters and media companies 
merging with Internet service providers and TV satellite operators.
 
Chapter 14 · Mergers and Acquisitions

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Case Study: Facebook Acquisitions
Facebook has acquired 89 companies 
since 2007. It has moved from being a 
social media service to a digital con-
glomerate with business operations in 
several areas of the digital economy. A 
few notable companies that Facebook 
has acquired include Instagram, 
WhatsApp, Oculus VR, and Parse. 
.
Figure 
14.3
exemplifies these four 
acquisitions in the context of the types 
of integrations defined in 
7
Sect. 
14.3
:
5
Horizontal integration: Facebook’s 
acquisition of Instagram in 2012. 
Instagram is a photo-sharing app 
launched in 2010 and reached more 
than ten million users within a year. 
The intention was that Facebook 
would develop Instagram indepen-
dently; however, integration with 
Facebook began shortly after the 
acquisition.
5
Horizontal integration: Facebook’s 
acquisition of WhatsApp in 2014. 
WhatsApp is offering messaging and 
voice-over-IP services for its users. At 
the time of the acquisition, WhatsApp 
had more than 500 million MAU. Even 
though Facebook and WhatsApp are 
not competing directly in the same 
market, they are both considered a