The Consolidation Curve has been a concept in the world of business for decades. Many people are familiar with it based on the famous piece where the Harvard Business Review defined and illustrated it. The Consolidation Curve describes the evolution of whole industries, from birth to maturity.
When a new industry emerges, it’s likely that just one start-up company represents the whole of the industry. This means that one company is capturing 100% of the business. However, if the industry is viable, rivals will soon emerge. The opening phase signals the birth of a new industry. The second phase of a new industry involves scale. This phase is all about building and consolidating. The businesses from the earliest phases seek to develop a firm foundation during this second phase. Other outside companies may try to establish a footprint, too, during this phase. Mergers and acquisitions can be fast and furious among stage two companies.
During phase three of the consolidation cycle, the surviving companies devote their energy to focus. They want to zero in on ways to consolidate further and continue to dominate in their industry. Some third-stage companies will dominate to the extent that they’ll control over a third of the market share in their industry. The focus stage of the Consolidation Curve will see further mergers and acquisition. This phase is all about emphasizing what a company does best, and finding ways to extract more profit. Finding new efficiencies is a key in this phase. A good example of third stage companies in the modern world is hotel chains and automotive companies.
Finally, there’s stage four. This is a point where the industry seems to be resting in equilibrium. Things have settled into a comfortable space for the few remaining companies at the top. In fact, the largest and most established companies start to see themselves as allies. They will band together to resist attempts at outside regulation. A great example of this is the soda industry. Pepsi and Coca-Cola are by far the largest companies in the industry. Globally, they’ve already eliminated or absorbed most of their rivals. And in the face of sugar taxes, they adopted similar strategies of expanding their zero-calorie offerings, from diet sodas to bottle waters.