> Didn't we go through some phase where many companies were vertically integrating and then somehow that went out of fashion and everyone reversed that. I vaguely remember learning this in a business class, but no details.

The primary advantage to vertical integration is when you need something but the market for suppliers is broken somehow, e.g. there isn't enough competition and then the suppliers behave like Comcast or Qualcomm. In that case entering the market yourself can be an advantage if you have the resources to do it, because you can cut out the crummy suppliers.

The risk of this is that you become the crummy supplier. The internal supplier has a captive customer because they're the same company, which means they're not exposed to competitive pressure. Corporate politics takes root, internal processes become wasteful and inefficient, but there is pressure to use the internal solution even if a third party offers something better. Internal systems become so integrated with each other that you can't switch to a competing supplier even when you should. One part of the company isn't allowed to improve their product in a way that cannibalizes the margins of another business unit, when non-vertically integrated competitors have no such constraints.

Basically it works well in the early years but then the lumbering dinosaur goes extinct at the next meteor because it loses the ability to adapt.

The secret is to enter the other market but then spin off the internal subdivision before the whole company becomes a festering bureaucracy. Or create an internal preference for the smallest suppliers in the other market to help them gain a foothold and increase their competitiveness, or provide them with startup capital or publish open source software that makes it easier for startups to enter that market etc. Commoditize Your Complement.