I was thrilled to read that Cendant is breaking up into 4 separate companies; it's yet another sign that the era of conglomerates is over.

Or is it?

Conglomerates developed for a reason. In the 1960s, when conglomerates started to become fashionable, there was a dearth of professional managers. The best approach was to consolidate managerial control of a business at one corporate headquarters because it was too difficult to find enough people to staff a more decentralized power spread.

Then came MBAs. Now you can decentralize and have professional managers at every point everywhere. It's also more effective to let people focus on what they do best. As a result, conglomerates are inefficient. They suffer from what is called a "diversification discount," which is essentially the amount of value of a company locked up inside wasteful conglomerate bureaucracies. If you free the business unit from conglomerate control, the theory goes, you unlock shareholder value and allow the unit to realize its full potential.

So does this mean it's the end of conglomerates? I think the answer is no. In fact, I think technology is allowing one kind of conglomerate to be replaced by another: a conglomerate based on centralized information networks instead of centralized management expertise.

Witness Google. At first, Google was a search engine. Then the people in charge tried to leverage its vast network to create synergies with other services: the GMail email service, and Blogger, the free blogging service. And a host of other gee-wiz projects with varying amounts of tangible value.

Just because you know how to build a great search engine doesn't mean you have the expertise to run a great e-mail service. Yes, they are both technology based, but within the technology spectrum, these are far apart. Is GMail good? Well, anecdotally, I've seen far more multi-hour delays with mail going in and out of GMail than any other email service. Is Blogger good? Well, anecdotally, I've seen a lot of unplanned service outages, and many failures of the Blogger server to find my own FTP host at EarthLink for transmitting a blog entry. I submit that compared to the superb search algorithm forming the foundation of Google, these ancillary services are of subpar quality.

Google may be the first textbook example of a second era of conglomerates. It's only natural; businesspeople have egos and want to build empires. As that song goes, breaking up is hard to do.