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American Tech Giants Are Making Life Tough For Startups (economist.com)
An anonymous reader quotes a report from The Economist: Venture capitalists, such as Albert Wenger of Union Square Ventures, who was an early investor in Twitter, now talk of a "kill-zone" around the giants. Once a young firm enters, it can be extremely difficult to survive. Tech giants try to squash startups by copying them, or they pay to scoop them up early to eliminate a threat. The idea of a kill-zone may bring to mind Microsoft's long reign in the 1990s, as it embraced a strategy of "embrace, extend and extinguish" and tried to intimidate startups from entering its domain. But entrepreneurs' and venture capitalists' concerns are striking because for a long while afterwards, startups had free rein. [...] Venture capitalists are wary of backing startups in online search, social media, mobile and e-commerce. It has become harder for startups to secure a first financing round. According to Pitchbook, a research company, in 2017 the number of these rounds were down by around 22% from 2012 (see chart).
The wariness comes from seeing what happens to startups when they enter the kill-zone, either deliberately or accidentally. Snap is the most prominent example; after Snap rebuffed Facebook's attempts to buy the firm in 2013, for $3 billion, Facebook cloned many of its successful features and has put a damper on its growth. A less known example is Life on Air, which launched Meerkat, a live video-streaming app, in 2015. It was obliterated when Twitter acquired and promoted a competing app, Periscope. Life on Air shut Meerkat down and launched a different app, called Houseparty, which offered group video chats. This briefly gained prominence, but was then copied by Facebook, seizing users and attention away from the startup. The Economist goes on to state three reasons why the kill-zone is likely to stay: "First, the giants have tons of data to identify emerging rivals faster than ever before. Recruiting is a second tool the giants will use to enforce their kill zones. A third reason that startups may struggle to break through is that there is no sign of a new platform emerging which could disrupt the incumbents, even more than a decade after the rise of mobile."
The wariness comes from seeing what happens to startups when they enter the kill-zone, either deliberately or accidentally. Snap is the most prominent example; after Snap rebuffed Facebook's attempts to buy the firm in 2013, for $3 billion, Facebook cloned many of its successful features and has put a damper on its growth. A less known example is Life on Air, which launched Meerkat, a live video-streaming app, in 2015. It was obliterated when Twitter acquired and promoted a competing app, Periscope. Life on Air shut Meerkat down and launched a different app, called Houseparty, which offered group video chats. This briefly gained prominence, but was then copied by Facebook, seizing users and attention away from the startup. The Economist goes on to state three reasons why the kill-zone is likely to stay: "First, the giants have tons of data to identify emerging rivals faster than ever before. Recruiting is a second tool the giants will use to enforce their kill zones. A third reason that startups may struggle to break through is that there is no sign of a new platform emerging which could disrupt the incumbents, even more than a decade after the rise of mobile."
That's why the next disruptors will be entirely distributed. Google, FB, Amazon and Co. are todays AOL and CompuServe, plain and simple. They bascially own the web. Cracking that stronghold will likely only happen with fully distributed services. I expect something like this to show up with the next 5 years or so.
In a way I'm looking forward to that.
We suffer more in our imagination than in reality. - Seneca
there is no sign of a new platform emerging which could disrupt the incumbents, even more than a decade after the rise of mobile."
Google developed Android strictly as a defensive play to prevent them from getting locked out of the mobile ad market (their overwhelmingly primary source of revenue) by Apple, Microsoft, Blackberry, Nokia, and others. In this they succeeded wildly and it will be very hard to displace them.
All of these big tech companies have VAST amounts of cash available to them. They could easily buy most companies that present a threat to them or buy their way into entirely new industries if they wanted. Apple literally has enough cash to buy both Ford and GM and Fiat Chrysler at their current market capitalization. Microsoft and Alphabet/Google and to a lesser degree Facebook are similarly comfortable.
It also means that novel ideas ('new features' for someone else's product) don't get to see the light of day because they can't get (Silicon Valley) investment. That investment knows that any good ideas will either be bought (for a low price, not 10 time the real value of the idea) or be simply copied ensuring the company formed around it just dies off with no investor payback at all.
However, the solution is really relatively simple:
1) Have a better idea
2) Don't do it in Silicon Valley
Having a better idea means it's harder to copy (although probably well within the capabilities of the big guys if they really want to do it). It also means the idea has more intrinsic value, which pushes up any possible company sale price. It's doesn't inoculate against the issue of copy-and-extinguish, but it mitigates it because doing so is harder and more 'distracting' for the big company considering doing it.
Not doing it in Silicon Valley is probably the best move though. Firstly, you'll build up any market share from your local area first, and so those people will just enjoy your product without 'telling the big guys' about it. Secondly, you won't be in the SV rumour mill, so ludicrous stories about you, your success, worth or whatever else are less likely to reach the big guys. This all gives you time to actually develop a product, actually acquire customers and actually run your business. By the time the big guys cotton on, you'll be big enough that you're uncopyable, and worth considerably more than you would have been without that time.
2. Buying competing companies
Great, rewards innovators for their work, motivates more to do the same and also get paid.
The problem is that very often this is done by the buyer corporation for 2 goals :
- Stop the competitor
- Acquire the talents and mind behind the startup to use them.
It usually doesn't include the goal that interests most end-users :
- Keep the startup's project alive thanks to bigger infrastructure.
- Usually that project get shut down, and the brains reassigned to the corporation other targets/projects.
Facebook's keeping alive competing social networks WhatsApp and Instagram after aquiring them is mroe the exception than the norm.
(Mostly due to very strong generation cycles in that market: Facebook the social network will eventually follow MySpace and die as well, and Mark Zuckerberg has been very carefully planning the follow up by sucessfully buying any upcoming future successor).
So although the devs get money that rewards them for the hardwork, users might lose an interesting alternative, and get a less diverse eco-system.
"Sufficiently advanced satire is indistinguishable from reality." - [Tips: 1DrYakQDKCQ6y52z6QbnkxHXAocMZJE61o ]
Well I'd say the bigger thing though is at least some features are lost. Look at say diaspora's social network. (admitted diaspora more likely can be credited with killing themselves, due to it's initial release being filled to the brim with security holes, leading to them basically losing all of the tech journalist support, that origionally had put them on the map). Diaspora's leading feature for the users, would have been Aspects. Which basically let you put people into groups, and chose which group you wanted to share which posts/photo's etc... with. Shortly after diaspora's demo's came out, google plus came out. Which looked almost identical to diaspora, and included "circles" which was basically aspects, and then of course facebook made groups to match both of them. The big thing is, stuff like privacy, reasonable monotization systems, non tracking etc... aren't big money makers. In order for a liberation from big data, It would take both an improved privacy system, and a practical feature to draw people away from the big companies. Also many of the companies selling their companies to big names like google etc... aren't doing so because they think their product will flourish there. If you look at the mass graveyard of companies google has bought up, it's pretty clear very few of them actually survived. At least some of the guys would rather have had their company take it's chances, but knew that refusing meant the big giants would kill their product in some other ways... so the choice was "collect a few million and let the company pick up and abandon the project", or "watch the company evicerate the product by either temporally making a competitor (that also will be abandoned), and go bankrupt in the process.
That's why the next disruptors will be entirely distributed.
You're going to have something more distributed than the internet? Good luck with that. I understand your argument and it's not a foolish idea but "more distributed" runs into some real world limits and it has little effect on certain companies including I think some of the ones being discussed here.
Cracking that stronghold will likely only happen with fully distributed services.
Conceivable but unlikely. The risk to each company is different. It's not likely to be something so obvious as a more distributed version of the internet or their particular services. It will have to be something quite different that they don't really perceive as a threat - at first.
I expect something like this to show up with the next 5 years or so.
I'll take that bet. You might be right but I seriously doubt we'll see anything that displaces the bit tech companies in this generation.
Except they developed Android at the same time as Apple started developing iPhone and they did not really know about each other...
Google didn't need to know about the iPhone to know there was a threat to their ad revenue from a mobile device maker controlling their ability to reach end users. At the time they were probably more worried about Microsoft or Nokia or Blackberry but the threat was the same. They also probably were concerned about AT&T, Verizon and that bunch too having too much control over the software and ad platforms. Nobody really could have predicted the iPhone would be the smash hit it turned out to be but people were WELL aware prior to the iPhone that mobile was going to be a big thing and there was a lot of money to be made in mobile ads. So Google very astutely developed Android as a defensive play to protect their primary source of revenue. Google didn't need to actually make money on it, they just needed to make sure it kept their cash cow producing.
Same reasoning that Microsoft used in trying to get the XBox to market actually. Microsoft was worried (with some justification) that Sony would be able to supplant the PC by putting a computer on the TV. In hindsight it was obviously less of a threat then they feared but at the time it seemed like a genuine risk because nobody really knew what direction the market would take.
Rockefeller made it easy for anyone to sell kerosene to light lamps in USA? He colluded with railroaders like Vanderbilt and made it impossible for anyone to compete.
Edison's General Electric executives actually ended up in jail for violating Sherman antitrust anti monopoly laws.
Yes, there is probably a kill zone around today's tech giants. But it is a metaphorical. But back in the days, the kill zones were real.
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
This is the free market as it should be. Much better than in markets where government meddles, actually fucking things up.
Why are you against a properly working free marked? Because a working free marked requires low barriers to entry/exit, lack of cartel activity, etc, all of which needs govenment intervention. By all means, it is absolutely possible for governments to mess up with things they do (say like unwisely keeping a dying coal industry on life support instead of investing in renewable energy), but that is not an argument for them to do nothing.
And even with that, some government intervention by restricting what a properly working free marked could produce is good for society. For instance, do you think that companies should be able to 100% decide the safety of their products without any say from the government at all, or should the govenment be able to set some minimum requirements with regards to products? Will such safety requirements be perfect? Of course not. Will it make some products more expensive? Yes. But the world is undeniably a better place with such requirements in place.
When you are sure of something, you probably are wrong (search for "Unskilled and Unaware of It").
The disruptors are happening, but they are not in the US. China, India, and other countries have their own companies, backed by the government that are breaking ground. For example, Taobao and Single's Day made more revenue than the Christmas holidays. Alibaba, Tencent, and Yandex are booming, while Google is still begging to be let into the party.
Notice when the current giants in the market became giants: after the passage of Sarbanes-Oxley, which made it far more difficult for mid-sized startups to go to the public markets for funding. When the only practical exit strategy left to you is to be bought out by a Facebook, a Google, an Apple or a Microsoft, then the only strategy you have left as an entrepreneur is to figure out what will get you bought out, rather than going head to head with the large companies as Google once did against a Lycos or an Altavista.
Without the additional requirements in Sarbanes-Oxley which made accessing the public markets much harder, would we be talking about Github being bought out by Microsoft? Or would be be talking about Github's IPO?
Things like Diaspora can in theory be made as easy as (legit) BitTorrent. The tricky parts of any distributed communication app are
1. Integration with domain registrars to give your home computer a globally unique name.
2. Integration with UPnP or other home gateway configuration protocols to make your home computer reachable from the Internet.
3. Convincing ISPs to turn on IPv6 so that your home computer isn't stuck behind carrier-grade network address translation (CGNAT) with dozens of subscribers on one IP address.
Why are you against a properly working free marked?
Because government == always bad/inefficient. Free market == freedom/efficiency!
I really wish I was making that argument up. It's not the stance of every free market advocate, but there are a disturbingly high number in that blind faith camp posting on /. And I'm not sure it's worth trying to reach them.