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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
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 ]
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.
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").