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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."
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.