Only a few projects managed to pass a few years from start-up to unicorn (companies with billions in assessment). Why the new generation can’t repeat the rise of Facebook, Snap, Google? The fact that Internet corporations have learned from my experience and in every way prevent the emergence of new competitors. Is there a chance to be the new Zuckerberg?
While startups compete with each other it giants cloned their products and strongly concentrate resources in their hands. Some startups believe that such tactics are shocking investors and they are less willing to invest in young companies, especially those that are potentially interesting Amazon and Facebook markets.
Tech giants, continuing to announce new tools, development, acquisition, induce fear, young entrepreneurs and venture capitalists, leaving the latter to guess which of their companies will be killed next. Tools of the killers of startups and really impressive.
VCS like albert Wenger of Union Square Ventures, an early investor in Twitter, talking about the “exclusion zone” around the giants that literally leave behind scorched earth, devastated from the human and financial resources.
Such “exclusion zones” arise in the areas of interest major technology companies, including Internet search, social networking, digital advertising, virtual reality, communication and connectivity, smartphones, home acoustics, cloud computing, artificial intelligence, e-Commerce and others.
The lack of a clear monopoly of the market in kriptonyte and biotech is one of the reasons of investors ‘ enthusiasm in these areas. But experts do not exclude the purchase by the Corporation of Facebook cryptomeria Coinbase, which means they can come in these areas. The founder of the cloud service Box, which avoided falling under the blow of the techno-giants and capitalization reached about $2.6 billion, advises startups to act faster: “the startups had a few years to start working on something new, without attracting the attention of the giants, and today they have only 6 to 12 months before being seen.”
The influence of the tech giants is not limited to a “zone of direct destruction.” Even if market leaders do not copy and do not absorb the startups directly, they can affect their prospects and capitalization. In 2017, Amazon has bought a chain of supermarkets health food Whole Foods Market for $13.7 billion After that startup food delivery from Blue Apron was considered unpromising and lost 70% of capitalization. A similar effect is not confined to start-UPS: after the announcement of Facebook start online Dating service promotions Match Group, which, for example, belong to the services Tinder and OkCupid, plunged more than 20%.
Major technological firms may pay huge sums to retain the best and even ordinary employees in its ranks, and their employees it is impractical to consider in startups. In 2017, Google, Amazon, Apple, Facebook and Microsoft contributed $23.7 billion in stock options to its employees. The accumulation of talent in large companies slows down scaling startups. According to the venture capital company Index Ventures ‘ Mike Volpi, startups in the portfolio of the Fund are lagging behind on 15% in their plans for hiring for the year. Thus, the recruiting in the hands of tech giants is a formidable tool to strengthen its “exclusion zones”. In addition, employees have fewer incentives to leave and create their own businesses, what was once a typical career development for entrepreneurs.
The problem from the field of technology develops into a General economic. Since 1980, the share of companies with under one year of age has almost halved — from 15% to 8.1% of all companies, according to the census Bureau of the United States. The total number of start-UPS launched in 2015 amounted to 414 000 is a huge decrease compared to pre-crisis 558 000 in 2006. Chief economist of the Bank of France, Sophie Guillou-Nafussi stresses that the problem of technological monopolies is also the social aspect: the market share of the 8 largest U.S. companies, rose more than 60% in the period from 2002 to 2012 and continues to grow. As a result, their profit increased, respectively, increased investment and wages. The fall in the share of income of other companies and the salaries of their employees can increase the polarization of society, and the lack of third-party investment will reduce the potential growth of the economy in subsequent years.
The funding gap
Unlimited resources of companies like Facebook, Google, Amazon and Apple with a total capitalization of almost $2.5 trillion equivalent to the GDP of France, make a competition for startups all the more difficult. Everything to do with consumer Internet, is perceived as a threat due to the dominance of Amazon, Facebook and Google. Venture capitalists fear to support startups in these areas. Young companies more and more difficult to raise a first round of funding (when it is unclear what direction the company will eventually work): according to research firm Pitchbook, in 2017 the number of rounds decreased by approximately 22% compared to 2012.
“Large technology corporations funding research on the next generation on such a scale that no one else can afford”, — said venture capitalist, a representative of the company Redpoint’s Tomasz Tunguz, citing the example of an experimental Google project Loon (Internet from the balloon), Fiber (high speed Internet) and Waymo (technologies for unmanned vehicles).
Hunting for startups
The giants have a lot of information allowing faster to identify new competitors. Google collects data about how Internet users spend time and money using the Chrome browser, email, Android operating system, app store, cloud services and more. Amazon can gather a lot of data for its e-Commerce platform and cloud business. Facebook can see which apps people use and where they travel online.
Mark Zuckerberg acquired in 2013, the Israeli mobile Analytics company Onavo, which created the app, ensuring the privacy of users by routing their traffic through private servers. This app gives Facebook extremely detailed information about what users do on their phones. The tool helped shape the decision about Facebook buying WhatsApp and signaled prospects strategies streaming video. In result, Facebook has successfully copied all the core functionality of competitors, and in 2017, has acquired nascent social network tbh.
Another source of information on market situation and investment activity of the giants. Alphabet (parent company Google) is the most active among technological corporations: in 2013 invested about $11 billion in more than 300 startups. Young companies usually are happy to experience such a successful company, but some may regret the day when they made this decision. For example, Uber took money from one of the venture funds Alphabet, but soon found that competes with another daughter of technogiant — manufacturer of unmanned vehicles Waymo: the confrontation between the two companies ended litigation in the case about the theft of technological secrets. Marketplace for qualified employees Thumbtack took an investment from Google, but then was faced with the fact that the investor launched the competing service Google Home Services. Amazon and Apple are investing much less money in startups, but this does not represent a lesser threat.
At the meeting held last summer, mark Zuckerberg was inspired employees, that those must not let pride interfere with you to create convenient services for users. This is a veiled way of suggesting that you should not be afraid to copy competitors. The message became the informal internal motto: “don’t be too proud to copy”.
Messenger Snapchat — the most striking example of this behaviour, technological monsters. After the company Snap refused Facebook’s $3 billion in 2013, the social network Zuckerberg cloned many of the successful functions and as a result slowed the growth of a competitor. Less well-known example for video streaming Life on Air company Meerkat. It was destroyed by the microblogging network Twitter who bought roll out a competing app Periscope. Fail Life on Air killed the Meerkat and the team launched another app called Houseparty, which offered group video chats. As soon as the service began to gain popularity, the situation repeated itself: the application was copied Facebook (Bonfire), and there flowed user base.
Amazon corporate pride does not stop to increase capitalization. Jonathan Frankel was thrilled when after a year of negotiations, the investment arm of Amazon has invested $5.6 million in his startup Nucleus: tablet PC based on Alexa, which focused on videoconferencing and communications. He was no less excited when a year Amazon launched its voice device Echo Show: an almost perfect clone of the product Nucleus.
Under attack are not only applications, but the corporate software business dominated by Microsoft, Amazon and Google. Cloud service Amazon Web Services (AWS) has made many startups “partners” only to copy their functionality and offer them as cheap or free service. Giant complicates the life of a startup, working on site and at the same time controlling its resources. Among the victims AWS a lot of big names: LinkedIn Confluent project, copied under the name Amazon Managed Streaming to Kafka, Dropbox, “debuted” under the name Zocalo in 2014 and subsequently renamed WorkDocs. Another example is Elastic, which went IPO in October. Team Elastic comercializare search software open source Elasticsearch. In 2015, a few months after the Elastic has announced a cloud-based implementation of Elasticsearch on AWS she AWS released an equivalent Elasticsearch.
A month ago it became known that another project, which produces products based on open source, Red Hat, lost its independence and will be absorbed by IBM in the transaction the sum of 34 billion dollars. The event scale can not recall the story about how the “Oracle bought Sun” in 2009 and a sad ending with the elimination of acquisitions in 2015.
It should be noted that what is happening recalls the long dominance of Microsoft in the 1990-ies, when it has followed a strategy of expansion and curb startups from entering its sphere. But then the fears of entrepreneurs and venture capitalists have not been confirmed. In 2014, The Economist compared the proliferation of startups to the Cambrian explosion: the proliferation of the PC and affordable software has made launching a startup is cheaper than ever, and the ability of young companies was huge. It is not excluded that the current hegemony of tech giants also will provoke the next wave of growth in startups, backed by cheaper access to technology.
Sale startups, tech giants may also indirectly stimulate innovation: startups often do not stay in their creations after their acquisitions by corporations, but receive substantial funds, that invest in their promising colleagues. Co-founder of WhatsApp Brian Acton was unable to find a common language with mark Zuckerberg in the monetization of messenger and use of user data, and as a result left the company, investing $50 million in the application to exchange encrypted messages Signal.
Sometimes the tech giants acquire start-UPS provide more growth than in self-development. For example, after the acquisition of Instagram by Facebook Corporation has received the momentum of development through integration with the social network of the buyer, as well as its technical infrastructure, staff and know-how. As the result of a competitor’s app, Vine, and Snapchat Periscope can not stand human, financial and platform competition from Facebook and Instagram.
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