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scarface74

Everyone says this narrative. But 10 years ago.

- Google was the most popular search engine. Had a dominant position in adTech and YouTube was popular

- Apple became the most valuable company in the US and the iPhone was sucking up most industry profits.

- Amazon was by far the most dominant electric retailer and AWS was taking off (disclaimer: my current employer)

- Microsoft had been the dominant operating system for 15 years and Office the dominant office suite.

- Even Facebook was the dominant social network.

Not one startup has disrupted the industry in the past decade.

AirBnB is probably the only major tech company that has created a profitable large business in ten years.

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Google acquired YouTube and Facebook acquired Instagram. Both for what seemed like insane valuations at the time. Both were brilliant defensive acquisitions in hindsight. Both fueled tech valuations by illustrating the opportunity for rapid disruption.

Wonder how it’d go if the DoJ actually practiced antitrust towards tech again. The EU Commission does, at least.

Both of those acquisitions were tiny $1 billion buys. They only grew into massive entities under their new corporate parents. Antitrust doesn't apply to such a situation. They could only be seen as critical acquisitions in hindsight.

Youtube felt like a major new platform even at the time of acquisition, and google tried to compete by launching google videos - but failed.

Seeing that YouTube would have been sued out of existence, what difference would it make?

And how would a search engine company buying out a non profitable video platform that had no means of making money have triggered anti trust action?

Yeah, and how many startups did these companies acquire in order to maintain dominance?

Disruption can happen but it is the exception that feeds the narrative.

In order for these acquisitions to have high valuations, big companies must fear being replaced. It is in VC’s interest to stoke that fear. They do this by the threat of replacement at least as much as through funding for actual replacement.

VCs don’t have to care whether disruption happens, but they do have to care about their IRR, and will say or do anything they feel will with high probability increase their rates of return.

Most of the acquisitions that happen aren’t because of fear of “disruption” which is a very overused and misunderstood term - especially when defined like Clayton Christensen.

They are bought to be an accretive to an existing business or the acquiring company thinks they have scale advantage to multiply the value of the acquisition.

Another way to put it, that these are “sustaining innovations”.

Im not sure how you’d quantify most here.

The highest valuations are not paid for sustaining innovations, but for market access risks, which is what this thread was about. The two can be the same thing functionally, but “sustaining innovations” sounds much better in a shareholder meeting.

Let’s take Apple. Apple has only made two large acquisitions - NeXT and Beats - in the modern area. NeXT was bought to “sustain” the MacOS and Beats was bought to jump start Apple Music and its audio business. Is there any reason to believe that Apple who was already streaming purchased movies and musics needed Beats to bring streaming technology to the store. Beats was never going to disrupt Apple’s business. In fact, Cook said that Apple acquires a company on average every three weeks. Are all those “disruptive”?

Neither LinkedIn or GitHub were going to disrupt Microsoft in anyway.

Jobs, having been forced out of Apple, was leading NeXT at the time, and Apple was a failing hardware company. Software, driven by Apple’s founder was threatening to take Apple’s market. I don’t know how you can say this wasn’t potentially disruptive.

Post Jobs’ death they bought a black celebrity-driven entertainment company. This was absolutely a brand threat as Apple was now associated with Tim Cook, who is perhaps many amazing things but they do not include cool.

Fast forward a decade and Microsoft recognized the game that was being played, which is that a set of six murky quasi-monopolies attempt to acquire diverse revenue streams and not lose information sources or access to their markets. While LinkedIn or Github may not have been direct threats to any of Microsoft’s existing businesses, if someone else got ahold of them Microsoft would have zero social footprint, which would be a big problem for them, having essentially missed out on search as well.

> Software, driven by Apple’s founder was threatening to take Apple’s market

NeXT was already a failure and was transitioning out of the hardware business. Apple couldn’t make a modern operating system to save its life and was getting crushed by Microsoft.

> Post Jobs’ death they bought a black celebrity-driven entertainment company. This was absolutely a brand threat as Apple was now associated with Tim Cook, who is perhaps many amazing things but they do not include cool.

People aren’t buying iPhones because of a producer that most outside of Hip Hop only knew because he was the producer behind a famous White rapper (Eminem).

> Microsoft’s existing businesses, if someone else got ahold of them Microsoft would have zero social footprint, which would be a big problem for them, having essentially missed out on search as well.

Under Satya, they moved away from Windows everywhere to cloud and Office everywhere.

Azure isn’t popular because of GitHub. It mostly targets stodgy old Enterprise customers that are already on the MS platform. That’s not meant to be an insult. I was a stodgy old enterprise MS dev until 2018 when I started moving toward AWS technologies (where I now work).

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