It’s pretty common to hear that Google, Facebook or another big company is going to launch a product to compete with an existing startup, thus killing the startup. Sometimes this takes the form of a reason not to start a new company in the first place.
Empirically, this seems to be false.
There are a few assumptions made in these startup-killer stories. The logical argument usually goes something like the following. For whatever it’s worth, the illogical argument is usually “That’s a feature, not a product” or something equally silly that no one has been able to explain to me yet. Anyway, the logical one…
- First, motivation. Startup competes, or could soon be competing, with BigCo. BigCo wants to own all the value that Startup is targeting.
- Second, actions. BigCo will launch a competing product. Advantaged by size and capital, BigCo will use its reach, money and staff to attack Startup.
- Third, results. BigCo, still advantaged by size and capital, will quickly gain more users and copy or eclipse Startup’s product. Startup will die or wish it had.
Replace “BigCo” with “Facebook” and “Startup” with “Foursquare,” and that’s the last few months of tech news. Feelings about quality and insightfulness of journalists aside, the story above appears to almost never actually happen.
- Motivation. I think this one is actually pretty accurate. Big companies (and small companies) do and probably should worry about competitors stealing either current or future market share. I don’t have any issues with the logical argument on this point, though a case could be made that big companies usually don’t figure out that a startup’s market is valuable until it’s too late; there are plenty of examples to support that.
- Actions. I haven’t gathered any data because I’m not really sure how to measure this. Counting every startup that “could” compete with a bigger company, then counting the big companies that have launched a startup-killer, seems too prone to errors. Even if data existed, it would be near impossible to interpret since I have no idea what any result–let’s say it was 10%–would actually imply. Lack of data notwithstanding, I bet this one is false. To make an even bigger unsubstantiated claim, I bet that acquisition is more common than competition. If I can make the leap of faith that any company that’s acquired is seen by the acquirer as competing with something they are either doing or would like to do, that’s pretty important.
- Results. This is where the logical argument really comes off the rails, in my mind. I see three problems with the “logical” results. First, size and capital are not always an advantage, maybe not even usually. Second, big companies’ paths to quickly doing a good job on something new are strewn with skeletons of fallen comrades. Third, even if everything so far is true, it doesn’t mean the startup dies or even does worse.
Full disclosure, I already have a counterexample. Microsoft killed Netscape. It used its size and capital to do it. At the end, Netscape died. However, that’s the most recent counterexample I can think of and it happened 15 years ago.
Facebook vs Flickr/Photobucket. Facebook Photos is the biggest photo sharing product in the world, with 50+ billion pictures. Flickr and Photobucket launched before Facebook Photos. Facebook did compete and they clearly won, but both Flickr and Photobucket are still kicking and have been acquired (Photobucket for $300m). I’m not sure exactly when Facebook Photos launched, but I’m pretty sure that it was before Flickr’s acquisition and I’m positive it was before Photobucket’s. Summary: Facebook attacked photo startups, photo startups didn’t die.
Google vs YouTube. According to Wikipedia, Google Videos and YouTube launched just a couple weeks apart. Google wanted Videos to be exactly what YouTube is, according to everything I’ve ever heard about it. So it’s basically a given that Google did compete. As the hottest public company at the time, they had massively more people and money than YouTube. Of course Google Videos sucked and they quickly acquired YouTube. Summary: Google competed with YouTube, failed, and bought the company for $1.6b.
There are other good examples that I could have used instead, like Google vs Admob or Yahoo! 360 vs WordPress. The point is that I really can’t think of a counterexample to the idea that startup-killers are bullshit since Microsoft and Netscape. There’s probably something out there that I’m missing, but the fact that zero come to my mind or the minds of a few friends I’ve asked doesn’t justify the amount of time that gets spent talking about the idea.
Jeff Jarvis recently wrote, “I’m not [a conspiracy theorist], because I’ve found the world is rarely organized enough to conspire.” Accurate, in my opinion, and relevant here. If big companies whacking startups was a successful strategy, it would mean that the big company would have to move quickly, acquire new skills and devote significant resources to something that is tiny in relation to their main business. They typically don’t do those things, and that’s why the startup exists in the first place.