The death of the startup: is big tech squeezing out the competition? | Technology | The Guardian

["Dave Farber" <farber () gmail com>]

Begin forwarded message:

> From: Allan Davidson <alland () heckerty com>
> Date: October 20, 2017 at 8:19:53 AM EDT
> To: Dave Farber <dave () farber net>
> Subject: The death of the startup: is big tech squeezing out the competition? | Technology | The Guardian
>
> Hi Dave
>
> Thought this might interest readers of your list:
>
>
> > https://www.theguardian.com/technology/2017/oct/20/tech-startups-facebook-amazon-google-apple?utm_source=esp&utm_medium=Email&utm_campaign=GU+Today+USA+-+Collections+2017&utm_term=248826&subid=11251563&CMP=GT_US_collection
> >
> > The death of the startup: is big tech squeezing out the competition?
> > Friday 20 October 2017
> >  
> > The leading tech companies are making it harder for startups to attract investment. Photograph: Alvarez/Getty Images
> > Facebook has been breathing down the neck of the group video-chat app Houseparty for over a year. The app, developed 
> > by the San Francisco startup Life On Air, has been a hit with teenagers – an audience Facebook is desperate to woo.
> >
> > After months of sniffing around its tiny competitor and even inviting the team to its headquarters last summer, 
> > Facebook launched its own group video chat tool within Messenger in December 2016. In February, it invited teens to 
> > its headquarters to quiz them, in return for $275 Amazon cards, on how and why they used video-chat apps. By July, 
> > Facebook was demonstrating a Houseparty clone, Bonfire, to employees and by early September the app launched in 
> > Denmark.
> >
> > “They see we’re having traction,” Sima Sistani, co-founder of Houseparty, told the Wall Street Journal in August. 
> > “That’s why we’re pushing so hard.”
> >
> > Pushing hard might not be enough when you’re going up against some of the world’s most powerful companies keen to 
> > cling to their empires.
> >
> > Startups drive job creation and innovation, but the number of new business launches is at a 30-year low and some 
> > economists, investors and entrepreneurs are pointing their fingers at big tech.
> >
> > For one thing, the deep pockets and resources of companies like Facebook, Google, Amazon and Apple – with a combined 
> > value of almost $2.5tn – make it increasingly difficult for startups to compete or attract investment.
> >
> > “People are not getting funded because Amazon might one day compete with them,” said one founder, who wished to 
> > remain anonymous. “If it was startup versus startup, it would have been a fair fight, but startup versus Amazon and 
> > it’s game over.”
> >
> > Even multibillion-dollar startups like Snap, Snapchat’s parent company, struggle to compete against these tech 
> > titans.
> >
> > Like Houseparty, Snap was nipping at the heels of Facebook. At first, Facebook played nicely, making an offer to buy 
> > Snapchat – a strategy that worked with Instagram and WhatsApp. When that failed, Facebook cloned all of Snapchat’s 
> > features, awkwardly at first but relentlessly and with the resources of a $510bn company, until Snap’s potential 
> > slice of the advertising market shriveled to a sliver.
> >
> > While there’s a clear correlation, it’s hard to say for sure whether concentration of money is the cause or effect 
> > of the startup decline. On one hand, the existence of fewer new startups makes it easier for incumbent firms to 
> > accumulate more power. However, as industries become more concentrated, it also raises the barriers to new 
> > entrepreneurship, choking off innovation elsewhere in the marketplace.
> >
> > “They are financing the next generation research at a scale that no one else can afford,” said Tomasz Tunguz, a 
> > venture capitalist, citing Google’s experimental projects Loon (balloon-powered internet), Fiber (high-speed 
> > internet) and Waymo (self-driving cars). “They are playing in big markets, making big bets. Historically, that’s 
> > been the domain of startups.”
> >
> > As those companies get more powerful and staff salaries get higher, there’s even less of an incentive for workers to 
> > leave and set up on their own, which used to be a common pathway for entrepreneurs. If they do leave, the endgame is 
> > often to be acquired by their previous employer rather than grow large enough to compete with it.
> >
> > “If your strategy from the outset is to be acquired by Google, that’s just fueling consolidation,” said Ian 
> > Hathaway, an economist at the Brookings Institution.
> >
> > Jonathan Frankel was thrilled when Amazon’s investment arm funneled $5.6m into his startup Nucleus after a year of 
> > discussions. He was less thrilled when, a year later, Amazon launched its latest voice-controlled device, the Echo 
> > Show: an almost perfect clone of the Nucleus product.
> >
> >
> > Nucleus was an Alexa-powered tablet computer that focused on video conferencing and communication, with a plan – 
> > that Amazon’s investment arm would have seen – to move into other areas. When the Echo Show launched, it too focused 
> > on communication, the core of Nucleus’s vision, instead of other key features like e-commerce or connected home 
> > elements.
> >
> > Frankel, who declined to comment for this piece, was furious, telling Recode earlier this year: “Their thesis is 
> > what our thesis was: communication is that Trojan horse to get those devices throughout the home and throughout the 
> > extended family’s home.
> >
> > “The difference is, they want to sell more detergent; we actually want to help families communicate easier.”
> >
> > These kinds of tactics have rattled investors, some founders said, making it harder for startups to raise money even 
> > if they’re in an adjacent market – particularly those skirting Amazon and Facebook.
> >
> > A venture capitalist confirms this, describing Amazon’s launch of an almost identical product as a “very, very 
> > strange coincidence”.
> >
> > “At the end of the day, Amazon could be theoretically in nearly any consumer business in the world,” he said, adding 
> > that he was frequently in meetings where investment decisions are informed by the question: “Can Amazon do that?”
> >
> > “Amazon can do anything,” he noted.
> >
> > It’s not just a problem within the tech industry. Since 1980, the share of companies less than a year old has almost 
> > halved – from 15% of companies to just 8.1%, according to Census Bureau data. The total number of startups formed in 
> > 2015 (the last year surveyed) was 414,000 – a huge drop from the pre-recession figure of 558,000 in 2006.
> >
> > “It’s been a persistent and fairly precipitous decline,” said John Dearie, the founder of the Center for American 
> > Entrepreneurship, an organization set up to address the decline. “The reason why this is so troubling is that new 
> > businesses account for virtually all new job creation and account disproportionately for disruptive innovations.”
> >
> > “It’s not a coincidence that at a time when the startup rate is in a long-term decline, the economy has not grown at 
> > 3% or better,” said Dearie. “We are in a growth emergency.”
>
>
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>                                                               ______________________
>
> Allan Davidson                                                                tel:                    +1 480 234-5978
> heckerty.com — fun videos, great stories, smiling kids                        email:          alland () heckerty com
> The Heckerty Company, Inc.                                                            chat:           Chat Center‌
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