Innovation: Giants vs. Startups

When one thinks of innovation in the US they often associate it to Silicon Valley. A place where hundreds and thousands of startups in the past 20-30 years have started or relocated to due to an influx of venture capital and a hub of creativity. While the startup scene has not seemed to change, the type of innovation has. Every day we can read about self-driving cars, artificial intelligence,  and automation. There are numerous startups working on every part of these industries, though so are the tech giants, and an important question going forward is whether or not the tech giants are hindering innovation in these areas.

It is no secret that tech giants such as Google, Facebook, Amazon, Apple, and Oracle have had an incredible impact on the world. Together they employ well over half a million people and combined have acquired 500+ companies. Google acquires a company a week. While these statistics clearly show power, what it really shows is how the tech giants have become 21st-century monopolies that can be compared to monopolies such as Standard Oil and US Steel. The tech giants control so much of their market; Google owns roughly 80% of the search engine market, and while they are known for being a search engine, they have their hand in almost every industry. What does this mean for startups and innovation?

When a new product or service enters the market, startups are often competing directly with the tech giants. This can make it incredibly difficult for startups to create a product at scale like the tech giants can, considering they are a new company and will need to build a brand. Tech giants can create competing products and implement them in a very short time span, compared to startups. When a startup is capable of breaking its product into a market and the tech giants product is not as competitive, the tech giants often times end of acquiring the startup. This process can be viewed in a number of ways.

When the tech giants acquire the company they can keep the startup’s product going and simply add the profits and product to their portfolio. Or, they absorb the startup’s team members but shut down the startup’s product in hopes of their own product being able to obtain more market share. The tech giants regardless will continue to grow and become an even greater monopoly. Though what kind of a monopoly are they becoming? It may appear to be something negative since monopolies are generally associated as being something bad for the economy and innovation. Though I believe they are doing something that is very positive for the economy, and it has created a boom in innovation, both for startups and the tech giants themselves.

There will never a shortage of ideas and therefore startups will continue to prosper. Whether or not they become tech giants is another story, though it really is not that important. The tech giants that do acquire startups often leave the startups with lots of stock and cash, giving them even greater potential in the future for new innovation. The startup founders after being acquired, generally join the tech giant, leave to work on another startup or enter the venture capital space. All of these directions point one way, more innovation. Take for example Sam Altman, currently President of Y-Combinator, arguably the world’s most influential startup incubator, investing in 1000+ startups including Dropbox, Airbnb, and Instacart. Altman created Loopt, a location-based social networking mobile app, whose original funding came from Y-Combinator. After Altman sold Loopt, he went on to join Y-Combinator, eventually becoming its President. This trend is going on all over Silicon Valley and the startup world and is only going to continue to push innovation forward.

What I am interested in now is where people see innovation going? Yes, there is talk around machine learning, self-driving cars, and Elon Musk’s brain interface, but these technologies are 10-15 years away. I am more interested in the next 5 to 10 years. Please share your thoughts below and expect a follow-up article on this subject.