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The cost, difficulty, and research required to penetrate the market makes it not worth the potential return for Paypal/Alibaba/Venmo. Instead - another company

by Nadya 10y ago

The cost, difficulty, and research required to penetrate the market makes it not worth the potential return for Paypal/Alibaba/Venmo. Instead - another company can take the risks, build the market, then be acquired by one of those larger companies. The larger companies now has a proven business model for the market. Like a typical Korean "grind MMO" businesses have two options: (a) Buy high-level gear for an extremely inflated price from other players (b) Grind to make it yourself (potentially losing more money than if you had bought it in the first place) (a) is lower risk and makes more sense for businesses. They "could" spend $300,000,000 - $800,000,000 to maybe extend into a potential market. Or maybe they fail and threw away $600,000,000. Maybe they try again and lose another $800,000,000 with nothing to show for it. So why not acquire a company for $3,000,000,000 and forego the risks altogether? (All figures made up for example purposes.)

miguelrochefort 10y ago
It seems odd that PayPal/Alibaba/Venmo don't take these "risks" themselves. Considering their extensive domain experience, if anyone is to successfully acquire a market, it's them.
- Nadya 10y ago
  Which is why large businesses sometimes expand into markets they feel comfortable enough to expand into using their domain experience. Markets they aren't confident they can thrive in - they don't join. There is simply too much risk attached. They have the option of expanding their existing markets instead of taking risks trying to enter new markets. Let other people take those risks then simply buy out whoever ends up being successful. Sometimes this backfires when the new kid on the block is better at your business than you are. That's a potential risk and is also why some acquisitions appear to be too soon and have an extremely inflated price tag. Give them an offer they can't refuse before they run you out of business entirely. :)
  - k__ 10y ago
    Luckily businesses transform from innovators to job-generators when they grow, so the small companies can get a piece of the pie.

by Nadya 10y ago

miguelrochefort 10y ago

It seems odd that PayPal/Alibaba/Venmo don't take these "risks" themselves. Considering their extensive domain experience, if anyone is to successfully acquire a market, it's them.

Nadya 10y ago
Which is why large businesses sometimes expand into markets they feel comfortable enough to expand into using their domain experience. Markets they aren't confident they can thrive in - they don't join. There is simply too much risk attached. They have the option of expanding their existing markets instead of taking risks trying to enter new markets. Let other people take those risks then simply buy out whoever ends up being successful. Sometimes this backfires when the new kid on the block is better at your business than you are. That's a potential risk and is also why some acquisitions appear to be too soon and have an extremely inflated price tag. Give them an offer they can't refuse before they run you out of business entirely. :)
- k__ 10y ago
  Luckily businesses transform from innovators to job-generators when they grow, so the small companies can get a piece of the pie.