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How the Frightful Five Put Startups in a Lose-Lose Situation

170 points by pmcpinto 9y ago

NOSHSHNACKERS 9y ago
paywall. I dont want a google device in my house.. they give you a google device.. I already carry a device
arithma 9y ago
> Snap, the company that makes the disappearing messaging app Snapchat. Although it is one of the most innovative consumer-focused internet companies Isn't this part of the problem? Snap, albeit innovative and fast as they are in creating new paradigms should in no way be the most innovative consumer-facing company. There's an imbalance here somewhere. Maybe when it makes sense for everyone to create their own infrastructure, the hold of the five will loosen up. That might require another wave of infrastructure improvements that the huge companies will not be able to compete with the collective many.
- rm_-rf_slash 9y ago
  Snap wasn't a great example. They don't do anything that other Silicon Valley giants can't do. It's just messaging with a twist. Google has gchat/g+, Facebook has messenger/WhatsApp, Apple has iMessage. Snap is no Slack: it serves no niche that cannot be replicated by a company with an existing messaging service and a huge existing user base.
  - xigency 9y ago
    Couldn't Slack be more easily replicated by these companies? At least SnapChat has a creative element to it.
    - bpicolo 9y ago
      They are literally all trying to be slack, and their offerings don't live up to slack. https://www.facebook.com/workplace/ https://www.facebook.com/workplace/ https://products.office.com/en-us/microsoft-teams/group-chat-software https://products.office.com/en-us/microsoft-teams/group-chat... https://www.blog.google/products/g-suite/meet-the-new-enterprise-focused-hangouts/ https://www.blog.google/products/g-suite/meet-the-new-enterp... https://chime.aws/ https://chime.aws/ That's a big theme lately. They all create copies of latest-billion-dollar business-targeted services, and release before they're fully baked. That's totally the startup approach, but it doesn't feel like an approach that works well when there's already a market leader doing the same thing but significantly better. BI is another similar area. Quicksight and Data Studio are amazingly deficient compared to Tableau. Data studio can't join SQL tables, and Quicksight leaves you hitting bugs every other page and tried too hard to support fancy charts, but entirely forgot the basic "display some tabular data" option. (Power BI by MSFT does a bit better as I understand it, but is msft-tech-focused. Haven't tried it).
      - xigency 9y ago
        Well, SnapChat is six years old and Slack is four years old. And SnapChat has only been losing steam lately, as I can tell. So give it another two years before making a judgement.
- fragmede 9y ago
  Err, mind explaining why shouldn't they? I say this as an 'olds' who still uses Facebook (though I've tried Snapchat, but only after they IPO'd).
  - arithma 9y ago
    I meant: there must/should be more innovative companies that are targeting more fundamental problems. Of course every company should be as innovative as maximising profit allows. To reiterate I meant there ought to be lots more companies with bigger dreams than that of Snap, no matter how innovative Snap is. That Snap IS considered one of the most innovative companies is indicative of the problem.
    - adventured 9y ago
      Snap is only considered one of the more innovative companies in consumer facing social. That's it. There's no sense in expanding that to include everything in tech, they are not one of the top few most innovative consumer companies in all of technology. That Snap gets pegged as that, is a fake set-up to write articles that stick to a script that the writer wants to push. It's equivalent to asking someone's opinion when you've already entirely made up your mind, except in this case it has a particularly negative effect as it's being pushed out into the world as a form of media propaganda. Here's how it works (to use a famous example of this setup): we expected flying cars and all we got was 140 characters. That's a bullshit setup, it fails to even question whether flying cars make sense, and then sets up Twitter as an ideal example of today's level of innovation (which it never was). While Thiel was pushing that bogus premise, incredible innovation (both hardware and software) had occurred in mobile all around the world in a mere ten years from 2007 to 2017. Drastically improved communication, as one example, is far more important than flying cars. Innovation is so terrible today! Then hold up mediocre examples of innovation while ignoring the vast, extraordinary innovation going on (from quantum, to crispr, to AI).
    - Kalium 9y ago
      You're completely right! There really, really should be lots more companies with bigger dreams than those of Snap. You're so right, that thousands of people agree with you, and have created precisely those companies! They tackle issues like the cost of medicine or health insurance, provisioning clean water, or improving the basic materials we make our daily items from. They're working to get more people access to high-quality therapy or trying to reduce waste in our food supply chains. Is it perhaps possible that Snap is considered highly innovative because the people granting that honor may be less than fully informed about the wide world of startups that ought to be under consideration? Perhaps the problem here is not one of what companies exist, but of publicity? To recap: you're so completely right, you've correctly described the state of the world! Well done.
deleted 9y ago
[deleted]
analog31 9y ago
Note that Snap booked only $330 million in ad revenue for the first half of this year. In other words, it's paying more than half of its revenue to Google. I wonder if it's possible that small companies are better at creating user value, but big companies monopolize the mechanism of delivering customer value, which is advertising.
Boothroid 9y ago
This is very US-centric - there are some behemoths outside the US e.g. Tencent.
- pyrale 9y ago
  Europe tech companies show how hard it is to compete when you don't live in a protected market.
  - Boothroid 9y ago
    IMHO there's also something in the culture that favours startups in the US vs Europe - my feeling is that in Europe most of the avenues for social mobility were locked down tight by the elite a long time ago, whereas due to relative youth of the US as a nation that process of entrenchment is still underway.
    - jansho 9y ago
      My god it’s much harder to start up in Europe! Most startup literatures are actually US-centric but I didn’t realise just how massive the differences in the U.K. and US are. Considerations like VAT, soon-to-be GDPR, bureaucratic nightmares and the fact that getting funding is an almost cut-throat process... Sure you can start up in the US, but just getting in the country is already hard. And why should this be the only option for poor startups!
      - svantana 9y ago
        Those are indeed tricky things, but surely they are much easier than actually getting users to care about your product in this attention economy? Unless the product is in an underserved niche, in which case scaling up will prove near impossible. I would argue it's actually easier to start up in many European countries, due to social safety nets, free health care and universities etc. Eric Ries has made the same case. However getting traction in the US without being there physically is really hard!
jondubois 9y ago
>> Fewer than 1 percent of start-ups end up as $1 billion companies 1 percent sounds ridiculously high. I would think more along the lines of "1 in a million".
- jansho 9y ago
  Are there really millions of startups
  - jondubois 9y ago
    7 billion people in the world. 1 million startups would mean 7000 people per startup. Yes I think millions sounds right.
    - richmarr 9y ago
      > 7 billion people in the world. 1 million startups would mean 7000 people per startup. Yes I think millions sounds right. You may be right that there are millions of startups, but this particular test seems a little... speculative.
      - occams_chainsaw 9y ago
        Especially given that the majority of those are in China and India.
        dragandj 9y ago
        Believe it or not, there are startups even in China and India.
        antisocial 9y ago
        Believe it or not, there are people who believe in xyz even in the U.S. India is a land of paradoxes, just as the U.S these days seems to be.
jondubois 9y ago
The government should force public corporations to hold internal democratic elections every few years to select a new board and executives and limit how many terms a CEO can stay in office. The government is so busy fighting dictatorships overseas that it's forgetting about the dictatorships that are growing on its own soil.
- SomeStupidPoint 9y ago
  That seems... worse. It'll force companies that are still growing with a powerful CEO to stay private (or possibly just be destroyed, if they're already public) because of CEO churn. The effect of that will be that 'in' parties will get to participate in the growth, while the greater market (eg, retirement funds) get cut out of that. The effect will be that the rich get richer, while the public subsidizes their gains by buying in only at the very tail. (Essentially, just pushed down the line even further than now.) I think America actually is powerful because corporations aren't democratic. It allows the US to function as a macro-democratic republic (where the public controls the rules of the game) but micro-feudalistic society (where you have fiefs implementing those rules). Kings are efficient; republics are stable. So our infrastructure is republican, while our 'features' are feudalistic. If you believe in capitalism, this allows for efficient distribution of resources. What I think the US does wrong is not lubricate the transition between fiefdoms. Social safety nets lubricate transitions so that inefficient (poorly managed, badly conceived, etc) fiefdoms collapse quickly but the people who are involved aren't harmed and can smoothly transition into other ones of their choosing. That's the creative destruction of capitalism, optimized. So from my view, it's not that the problem is how corporations are managed, it's that America won't invest in her ideals -- at a societal level. So of course they don't work. Disclaimer: Work at publicly traded corp; views are mine, not employers.
  - srtjstjsj 9y ago
    Companies aren't public to be nice. They are public because their value is locked up and the early owners want to cash out.
    - 9y ago
pyrale 9y ago
People seem to think that Microsoft is a company that at some point sucked at innovation. In fact, the reason Microsoft let a generation of startups blossom was mostly because they got hit by antitrust. Google, FB and Amazon are probably ripe for antitrust, too, but the government won't move.
- jansho 9y ago
  Watch out for GDPR coming soon in your local area (EU)!
- empath75 9y ago
  It's hard to go after the FAANG companies for anti-trust when they all compete with each other in so many ways -- facebook and google have multiple competing services, apple, google and amazon all build consumer hardware, and facebook is dipping it's toes in, they all have music services.. Netflix has tons of competitors outside of the big five, but amazon and google both have streaming movie services. Amazon and Google both have cloud services. Really the only two that have a genuine monopoly are Google in search and Facebook in social networks, and I think perhaps Amazon in online retail.
  - ocdtrekkie 9y ago
    The big thing is that the US government needs to recognize how vertical integration harms consumers. While Apple and Google and Amazon may all compete with each other in multiple venues, very little of that is cross-compatible. People with one product or service from a company often has little option but to use the rest of that company's products and services. The ecosystem effect means that even if there is a handful of "competitors", those services on an individual level often aren't available to consumers. If you have your stuff purchased in iTunes, you have massive monetary cost preventing you from switching to Android, for example. One of the stories I hadn't heard of until recently when discussing the AIM closure, is that the FTC ordered AOL once to make AIM cross-compatible with their two largest competitors or face antitrust action. Had someone like Google been subjected to the same, we'd have had Gmail, YouTube, etc. on Windows Phone, and it wouldn't have died from the lack of Google apps support. I'd be more than in favor of ordering vertically integrated companies to support at least two competitors' platforms in every way they support their own.
oconnor663 9y ago
> In January, Snap signed a cloud hosting deal with Google. It agreed to pay Google $400 million a year for the next five years. Note that Snap booked only about $330 million in ad revenue in the first half of this year. In other words, it’s paying more than half of its revenue to Google. This figure is hard to put in context without knowing how much of Google's own revenue goes to operating it's data centers. Sure, they're not paying that money to another single giant company, but they're still paying it.
- klank 9y ago
  It's being called out to highlight a diversification issue not a profitability issue.
baxtr 9y ago
> The best start-ups keep being scooped up by the big guys (see Instagram and WhatsApp, owned by Facebook) Well, I don’t know. „Scooped up“ sounds very hostile, in reality these startups were sold for a fortune. Also, the fact that you’re able to buy an innovative startup does not necessarily mean that you’ll integrate or run it successfully. Take for example google’s Nest or Motorola acquisition. Acquiring and sustaining is quite difficult.
- j7ake 9y ago
  Also the definition of "best start up" was not clearly defined, and perhaps only defined after they were bought for billions. If you defined a good startup by the amount of profit they generated, then instagram and whatsapp would have done worse than a lemonade stand. Even to this day it is not clear how much profit whatsapp has generated.
- NicoJuicy 9y ago
  They can measure the performance on social media + google queries. Then they can "scoop" it up before it's valued higher than themselves.
  - icebraining 9y ago
    Why would they need social media or whatever? The startups themselves advertise their own success. It wasn't a secret that Whatsapp was growing tremendously.
  - srtjstjsj 9y ago
    Facebook has direct analytics data due to their position as an indentity provider and other tool companies they own.
- fragmede 9y ago
  "Scooped up" is hostile - to end users. In the battle between Facebook Messenger and Instagram, Facebook was forced to innovate Facebook Messenger and actually add gasp features. Wait, no that was sidestepped when Facebook announced they'd bought Instagram. It wasn't until SNAP refused to sell out, that Facebook was forced to do anything something to Messenger (though in their desperation, they ruined it). For those among us at HN hoping to be acquired for giant piles of money, "scooped up" sounds almost paternal, but for the people who actually use the end product (which may different than the customers in the case of ad ware like Facebook), it's a warning sign to flee the platform. Even sustaining a merger is difficult, but what a company really wants when acquiring a tiny startup, long starved of "proper" resources, is for that startup to finally flourish and become the progenitor to a whole new industry with the help of the new parent company, and make all the shareholders piles more money. However, merging an acquisition is so difficult, and parent control (and branding) is so poisonous, that "Google came out with a camera that spies on you all the time" barely sounds like hyperbole. (I mean, it is, but there's nuance lost when talking about Alphabet-plus-all-child-companies level when they operate significant portions of the cloud, vs Nest, which as an upstart competitor, did not.
bognition 9y ago
> The Five run server clouds, app stores, ad networks and venture firms, altars to which the smaller guys must pay a sizable tax just for existing. Hmm... thats not actually whats going on. Its not like start ups wouldn't have to pay hosting costs if the big 5 didn't exist. If anything these ability to host at Google/MSFT/Amazon lowers the barrier to entry for startups.
- ocdtrekkie 9y ago
  Perhaps, but bear in mind, instead of a multitude of potential hosts, that hosting tax must go to the Big Five. Which means the Big Five will always have a financial advantage entering any market.
  - Bartweiss 9y ago
    Is that true, though? You can certainly host on Rackspace, avoid AWS entirely, and so on. Amazon will have cheaper hosting than you no matter how you get it, but that's merely a function of scale, not monopoly. Google traffic/ads and the iOs app store are the only two spots that seem truly captive.
    - ThomPete 9y ago
      Scale is due to monoploy
    - peoplewindow 9y ago
      AWS is quite expensive. It's not the case that it's cheap. Rather, you pay more for convenience. The idea that startups "must" pay AWS or equivalent is the kind of idiotic junk that only rags like the NYT could come out with. Nothing stops you buying your own hardware and racking it. For many companies that's in fact a better option than paying for cloud services!
      - phil21 9y ago
        > Nothing stops you buying your own hardware and racking it. If you're a bootstrapped startup, sure. I think you'll find it a rather hard sell to tell your VC-backed board that you are hosting somewhere other than AWS or GCE these days. It's an extremely concerning trend for anyone paying attention. Mandated-by-investor vendor lock-in before you even deploy a line of code.
clarkevans 9y ago
There seems to be a concerted effort to paint the silicon valley elite companies as "dangerous"? I'm not sure it's unwarranted, but it seems relatively recent to me, as if to drum up political support for regulation. What's interesting to me is the big technology/infrastructure/media corporations that are escaping this broad brush, including AT&T and Comcast.
- pjc50 9y ago
  I wouldn't put it past Comcast to be running an anti-Google campaign since Google dipped their toes into offering connectivity.
  - doktrin 9y ago
    All of the big 5 have loads of potential enemies (or entities who would benefit from their loss), including but not limited to actual nation states. It's IMO unlikely that the uptick in anti-tech-hegemon publicity we're seeing lately is due to any single actor or interest.
- jbob2000 9y ago
  It's a political attack against Mark Zuckerberg's upcoming presidential run. The propaganda machines are starting now by painting a picture of Silicon Valley elite being out of touch, dangerous, etc. etc.
  - notfromhere 9y ago
    I'm perfectly happy if FB's shady doings keep Zuckerberg out of the presidency. Last thing we need is a president with a propaganda mill
    - deleted 9y ago
      [deleted]
    - stevenwoo 9y ago
      One might look at the founding of Fox News and its relationship to the GOP and be forgiven for thinking the last thing has already happened, even though it only reaches diehard GOP voters.
magice 9y ago
I think this article completely bypasses the root causes of the issue in order to paint Silicon Valley dominating businesses in the worst light possible. Look, the real issue is simple: all of these "web startups" are not very innovative. All of them are roughly the same: ever so slightly more novel way to deliver roughly the same set of data to users in exchange for app or token of money. How is that "ground breaking"? Thing is, when everyone is doing roughly the same thing, which costs perhaps a few engineering months to build, how can startups ever compete with the big guys who are hell bent on ensuring their success? It's like trying to open supermarkets to compete with Walmart, or building gasoline car to compete with Toyota, except it's cheaper for the Big Five to copy than for Toyota, because the media (information) is inherently more traceable. I remember when Windows 98, XP, Google, Gmail, Prime (and Uber, eBay, and paypal) came out. They blew everyone's mind. They changed how we work and live. What's so hot about SnapChat? I mean, it's probably ever so slightly more entertaining than, says, Hangout or WhatsApp, but it's just minor tricks on top of roughly the same set of features. Of course these competitors will drive it out of the marketplace. It holds no long term competitive advantages. There are businesses that don't deserve to die. For example, a local store provides not just goods, but a community center and an identity for a small town; it gives more value than mere commerce. The decline of these should alarm us. On the other hand, some businesses do deserve to die. And lack of long term advantage, lack of innovation, lack of additional value sounds exactly "should die".
- radley 9y ago
  > All of them are roughly the same: ever so slightly more novel way to deliver roughly the same set of data to users in exchange for app or token of money. How is that "ground breaking"? What you describe is the justification for state-run media versus newspapers, magazines, TV shows, movies, and games. All of these could be considered the same set of data from the state's point of view.
  - mattnewton 9y ago
    Why is the state involved? He just means that it’s hard to run a buisiness without a moat and you should expect Goliath to win in that case.
mack1001 9y ago
I completely agree with this premise. Nowhere is it more obvious than in OSS companies. There is no open source business model that cannot be disrupted by the cloud bigs which also include Microsoft.
- johnpython 9y ago
  This is why I do not publish any open source projects except with GPLv3 license. I refuse to let Amazon profit off my hard work.
johnpython 9y ago
> fewer than 1 percent of start-ups end up as $1 billion companies Not every company needs to achieve a billion dollar evaluation. This eat-the-world mentality is incredibly toxic. An an entrepreneur one should be satisfied with making tens of millions in revenue, but of course you can't stop there when VCs are involved.
wiremine 9y ago
> Fewer than 1 percent of start-ups end up as $1 billion companies. Is that the goal for society, to have more $1 companies (vs. having that value rolled into a larger, pre-existing organization)? Is there an assumption that more $1 billion companies will somehow mitigate the power of the Big Five? Are the Big Five stifling innovation? Feels like it's only a problem if the big boys enter into non-complete agreements (like the hiring issue a few years ago). To put it another way: do we need/want to spread the value from the "Frightful Five" to something like 7, 8, or more companies? Is a "Terrible Ten" better/worse than five?
- siddharthdeswal 9y ago
  Yes, your "Terrible Ten" is better than five. Google quickly came up with this: https://academic.oup.com/antitrust/article/1/1/162/274807/Is-competition-always-good https://academic.oup.com/antitrust/article/1/1/162/274807/Is... But there's so much more that says more competition is good for an economy.
  - wiremine 9y ago
    There's a fine line there, though, right? We want competition, but we also want integration. I'm not happy that there isn't deeper integration with Apple hardware and Google software. having Google search + Google assistant + Apple Phone + Somebody else chat isn't what I'm looking for as a user.
fourthark 9y ago
submarine for IAC
marinman 9y ago
Question: is a 1% chance at becoming a unicorn higher or lower than before? I mean, the vast majority of startups fail. 1% actually seems high to me
- lkbm 9y ago
  The article actually says "fewer than 1%", but they don't include the "fewer" as part of the link text, which seems like a poor choice. The linked article reports the actual value in their cohort to be 0.91%[0], which is surprisingly close to 1%. For what it's worth, this cohort is of companies that received their initial seed in 2008–2010. Obviously it takes a while for a company to hit $!Bn valuation, but the landscape has changed a fair bit in 7-9 years, so the current number may be a lot lower (or a lot higher). [0] https://www.cbinsights.com/research/venture-capital-funnel-2/ https://www.cbinsights.com/research/venture-capital-funnel-2...
fictionfuture 9y ago
The reality of monopoly and collusion is here and it’s real! When I started my first company it was easy to access customers(30k+) via all types of cheap online marketing. But around 2012, a massive shift started happening towards “content aggregators” and a closed web. Which made marketing a lot more expensive and less effective. The big guys have closed the web and are now taxing business for access to people's attention.
mindcrime 9y ago
I don't think there's any "there" there, w/r/t this article. All it's really saying is "some companies build infrastructure and they profit when other companies use their services". Well duh. In this regard Google or Amazon are no different from the local electric utility. Well, with the exception of that fact that there are many cloud hosting providers to choose from and there is actually some competitive pressure there, where electric providers almost always have a true monopoly. So Snap is paying Google $400MM USD / year or whatever... OK, now ask "how much would it cost Snap to build their own datacenter(s), host and manage their own services, provide electricity, cooling, etc..." It might or might not add up to the same as they're paying Google, but it would definitely be a significant chunk of money. It's not like Google is taking their money and not providing some value in return! The flipside of this is that services like AWS, Google Cloud etc. make it FAR, FAR easier and cheaper to spin up a new (software) business. For some of the stuff we're doing at Fogbeam, we would never even be able to start if we had to build a datacenter, buy servers, etc., etc. But we can deploy on AWS for a minimal spend during development, and then scale our use of AWS as we start to generate revenue. If/when the day comes that the economics make sense, we could look at moving to a colo center or even build a dedicated data center. Personally, I don't begrudge Google, Amazon, etc. the money they're making. shrug
- rhizome 9y ago
  "Some value" might be your standard, but that doesn't mean the choice is capital-efficient.
  - mindcrime 9y ago
    Who said anything about being capital efficient? The point is that this article is all hyperbole trying to paint Google / Amazon / etc. as vultures who are just ruining startups. And my position is that those startups have to pay somebody for the services they're getting from AmaGoogFaceSoft, even if it means building the services from scratch themselves. And when you balance all of that against the fact that AmaGooFaceSoft enables startups that probably couldn't even exist otherwise (due to large initial capital demands) it's ridiculous to say that those large vendors are somehow detrimental to startups in this regard. I see this article as nothing but click-bait preying on the currently prevailing "woe is me, the sky is falling" negativity meme.
drharby 9y ago
Every NYT article i see here lately has been spinning a negative narrative around tech. Funny
nocoder 9y ago
Another poor quality article with little research. It started with big tech companies are bad and followed that with some reasons. Lot of start-up don't succeed because they are not innovative and lack vision. The ones that did add value are doing well likes of uber, Netflix, airbnb, slack. In fact, if the author expands his world view a bit more and looks across the globe than he will find many more such examples. Even within the big five there is significant amount of competition and currently it is good for customers. This article is just crying wolf without offering any substantial reasons. Big companies buying of smaller competitors isn't some cunning move neither it is something new. This happened all the time even earlier. In fact the rise of cloud services has reduced the entry barrier for tech companies significantly by reducing upfront capital costs. Imagine if before starting a factory you first had to build a coal powered electric plant, not many would venture i guess. The argument about snapchat paying google for cloud services is just absurd. It would be costlier for snap to build this on their own.
- fancyfacebook 9y ago
  Which tech company do you work for?
hmart 9y ago
Dropbox isn't even mentioned in the article. Dropbox is fighting against at least four of the five giants : iCloud Drive, One Drive, Google Drive and Amazon Drive. Guess who should buy Dropbox (or Facebook Drive?)
- srtjstjsj 9y ago
  Dropbox is in a special niche because their core feature is cross-plaform compatibility. No single platform can compete with them.
  - KGIII 9y ago
    I frequently see people saying that they'd love it if Microsoft dropped a One Drive Linux client. My guess is that those companies could compete with Dropbox, with little real additional effort.
Animats 9y ago
If this is correct, the return on venture capital should be dropping. Is it?
- theparanoid 9y ago
  Fred Wilson's post is informative http://avc.com/2013/02/venture-capital-returns/ http://avc.com/2013/02/venture-capital-returns/
PhasmaFelis 9y ago
> The best start-ups keep being scooped up by the big guys (see Instagram and WhatsApp, owned by Facebook). I was under the impression that that was the point. From the investors' perspective, you're playing volunteer R&D/HR for Amazon or Google or Facebook in hopes that they'll take notice and buy your devs and users off you. That's what an "exit strategy" is, and we all know that every startup needs one. The bit about changing the world and revolutionizing the way we communicate is a sop to keep the engineers happy and productive.

170 points by pmcpinto 9y ago

paywall. I dont want a google device in my house.. they give you a google device.. I already carry a device

> Snap, the company that makes the disappearing messaging app Snapchat. Although it is one of the most innovative consumer-focused internet companies Isn't this part of the problem? Snap, albeit innovative and fast as they are in creating new paradigms should in no way be the most innovative consumer-facing company. There's an imbalance here somewhere. Maybe when it makes sense for everyone to create their own infrastructure, the hold of the five will loosen up. That might require another wave of infrastructure improvements that the huge companies will not be able to compete with the collective many.

rm_-rf_slash 9y ago
Snap wasn't a great example. They don't do anything that other Silicon Valley giants can't do. It's just messaging with a twist. Google has gchat/g+, Facebook has messenger/WhatsApp, Apple has iMessage. Snap is no Slack: it serves no niche that cannot be replicated by a company with an existing messaging service and a huge existing user base.
- xigency 9y ago
  Couldn't Slack be more easily replicated by these companies? At least SnapChat has a creative element to it.
  - bpicolo 9y ago
    They are literally all trying to be slack, and their offerings don't live up to slack. https://www.facebook.com/workplace/ https://www.facebook.com/workplace/ https://products.office.com/en-us/microsoft-teams/group-chat-software https://products.office.com/en-us/microsoft-teams/group-chat... https://www.blog.google/products/g-suite/meet-the-new-enterprise-focused-hangouts/ https://www.blog.google/products/g-suite/meet-the-new-enterp... https://chime.aws/ https://chime.aws/ That's a big theme lately. They all create copies of latest-billion-dollar business-targeted services, and release before they're fully baked. That's totally the startup approach, but it doesn't feel like an approach that works well when there's already a market leader doing the same thing but significantly better. BI is another similar area. Quicksight and Data Studio are amazingly deficient compared to Tableau. Data studio can't join SQL tables, and Quicksight leaves you hitting bugs every other page and tried too hard to support fancy charts, but entirely forgot the basic "display some tabular data" option. (Power BI by MSFT does a bit better as I understand it, but is msft-tech-focused. Haven't tried it).
    - xigency 9y ago
      Well, SnapChat is six years old and Slack is four years old. And SnapChat has only been losing steam lately, as I can tell. So give it another two years before making a judgement.
fragmede 9y ago
Err, mind explaining why shouldn't they? I say this as an 'olds' who still uses Facebook (though I've tried Snapchat, but only after they IPO'd).
- arithma 9y ago
  I meant: there must/should be more innovative companies that are targeting more fundamental problems. Of course every company should be as innovative as maximising profit allows. To reiterate I meant there ought to be lots more companies with bigger dreams than that of Snap, no matter how innovative Snap is. That Snap IS considered one of the most innovative companies is indicative of the problem.
  - adventured 9y ago
    Snap is only considered one of the more innovative companies in consumer facing social. That's it. There's no sense in expanding that to include everything in tech, they are not one of the top few most innovative consumer companies in all of technology. That Snap gets pegged as that, is a fake set-up to write articles that stick to a script that the writer wants to push. It's equivalent to asking someone's opinion when you've already entirely made up your mind, except in this case it has a particularly negative effect as it's being pushed out into the world as a form of media propaganda. Here's how it works (to use a famous example of this setup): we expected flying cars and all we got was 140 characters. That's a bullshit setup, it fails to even question whether flying cars make sense, and then sets up Twitter as an ideal example of today's level of innovation (which it never was). While Thiel was pushing that bogus premise, incredible innovation (both hardware and software) had occurred in mobile all around the world in a mere ten years from 2007 to 2017. Drastically improved communication, as one example, is far more important than flying cars. Innovation is so terrible today! Then hold up mediocre examples of innovation while ignoring the vast, extraordinary innovation going on (from quantum, to crispr, to AI).
  - Kalium 9y ago
    You're completely right! There really, really should be lots more companies with bigger dreams than those of Snap. You're so right, that thousands of people agree with you, and have created precisely those companies! They tackle issues like the cost of medicine or health insurance, provisioning clean water, or improving the basic materials we make our daily items from. They're working to get more people access to high-quality therapy or trying to reduce waste in our food supply chains. Is it perhaps possible that Snap is considered highly innovative because the people granting that honor may be less than fully informed about the wide world of startups that ought to be under consideration? Perhaps the problem here is not one of what companies exist, but of publicity? To recap: you're so completely right, you've correctly described the state of the world! Well done.

deleted 9y ago

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analog31 9y ago

Note that Snap booked only $330 million in ad revenue for the first half of this year. In other words, it's paying more than half of its revenue to Google. I wonder if it's possible that small companies are better at creating user value, but big companies monopolize the mechanism of delivering customer value, which is advertising.

Boothroid 9y ago

This is very US-centric - there are some behemoths outside the US e.g. Tencent.

pyrale 9y ago
Europe tech companies show how hard it is to compete when you don't live in a protected market.
- Boothroid 9y ago
  IMHO there's also something in the culture that favours startups in the US vs Europe - my feeling is that in Europe most of the avenues for social mobility were locked down tight by the elite a long time ago, whereas due to relative youth of the US as a nation that process of entrenchment is still underway.
  - jansho 9y ago
    My god it’s much harder to start up in Europe! Most startup literatures are actually US-centric but I didn’t realise just how massive the differences in the U.K. and US are. Considerations like VAT, soon-to-be GDPR, bureaucratic nightmares and the fact that getting funding is an almost cut-throat process... Sure you can start up in the US, but just getting in the country is already hard. And why should this be the only option for poor startups!
    - svantana 9y ago
      Those are indeed tricky things, but surely they are much easier than actually getting users to care about your product in this attention economy? Unless the product is in an underserved niche, in which case scaling up will prove near impossible. I would argue it's actually easier to start up in many European countries, due to social safety nets, free health care and universities etc. Eric Ries has made the same case. However getting traction in the US without being there physically is really hard!

jondubois 9y ago

>> Fewer than 1 percent of start-ups end up as $1 billion companies 1 percent sounds ridiculously high. I would think more along the lines of "1 in a million".

jansho 9y ago
Are there really millions of startups
- jondubois 9y ago
  7 billion people in the world. 1 million startups would mean 7000 people per startup. Yes I think millions sounds right.
  - richmarr 9y ago
    > 7 billion people in the world. 1 million startups would mean 7000 people per startup. Yes I think millions sounds right. You may be right that there are millions of startups, but this particular test seems a little... speculative.
    - occams_chainsaw 9y ago
      Especially given that the majority of those are in China and India.
      - dragandj 9y ago
        Believe it or not, there are startups even in China and India.
        antisocial 9y ago
        Believe it or not, there are people who believe in xyz even in the U.S. India is a land of paradoxes, just as the U.S these days seems to be.

jondubois 9y ago

The government should force public corporations to hold internal democratic elections every few years to select a new board and executives and limit how many terms a CEO can stay in office. The government is so busy fighting dictatorships overseas that it's forgetting about the dictatorships that are growing on its own soil.

SomeStupidPoint 9y ago
That seems... worse. It'll force companies that are still growing with a powerful CEO to stay private (or possibly just be destroyed, if they're already public) because of CEO churn. The effect of that will be that 'in' parties will get to participate in the growth, while the greater market (eg, retirement funds) get cut out of that. The effect will be that the rich get richer, while the public subsidizes their gains by buying in only at the very tail. (Essentially, just pushed down the line even further than now.) I think America actually is powerful because corporations aren't democratic. It allows the US to function as a macro-democratic republic (where the public controls the rules of the game) but micro-feudalistic society (where you have fiefs implementing those rules). Kings are efficient; republics are stable. So our infrastructure is republican, while our 'features' are feudalistic. If you believe in capitalism, this allows for efficient distribution of resources. What I think the US does wrong is not lubricate the transition between fiefdoms. Social safety nets lubricate transitions so that inefficient (poorly managed, badly conceived, etc) fiefdoms collapse quickly but the people who are involved aren't harmed and can smoothly transition into other ones of their choosing. That's the creative destruction of capitalism, optimized. So from my view, it's not that the problem is how corporations are managed, it's that America won't invest in her ideals -- at a societal level. So of course they don't work. Disclaimer: Work at publicly traded corp; views are mine, not employers.
- srtjstjsj 9y ago
  Companies aren't public to be nice. They are public because their value is locked up and the early owners want to cash out.
  - 9y ago

pyrale 9y ago

People seem to think that Microsoft is a company that at some point sucked at innovation. In fact, the reason Microsoft let a generation of startups blossom was mostly because they got hit by antitrust. Google, FB and Amazon are probably ripe for antitrust, too, but the government won't move.

jansho 9y ago
Watch out for GDPR coming soon in your local area (EU)!
empath75 9y ago
It's hard to go after the FAANG companies for anti-trust when they all compete with each other in so many ways -- facebook and google have multiple competing services, apple, google and amazon all build consumer hardware, and facebook is dipping it's toes in, they all have music services.. Netflix has tons of competitors outside of the big five, but amazon and google both have streaming movie services. Amazon and Google both have cloud services. Really the only two that have a genuine monopoly are Google in search and Facebook in social networks, and I think perhaps Amazon in online retail.
- ocdtrekkie 9y ago
  The big thing is that the US government needs to recognize how vertical integration harms consumers. While Apple and Google and Amazon may all compete with each other in multiple venues, very little of that is cross-compatible. People with one product or service from a company often has little option but to use the rest of that company's products and services. The ecosystem effect means that even if there is a handful of "competitors", those services on an individual level often aren't available to consumers. If you have your stuff purchased in iTunes, you have massive monetary cost preventing you from switching to Android, for example. One of the stories I hadn't heard of until recently when discussing the AIM closure, is that the FTC ordered AOL once to make AIM cross-compatible with their two largest competitors or face antitrust action. Had someone like Google been subjected to the same, we'd have had Gmail, YouTube, etc. on Windows Phone, and it wouldn't have died from the lack of Google apps support. I'd be more than in favor of ordering vertically integrated companies to support at least two competitors' platforms in every way they support their own.

oconnor663 9y ago

> In January, Snap signed a cloud hosting deal with Google. It agreed to pay Google $400 million a year for the next five years. Note that Snap booked only about $330 million in ad revenue in the first half of this year. In other words, it’s paying more than half of its revenue to Google. This figure is hard to put in context without knowing how much of Google's own revenue goes to operating it's data centers. Sure, they're not paying that money to another single giant company, but they're still paying it.

klank 9y ago
It's being called out to highlight a diversification issue not a profitability issue.

baxtr 9y ago

> The best start-ups keep being scooped up by the big guys (see Instagram and WhatsApp, owned by Facebook) Well, I don’t know. „Scooped up“ sounds very hostile, in reality these startups were sold for a fortune. Also, the fact that you’re able to buy an innovative startup does not necessarily mean that you’ll integrate or run it successfully. Take for example google’s Nest or Motorola acquisition. Acquiring and sustaining is quite difficult.

j7ake 9y ago
Also the definition of "best start up" was not clearly defined, and perhaps only defined after they were bought for billions. If you defined a good startup by the amount of profit they generated, then instagram and whatsapp would have done worse than a lemonade stand. Even to this day it is not clear how much profit whatsapp has generated.
NicoJuicy 9y ago
They can measure the performance on social media + google queries. Then they can "scoop" it up before it's valued higher than themselves.
- icebraining 9y ago
  Why would they need social media or whatever? The startups themselves advertise their own success. It wasn't a secret that Whatsapp was growing tremendously.
- srtjstjsj 9y ago
  Facebook has direct analytics data due to their position as an indentity provider and other tool companies they own.
fragmede 9y ago
"Scooped up" is hostile - to end users. In the battle between Facebook Messenger and Instagram, Facebook was forced to innovate Facebook Messenger and actually add gasp features. Wait, no that was sidestepped when Facebook announced they'd bought Instagram. It wasn't until SNAP refused to sell out, that Facebook was forced to do anything something to Messenger (though in their desperation, they ruined it). For those among us at HN hoping to be acquired for giant piles of money, "scooped up" sounds almost paternal, but for the people who actually use the end product (which may different than the customers in the case of ad ware like Facebook), it's a warning sign to flee the platform. Even sustaining a merger is difficult, but what a company really wants when acquiring a tiny startup, long starved of "proper" resources, is for that startup to finally flourish and become the progenitor to a whole new industry with the help of the new parent company, and make all the shareholders piles more money. However, merging an acquisition is so difficult, and parent control (and branding) is so poisonous, that "Google came out with a camera that spies on you all the time" barely sounds like hyperbole. (I mean, it is, but there's nuance lost when talking about Alphabet-plus-all-child-companies level when they operate significant portions of the cloud, vs Nest, which as an upstart competitor, did not.

bognition 9y ago

> The Five run server clouds, app stores, ad networks and venture firms, altars to which the smaller guys must pay a sizable tax just for existing. Hmm... thats not actually whats going on. Its not like start ups wouldn't have to pay hosting costs if the big 5 didn't exist. If anything these ability to host at Google/MSFT/Amazon lowers the barrier to entry for startups.

ocdtrekkie 9y ago
Perhaps, but bear in mind, instead of a multitude of potential hosts, that hosting tax must go to the Big Five. Which means the Big Five will always have a financial advantage entering any market.
- Bartweiss 9y ago
  Is that true, though? You can certainly host on Rackspace, avoid AWS entirely, and so on. Amazon will have cheaper hosting than you no matter how you get it, but that's merely a function of scale, not monopoly. Google traffic/ads and the iOs app store are the only two spots that seem truly captive.
  - ThomPete 9y ago
    Scale is due to monoploy
  - peoplewindow 9y ago
    AWS is quite expensive. It's not the case that it's cheap. Rather, you pay more for convenience. The idea that startups "must" pay AWS or equivalent is the kind of idiotic junk that only rags like the NYT could come out with. Nothing stops you buying your own hardware and racking it. For many companies that's in fact a better option than paying for cloud services!
    - phil21 9y ago
      > Nothing stops you buying your own hardware and racking it. If you're a bootstrapped startup, sure. I think you'll find it a rather hard sell to tell your VC-backed board that you are hosting somewhere other than AWS or GCE these days. It's an extremely concerning trend for anyone paying attention. Mandated-by-investor vendor lock-in before you even deploy a line of code.

clarkevans 9y ago

There seems to be a concerted effort to paint the silicon valley elite companies as "dangerous"? I'm not sure it's unwarranted, but it seems relatively recent to me, as if to drum up political support for regulation. What's interesting to me is the big technology/infrastructure/media corporations that are escaping this broad brush, including AT&T and Comcast.

pjc50 9y ago
I wouldn't put it past Comcast to be running an anti-Google campaign since Google dipped their toes into offering connectivity.
- doktrin 9y ago
  All of the big 5 have loads of potential enemies (or entities who would benefit from their loss), including but not limited to actual nation states. It's IMO unlikely that the uptick in anti-tech-hegemon publicity we're seeing lately is due to any single actor or interest.
jbob2000 9y ago
It's a political attack against Mark Zuckerberg's upcoming presidential run. The propaganda machines are starting now by painting a picture of Silicon Valley elite being out of touch, dangerous, etc. etc.
- notfromhere 9y ago
  I'm perfectly happy if FB's shady doings keep Zuckerberg out of the presidency. Last thing we need is a president with a propaganda mill
  - deleted 9y ago
    [deleted]
  - stevenwoo 9y ago
    One might look at the founding of Fox News and its relationship to the GOP and be forgiven for thinking the last thing has already happened, even though it only reaches diehard GOP voters.

magice 9y ago

I think this article completely bypasses the root causes of the issue in order to paint Silicon Valley dominating businesses in the worst light possible. Look, the real issue is simple: all of these "web startups" are not very innovative. All of them are roughly the same: ever so slightly more novel way to deliver roughly the same set of data to users in exchange for app or token of money. How is that "ground breaking"? Thing is, when everyone is doing roughly the same thing, which costs perhaps a few engineering months to build, how can startups ever compete with the big guys who are hell bent on ensuring their success? It's like trying to open supermarkets to compete with Walmart, or building gasoline car to compete with Toyota, except it's cheaper for the Big Five to copy than for Toyota, because the media (information) is inherently more traceable. I remember when Windows 98, XP, Google, Gmail, Prime (and Uber, eBay, and paypal) came out. They blew everyone's mind. They changed how we work and live. What's so hot about SnapChat? I mean, it's probably ever so slightly more entertaining than, says, Hangout or WhatsApp, but it's just minor tricks on top of roughly the same set of features. Of course these competitors will drive it out of the marketplace. It holds no long term competitive advantages. There are businesses that don't deserve to die. For example, a local store provides not just goods, but a community center and an identity for a small town; it gives more value than mere commerce. The decline of these should alarm us. On the other hand, some businesses do deserve to die. And lack of long term advantage, lack of innovation, lack of additional value sounds exactly "should die".

radley 9y ago
> All of them are roughly the same: ever so slightly more novel way to deliver roughly the same set of data to users in exchange for app or token of money. How is that "ground breaking"? What you describe is the justification for state-run media versus newspapers, magazines, TV shows, movies, and games. All of these could be considered the same set of data from the state's point of view.
- mattnewton 9y ago
  Why is the state involved? He just means that it’s hard to run a buisiness without a moat and you should expect Goliath to win in that case.

mack1001 9y ago

I completely agree with this premise. Nowhere is it more obvious than in OSS companies. There is no open source business model that cannot be disrupted by the cloud bigs which also include Microsoft.

johnpython 9y ago
This is why I do not publish any open source projects except with GPLv3 license. I refuse to let Amazon profit off my hard work.

johnpython 9y ago

> fewer than 1 percent of start-ups end up as $1 billion companies Not every company needs to achieve a billion dollar evaluation. This eat-the-world mentality is incredibly toxic. An an entrepreneur one should be satisfied with making tens of millions in revenue, but of course you can't stop there when VCs are involved.

wiremine 9y ago

> Fewer than 1 percent of start-ups end up as $1 billion companies. Is that the goal for society, to have more $1 companies (vs. having that value rolled into a larger, pre-existing organization)? Is there an assumption that more $1 billion companies will somehow mitigate the power of the Big Five? Are the Big Five stifling innovation? Feels like it's only a problem if the big boys enter into non-complete agreements (like the hiring issue a few years ago). To put it another way: do we need/want to spread the value from the "Frightful Five" to something like 7, 8, or more companies? Is a "Terrible Ten" better/worse than five?

siddharthdeswal 9y ago
Yes, your "Terrible Ten" is better than five. Google quickly came up with this: https://academic.oup.com/antitrust/article/1/1/162/274807/Is-competition-always-good https://academic.oup.com/antitrust/article/1/1/162/274807/Is... But there's so much more that says more competition is good for an economy.
- wiremine 9y ago
  There's a fine line there, though, right? We want competition, but we also want integration. I'm not happy that there isn't deeper integration with Apple hardware and Google software. having Google search + Google assistant + Apple Phone + Somebody else chat isn't what I'm looking for as a user.

fourthark 9y ago

submarine for IAC

marinman 9y ago

Question: is a 1% chance at becoming a unicorn higher or lower than before? I mean, the vast majority of startups fail. 1% actually seems high to me

lkbm 9y ago
The article actually says "fewer than 1%", but they don't include the "fewer" as part of the link text, which seems like a poor choice. The linked article reports the actual value in their cohort to be 0.91%[0], which is surprisingly close to 1%. For what it's worth, this cohort is of companies that received their initial seed in 2008–2010. Obviously it takes a while for a company to hit $!Bn valuation, but the landscape has changed a fair bit in 7-9 years, so the current number may be a lot lower (or a lot higher). [0] https://www.cbinsights.com/research/venture-capital-funnel-2/ https://www.cbinsights.com/research/venture-capital-funnel-2...

fictionfuture 9y ago

The reality of monopoly and collusion is here and it’s real! When I started my first company it was easy to access customers(30k+) via all types of cheap online marketing. But around 2012, a massive shift started happening towards “content aggregators” and a closed web. Which made marketing a lot more expensive and less effective. The big guys have closed the web and are now taxing business for access to people's attention.

mindcrime 9y ago

I don't think there's any "there" there, w/r/t this article. All it's really saying is "some companies build infrastructure and they profit when other companies use their services". Well duh. In this regard Google or Amazon are no different from the local electric utility. Well, with the exception of that fact that there are many cloud hosting providers to choose from and there is actually some competitive pressure there, where electric providers almost always have a true monopoly. So Snap is paying Google $400MM USD / year or whatever... OK, now ask "how much would it cost Snap to build their own datacenter(s), host and manage their own services, provide electricity, cooling, etc..." It might or might not add up to the same as they're paying Google, but it would definitely be a significant chunk of money. It's not like Google is taking their money and not providing some value in return! The flipside of this is that services like AWS, Google Cloud etc. make it FAR, FAR easier and cheaper to spin up a new (software) business. For some of the stuff we're doing at Fogbeam, we would never even be able to start if we had to build a datacenter, buy servers, etc., etc. But we can deploy on AWS for a minimal spend during development, and then scale our use of AWS as we start to generate revenue. If/when the day comes that the economics make sense, we could look at moving to a colo center or even build a dedicated data center. Personally, I don't begrudge Google, Amazon, etc. the money they're making. shrug

rhizome 9y ago
"Some value" might be your standard, but that doesn't mean the choice is capital-efficient.
- mindcrime 9y ago
  Who said anything about being capital efficient? The point is that this article is all hyperbole trying to paint Google / Amazon / etc. as vultures who are just ruining startups. And my position is that those startups have to pay somebody for the services they're getting from AmaGoogFaceSoft, even if it means building the services from scratch themselves. And when you balance all of that against the fact that AmaGooFaceSoft enables startups that probably couldn't even exist otherwise (due to large initial capital demands) it's ridiculous to say that those large vendors are somehow detrimental to startups in this regard. I see this article as nothing but click-bait preying on the currently prevailing "woe is me, the sky is falling" negativity meme.

drharby 9y ago

Every NYT article i see here lately has been spinning a negative narrative around tech. Funny

nocoder 9y ago

Another poor quality article with little research. It started with big tech companies are bad and followed that with some reasons. Lot of start-up don't succeed because they are not innovative and lack vision. The ones that did add value are doing well likes of uber, Netflix, airbnb, slack. In fact, if the author expands his world view a bit more and looks across the globe than he will find many more such examples. Even within the big five there is significant amount of competition and currently it is good for customers. This article is just crying wolf without offering any substantial reasons. Big companies buying of smaller competitors isn't some cunning move neither it is something new. This happened all the time even earlier. In fact the rise of cloud services has reduced the entry barrier for tech companies significantly by reducing upfront capital costs. Imagine if before starting a factory you first had to build a coal powered electric plant, not many would venture i guess. The argument about snapchat paying google for cloud services is just absurd. It would be costlier for snap to build this on their own.

fancyfacebook 9y ago
Which tech company do you work for?

hmart 9y ago

Dropbox isn't even mentioned in the article. Dropbox is fighting against at least four of the five giants : iCloud Drive, One Drive, Google Drive and Amazon Drive. Guess who should buy Dropbox (or Facebook Drive?)

srtjstjsj 9y ago
Dropbox is in a special niche because their core feature is cross-plaform compatibility. No single platform can compete with them.
- KGIII 9y ago
  I frequently see people saying that they'd love it if Microsoft dropped a One Drive Linux client. My guess is that those companies could compete with Dropbox, with little real additional effort.

Animats 9y ago

If this is correct, the return on venture capital should be dropping. Is it?

theparanoid 9y ago
Fred Wilson's post is informative http://avc.com/2013/02/venture-capital-returns/ http://avc.com/2013/02/venture-capital-returns/

PhasmaFelis 9y ago

> The best start-ups keep being scooped up by the big guys (see Instagram and WhatsApp, owned by Facebook). I was under the impression that that was the point. From the investors' perspective, you're playing volunteer R&D/HR for Amazon or Google or Facebook in hopes that they'll take notice and buy your devs and users off you. That's what an "exit strategy" is, and we all know that every startup needs one. The bit about changing the world and revolutionizing the way we communicate is a sop to keep the engineers happy and productive.