25 ms·

How Big Tech got so big: hundreds of acquisitions

426 points by kjhughes 5y ago

dkyc 5y ago
This is a strange analysis. "Number of acquisitions" seems like a weird metric, without accounting for their significance (in purchase price, impact on the business, or any other real-world metric). facebook buying Instagram was probably more significant than all the other acquisitions combined.
- Alex3917 5y ago
  > facebook buying Instagram was probably more significant than all the other acquisitions combined. Deja News was probably the biggest tech acquisition by a FAANG company. The average white collar worker spends ~6 hours a day in their Gmail, and about 5 min a day using search.
  - jeffbee 5y ago
    How did buying Deja’s hard drives — they did not acquire the company, only “significant assets” — lead to Gmail?
    - Alex3917 5y ago
      IIRC their email parsing code became the basis of Google Groups, which then became the basis of Gmail.
      - jeffbee 5y ago
        As someone intimately familiar with that software, I doubt this. Every line of the Gmail delivery stack is home-grown, but if you were to identify an acquisition that most influenced the project it would be Neotonic, not Deja.
        deleted 5y ago
        [deleted]
        throwaway3699 5y ago
        Gmail started life as a 20% project that was basically a Frankenstein version of Google Groups.
        deleted 5y ago
        [deleted]
        Alex3917 5y ago
        Yeah, this is the version I remember also. PB has said many times that he built the first version that could only display threads of his own email in a day. But going from a series of raw email messages to an email thread that can be displayed conversationally on the web is a multi-year project, so clearly there was some already existing code doing the heavy lifting. E.g. the email parsing code in Thunderbird dates back to at least the late 80s, and even after decades of working on it at a cost of hundreds of millions of dollars, it's still a work in progress.
        jldugger 5y ago
        I mean, the UI/theme was clearly borrowed, but that's not necessarily any indication of the backend implementation. And they probably both use bigtable, but so did basically everything customer facing at the time.
  - sokoloff 5y ago
    I'd have estimated more like 10x that on search and around 1/4 of that in gmail.
- mrkurt 5y ago
  Google buying Doubleclick helped them crush the ad market for publishers. Number of acquisitions is interesting, though, because you can also phrase it as "number of potentially viable independent companies that no longer exist". We are better off with more independent companies.
  - dageshi 5y ago
    They all learned from MS. MS tried to buy Netscape but didn't offer enough and got turned down. So MS set out to use its position to boost its own browser instead, anti-trust followed because it was obvious MS was using its position to muscle out an independent company. For the big Tech companies now, small acquisitions are win win wins, they get the people, they get whatever was developed and they permanently avoid Microsofts Netscape situation. That being said, I'm guessing no small number of these startups were setup with the express purpose of being bought out like this.
    - pjmorris 5y ago
      > For the big Tech companies now, small acquisitions are win win wins, they get the people, they get whatever was developed and they permanently avoid Microsofts Netscape situation. I have a theory that this is why MS treats its research division staff and interns so well. It reduces the amount of competitive pressure MS would face if they were all working elsewhere/on their own startups.
- CarelessExpert 5y ago
  > "Number of acquisitions" seems like a weird metric, without accounting for their significance (in purchase price, impact on the business, or any other real-world metric). This comment sounds like the nirvana fallacy striking again. There is no perfect metric for measuring something like overall market dominance. Thanks to a series of supreme court rulings, the traditional approach has been to look at consumer harms. But that metric alone fails to account for the way modern large conglomerates make money: not by gouging the consumer, but by dominating entire industries. So how else can you look at it? Acquisition are just another lens. Is it an imperfect lens? Yes, of course. I challenge you to find an analysis that isn't. But is it still meaningful? Yes, I absolutely think so! It is undeniably the case that these tech giants have used acquisitions as a way to protect their market position. So it absolutely makes sense to analyze their behaviour from that perspective. Furthermore, this is a news article not a whitepaper. Yes, there is an enormous amount of nuance in this kind of argument, and if you were prosecuting these guys for antitrust violations in a court of law, you'd probably do a deeper dive. > facebook buying Instagram was probably more significant than all the other acquisitions combined. How do you know that? There's simply no way to know how some of these companies would've fared because these anti-competitive practices have ensured that promising startups are smothered before they become a threat.
  - scyzoryk_xyz 5y ago
    Alot to agree with here - how would Google have faired without being able to strategically acquire companies that made specific tech for ads and search?
  - piva00 5y ago
    > How do you know that? There's simply no way to know how some of these companies would've fared because these anti-competitive practices have ensured that promising startups are smothered before they become a threat. Exactly, and adding to that: what about the tons of smaller companies/startups bought for a unique technology that was implemented under the hood across major products of the tech giants? We don't know about them except if some former employee leaked it, most projects will be private/secret and the public at large will never heard about the impact. Think lots of small "Doubleclick"-ish companies that were bought for a small set of features that were then transferred to major products.
- ahartmetz 5y ago
  It makes some sense. The more acquisitions, the higher the chance of doing well (that wording doesn't apply to price) in the metrics you mention. Especially if the perspective is extrapolating the past to the future. The thesis of the articles seems to be: Big tech will stay dominant because they will keep buying lots of companies and they will likely continue to win with some. To stop this, blah blah law changes or something (I only skimmed the article).
- the_duke 5y ago
  Many corporate acquisitions have the sole purpose of killing off/absorbing companies early, before they gain traction in the market and become viable competitors. Focusing on real world metrics will give a very incomplete picture of the impact acquisitions might have had on the market.
- divbzero 5y ago
  Yes, I would have wanted to see the graph of acquisitions weighted by purchase price but that data is hard to find for many acquisitions. Impact on business (e.g., revenue contribution) would be even better but requires subjective judgment and estimation.
richardwhiuk 5y ago
I'm always surprised that FAANG - or Big 4, excludes Microsoft....
- jasode 5y ago
  >I'm always surprised that FAANG - or Big 4, excludes Microsoft... Because the original context in 2013 of Jim Cramer popularizing "FANG" / "FAANG" was growth and even though Microsoft was already one of the biggest tech companies, their stock price wasn't really growing like the newer FANG. https://hackapedia.com/terms/f/faang https://hackapedia.com/terms/f/faang Others later tried to revise the acronym to include Microsoft with variations like FANGAM -- but it doesn't seem to gain any popularity in internet discussions or mainstream media.
  - asiachick 5y ago
    In Japan it's called GAFA at least in the news I watch https://ja.wikipedia.org/wiki/%E3%83%93%E3%83%83%E3%82%B0%E3%83%BB%E3%83%86%E3%83%83%E3%82%AF#GAFA,_The_Four https://ja.wikipedia.org/wiki/%E3%83%93%E3%83%83%E3%82%B0%E3...
    - mrep 5y ago
      In france, it is GAFAM: https://fr.wikipedia.org/wiki/GAFAM https://fr.wikipedia.org/wiki/GAFAM
  - guerrilla 5y ago
    > Jim Cramer The guy yelling on TV all the time?
  - tempfs 5y ago
    MSFT not growing? https://www.nasdaq.com/market-activity/stocks/msft/advanced-charting?timeframe=5y https://www.nasdaq.com/market-activity/stocks/msft/advanced-...
    - jasode 5y ago
dangus 5y ago
This is the inevitability of capitalism. It has no built-in control for a company that becomes too big to the point of being a detriment to society. In my mind there are only three kinds or tech companies: 1. Growing fast enough to eventually become huge and irreplaceable, losing money all along the way. When they are too big to fail, they flip the switches and de-invest and cost-cut to profit indefinitely (Uber and Lyft) 2. Attempting to just run a sustainable business, which translates to languishing and eventually being replaced or acquired by companies in category #3 or #1 (Tile, Pebble) 3. Giants that deserve antitrust attention but never seem to get any because they buy out the government (Google, Apple, Facebook) That’s why there’s no room for companies that won’t surrender to venture capital. Just making a profitable product isn’t enough, they have to surrender their autonomy to people who have no expertise or innovative tendencies besides having a bigger bank account.
- EarthIsHome 5y ago
  Yes, capital has a tendency to concentrate and centralize. A 19th century philosopher summed [0] this phenomenon of the concentration and centralization of capital: Capital grows in one place to a huge mass in a single hand, because it has in another place been lost by many.... The battle of competition is fought by cheapening of commodities. The cheapness of commodities demands, caeteris paribus, on the productiveness of labour, and this again on the scale of production. Therefore, the larger capitals beat the smaller. It will further be remembered that, with the development of the capitalist mode of production, there is an increase in the minimum amount of individual capital necessary to carry on a business under its normal conditions. The smaller capitals, therefore, crowd into spheres of production which Modern Industry has only sporadically or incompletely got hold of. Here competition rages.... It always ends in the ruin of many small capitalists, whose capitals partly pass into the hands of their conquerors, partly vanish. [0]: https://en.wikipedia.org/wiki/Capital_accumulation#Marxist_concept https://en.wikipedia.org/wiki/Capital_accumulation#Marxist_c...
- bhupy 5y ago
  > It has no built-in control for a company that becomes too big to the point of being a detriment to society. That's verifiably untrue. One of the key traits of capitalism is that businesses are allowed to fail, and we see that they do fail. 30 years ago, the retail and supply chain behemoth was Sears; today that's Amazon; 30 years from now, it might be someone else. Berkshire Hathaway recently remarked on the dynamism as seen in the top 20 companies in the world in 1990 vs today. https://twitter.com/brettberson/status/1388555627698429953 https://twitter.com/brettberson/status/1388555627698429953 It's almost entirely a different set of companies.
zepto 5y ago
The thing that’s missed is that vertical Integratron is far more efficient for core products than relying on third parties. Apple won out over Microsoft in consumer electronics because they were able to make decisions up and down the stack as a unit whereas Microsoft had to deal with layers of device makers and consortia. All the talk of breakups and “big is bad” ignores the fact that vertical works better. I don’t think it has to be this way. I think it’s entirely possible that a network of companies can outperform a monolith with the right kind of coordination. This would be a new, evolutionary strategy, and would be good for everyone. It won’t however, emerge if we roll the clock back to the late 90’s by force.
- ocdtrekkie 5y ago
  It's efficient, sure, but Windows still effective counts as an open platform compared to Mac, because so many different vendors are welcome and involved. Closed vertical integration is worse for consumers. And that consumer standard is also often based on price: Windows platforms are almost always cheaper than the Apple equivalent. So that efficiency doesn't benefit consumers.
  - mikepurvis 5y ago
    I don't think either of those is necessarily a slam dunk. A lot of consumers really appreciate the non-openness of platforms like iOS when it comes to security, privacy, parental controls, and so on. I know your argument is specifically about the Mac, but on the "openness" spectrum, MacOS sits somewhere between Windows and iOS, so iOS is a helpful reference point for where the Mac could end up. And as for cost— I don't think that's necessarily strictly worse either. I have a Dell XPS now, and it's.... fine. But relative to my old MBP, the screen is worse, the build quality is worse, the trackpad is worse, the keyboard is worse, the power management is way, way worse. So although there might be slightly more compute here in terms of the raw numbers, a lot of corners had to be cut to make this machine work out, and all things considered, I'm not sure that the market is in a better place when even "premium" non-Apple computers don't have the profit headroom to invest in the little stuff.
    - 5y ago
jyu 5y ago
This is lazy reporting. Where did the money come from to do the acquisitions? Google and Facebook have great monetization by data mining their audiences for advertisers. All they needs is to buy more eyeballs (youtube, whatsapp, instagram, etc). Amazon is slightly different. They benefit from the creative destruction caused by physical retail purchases migrating to ecommerce and the subsequent value capture by Amazon. Any revenue increase from them is from behavior changes, efficiency gains, and death of inefficient retail.
- NortySpock 5y ago
  Under Amazon, I would also include commoditizing compute and selling you their spare compute cycles (AWS) as their major efficiency win. Finally, Amazon is automating warehousing in their logistics (first using automated checklists for people walking around the warehouse, now using Amazon Robotics, formerly Kiva Systems)
  - scarface74 5y ago
    The myth that Amazon “sold their excess computer capacity” has been disproven for years. Just think about it. If Amazon had excess computer capacity and sold it to other companies, what was it going to do when it needed that excess computer capacity? Kick others off?
    - NortySpock 5y ago
      Yes, that's what preemptible spot pricing is; you pay a discounted rate for some compute time with the knowledge that you could be bumped out at any time. Alternately, Amazon could lease time at an hourly rate which varies with available capacity; just raise the hourly rates around Christmas because you need them for your e-commerce site.
      - scarface74 5y ago
        I know what spot pricing is. I work at AWS in Professional Services. AWS was always built from the ground up as a separate service. Amazon Retail is still migrating some of their infrastructure to AWS. It would be slightly inconvenient if customers needed more capacity at the same time that Amazon Retail needed more capacity. https://readwrite.com/2012/04/26/popping-the-amazon-web-services-capacity-myth/ https://readwrite.com/2012/04/26/popping-the-amazon-web-serv... From Werner Vogels himself. https://www.quora.com/How-and-why-did-Amazon-get-into-the-cloud-computing-business-Rumor-has-it-that-they-wanted-to-lease-out-their-excess-capacity-outside-of-the-holiday-season-November%E2%80%93January-Is-that-true https://www.quora.com/How-and-why-did-Amazon-get-into-the-cl...
h2odragon 5y ago
How many companies were started over the last 20 years where the expressed goal, the "win condition" in the founders minds, was a buyout? The idea of building something neat is a lot more attractive than running a business that sells the neat thing to customers. The people who want to run businesses are in the lovely position (for them) of having more fresh, good ideas offered to them than they can review, much less use.
- formercoder 5y ago
  That's what happens when there's a flood of venture capital money whose intention with its investment is to see a specific return on capital on a specific investment horizon.
  - schnevets 5y ago
    I am much further removed from the "startup frenzy" of the early 2010s, but does it seem like this model has trended downward since the start of lockdown? As optimism about the pandemic rises, it seems like the innovation that you would expect from this kind of volatility never panned out. I suppose capital was pumped into the public market instead?
- ryandrake 5y ago
  History repeats! 20 years ago, some business exit plans basically boiled down to "...and then we'll get bought by Microsoft!" Not too bad, at least for the founders. Especially if your goal is to land a nice FAANG job anyway. It's gotten to the point where interviewing is so competitive, exhausting, opaque, and ultimately random, that it might actually be easier to do a bootstrapped start-up for a year and get bought by Facebook than it is to grind leetcode and interview-prep for a year and roll the dice on the interview circuit. I wish I were joking. EDIT: Wow, no disrespect to founders, I did not intend to trivialize the work you do. Instead of "easier" I should have said something like "more controllable" or "less random".
  - wskinner 5y ago
    If the acquisition is mainly about talent, and in many cases, even if it's not, FAANG will expect you to interview like everyone else. Source: founder of a company which was acquired by a non-FAANG company, but talked to a few FAANGs as part of the process.
deleted 5y ago
[deleted]
annadane 5y ago
The fact Facebook used Onavo and lied out the ass about Instagram and Whatsapp automatically means they should be broken up, in my opinion
commandlinefan 5y ago
I always thought that a tech company buying another tech company was the strangest thing: if another company makes software, and you make software, and you want software that does what that other company's software does... why not just write new software to do that? But, clearly, these guys know something I don't know.
- fakedang 5y ago
  Acquisition is not about buying the software, it's about buying the user base.
- bhupy 5y ago
  Because of the time-value of money. https://www.investopedia.com/terms/t/timevalueofmoney.asp https://www.investopedia.com/terms/t/timevalueofmoney.asp
- wott 5y ago
  Sometimes they don't want the software that much that they want the customers.
- staysaasy 5y ago
  I think that this is a very reasonable observation. It's definitely weird in theory, but the reasons that I've seen are: * Very large tech companies build software (relatively) slowly due to their size * Sort of like a toddler, you don't know what you want until you see that someone else has it. Another company hitting product/market fit + traction proves the value of a product that you might have just hypothetically wanted * You're often buying a go-to-market motion (marketing, sales, services, etc) that complements a product * In some cases, you're buying talent that would be difficult to hire + train on your own _fast_. Ie even if you could theoretically hire 50 traffic mapping engineers, you can get them onboarded onto your team faster by acquiring Waze
- throwaway3699 5y ago
  Software is about domain knowledge more than code. Also, userbase and customers are valuable.
- 5y ago
andyxor 5y ago
WaPo?? not gonna give this garbage source a click
- robbyt 5y ago
  Why do you think the Washington Post is garbage?
  - andyxor 5y ago
    it's a political propaganda machine spewing misinformation for years.
    - SeanLuke 5y ago
      The WP is one of the most highly respected newspapers in the world. Extraordinary claims require extraordinary evidence. Please provide your extraordinary evidence.
      - deleted 5y ago
        [deleted]
      - andyxor 5y ago
        the last 5 years of non-stop propaganda is quite extraordinary
        SeanLuke 5y ago
        So... no evidence at all then?
        deleted 5y ago
        [deleted]
brobdingnagians 5y ago
Software had the promise of massively decentralizing business; anyone with a computer and a bit of knowledge could start hacking away at a new product. It is a bit sad to see big tech becoming a way of even more centralization of power. I guess it had the potential for either; individuals being able to easily capitalize on it, or businesses being able to replicate infinitely and have huge margins from very little input capital. But maybe both are happening at the same time. A double edged sword, like so many other things.
- dredmorbius 5y ago
  That's the myth we were sold. It's the myth many of us believed. I certainly did. In truth, greater efficiencies don't decentralise, they centralise. The market area expands. Suppliers or vendors, rather than competing locally, compete regionally or globally. In winner-take-all markets, there is only one winner, worldwide. There are some twists on this, having to do with regional customs, language, and law, mostly. There's also the time element, where tech monopolies tend to be ascendent, then (often but not always) replaced. Still, a technological advantage can last a very long time, as with IBM and AT&T. Two of today's FAANG date from the 1970s, another two from the 1990s. Dominance can be long-lived. There were some who saw this coming. Andrew Shapiro's The Control Revolution (1999) kinda-mostly saw this coming, and certainly called out the major aspects. Shoshana Zuboff recognised at least some of the potential in the 1970s and 1980s. The crowd still believes the lie, for the most part.
  - api 5y ago
    In biology we understand fairly well that environmental complexity leads to greater biodiversity. If the Earth's environment were entirely uniform there would probably be only a few species and nothing would ever change. Global highly efficient markets are like a polished flat globe with a uniform climate everywhere. Evolution would produce only one or two species in permanent equilibrium.
    - TeMPOraL 5y ago
      The more I think of it, the more I realize, biology is very much unlike the market in such analogies. In a way, the market is biology flipped on its side, like a transposed matrix - where in nature, life forms mostly cooperate within their species (or at least ignore each other) and prey on other species, on the market, companies of the same type fight it out, while ignoring or cooperating with companies of different types. But I think the main difference is scale. The area of influence of a life form - where they live, hunt, reproduce - is very limited. Same is true with companies serving local markets. A local glass factory. A corner market. You say: > Global highly efficient markets are like a polished flat globe with a uniform climate everywhere. But it's not just a flat globe. It's a globe with a surface of couple dozen square kilometers! It's literally a single niche. Not even that - it's a cage. Imagine a zoo that decided to put all its animals in a single, large cage. You won't have to wait much before there's only one big animal standing (and a bunch of insects scattering about). On a more general note: biology is a good example that you can make a complex and robust system by giving imperfectly-self-reproducing agents a lot of space to play in, and then throwing calamities at them to keep things interesting. But I honestly don't like using it as a recipe for designing systems, because of all the waste that's involved. Waste of effort, waste of resources, waste of life. I feel we should avoid this kind of hard self-regulation whenever we can.
breck 5y ago
Big Tech got so big because of Intellectual Slavery laws. That is the gravity here.
- guerrilla 5y ago
  > Intellectual Slavery laws What is this intended to refer to?
  - CPLNTN 5y ago
    Probably the H1B
  - breck 5y ago
    Copyrights and patents.
gregwebs 5y ago
My understanding is that the vast majority of these M&A destroy capital. The reason to own dividend stocks is not because they pay dividends but because they don't have tons of cash lying around to spend on low value projects or M&A. It would be a lot more insightful to discuss the aquisitions that have a known positive impact. The truth is probably that each company had just a few very important acquisitions (that should be more closely scrutinized). Our current tax laws make vertical integration or even conglomerates more tax efficient. Greater scrutiny of anti-competitive mergers is needed, but we should also make separate companies just as tax efficient (VAT tax, etc) and otherwise closely examine how we can change economic incentives here.
- taurath 5y ago
  I’m sitting here wondering whether there might ever be a tax on user data. It sounds a bit strange but I do feel like we underestimate how much data consolidation creates uncompetitive environments.
  - Kadathan 5y ago
    Even worse is that all of this data can be used to infer other data. Once you know enough about a person, you can start making some alarmingly accurate guesses about them. I'm hoping for a lot more than a tax on this kind of data, myself.
- dcolkitt 5y ago
  > My understanding is that the vast majority of these M&A destroy capital. It'd be interesting to see whether the modern tech industry is an anomaly with regards to this longstanding pattern. In particular, I wonder there's an exception for the typical acquisition of smallish, fast growth startups by a tech giant who can generate synergies by quickly integrating the tech on to their platform. Historically these types of acquisitions wouldn't show up in the M&A literature, because the targets are private companies, and the standard estimation techniques rely on public equity returns.
- s1artibartfast 5y ago
  > My understanding is that the vast majority of these M&A destroy capital. I think this would be very difficult to tease out of the data. Many acquisition are de facto defensive, even if they or not anti-competitive from a legal monopoly perspective. How could one measure the the loss of brand value if the acquired companies were allowed to mature or be acquired by a competitor?
coliveira 5y ago
This a point that is missed by the people who still say the the big tech companies got there "by merit and by the choice of consumers". Most big tech had a single idea, and then used the money to buy others who could pose a threat. So in effect the consumer has little choice. For example, consumers didn't have a choice in selecting Google to watch video, they had to accept the fact that Google bought Youtube.
- chillacy 5y ago
  Hmm, but by the time Google could afford to buy YouTube, they were already very popular and had a well liked search product. Ask Jeeves didn’t buy YouTube.
  - conductr 5y ago
    This is along my initial-not-fully-formulated thought process. Majority of business doing the acquiring are still primarily in the business of what allowed them to do the acquiring. There’s only a few I can think of where the acquisition is a meaningful/noteworthy part of their current business. I don’t necessarily feel like valid competition was squashed in most cases. Following tech M&A headlines has led me to feel mostly it’s acquihiring and the underlying product has no value to the acquirer.
ceilingcorner 5y ago
He's uh, not so popular here these days, but I recently heard a quote by Peter Thiel and thought it was insightful. Not sure where it was from, exactly. "The way to build a big company is to never get acquired."
avrionov 5y ago
Growing through acquisitions is not limited to Big Tech. Almost every big company has an endless list of acquisitions. Berkshire Hathaway is a conglomerate of acquired businesses. All big banks were results of M&A. Same with the oil companies.
throwawaysea 5y ago
I don't think they got big through acquisitions. They simply got big due to first mover advantages, favorable sentiment among investors (which gives them lots of capital), network effects that prevent competition, massive patent portfolios (which let them copy smaller company's innovations without consequence), running around regulations (like avoiding sales taxes in US for a long time, or avoiding taxes in Europe), and so on. Yes, there are some acquisitions that added a lot to these companies and took away competition (YouTube, Instagram, Doubleclick, etc.). But the majority of the market share in these companies is not driven by just those pieces. The reality is that we do not have sufficiently modern anti-trust laws to capture the ways in which these companies hurt customers. It doesn't take a 90% market share in some segment or explicit abuse of market position to create harm. Their mere existence is enough, soaking up talent from the market, creating massive centralization of power and influence, and so on. I'm not sure what the best way to address this is, but rather than wasting time proving consumer harm, I think it's better to just treat giant companies differently to limit their size and growth - perhaps graduated corporate income taxes, or automatic splitting up above a certain market cap, or whatever else.
- yrgulation 5y ago
  > They simply got big due to first mover advantages, Neither facebook nor google were first movers. They actually joined the game at a tome when there were established competitors. But they beat them with a much better execution (and other key ingredients such as those you mentioned) which markets rewarded. Then they started buying off possible threats, effectively blocking late starters as they themselves were, to the point where they became monopolies and, frankly, a nuisance to customers and society.
goatcode 5y ago
Reminder that WaPo is owned by Jeff Bezos.
olliej 5y ago
As opposed to the car companies, military contractors, airline manufacturers
varispeed 5y ago
Not paying taxes, using all possible loopholes and paying as little to workers as they could get away with...
- asdff 5y ago
  Investing in psychological research to make their product more addictive, practically buying legislation to further profitable abuses of labor, the list goes on.
solutron 5y ago
Gov't is going to try and break the big ones up, and stop M&A's as anti-trust sentiment warms up. Startups will become much, much harder to benefit from. The cost of capital is going to go up and make it harder to fund-raise, and people will get much more judicious about what they invest in. If your company isn't tied to some other industry or sector of the economy and is a tech company, just consider if your business can survive on its own for the next 3 - 5 years.
patfla 5y ago
Big Tech got so big because digital technology is different from preceding industries in that increasing (not decreasing) returns to scale prevail. In particular, in software where marginal costs are near 0. It's a different ballgame. I think regulators have figured this out but for the most part it appears that they don't know how to act upon it. https://en.wikipedia.org/wiki/Returns_to_scale https://en.wikipedia.org/wiki/Returns_to_scale
- rmah 5y ago
  Um, the concept of "econommies of scale" is something that has existed since the start of the industrial revolution. This is nothing new to Big Tech.
  - marcosdumay 5y ago
    The GP is talking about the second derivative of the price, not the first one. What he talks about is new. And I believe he is wrong, it's just a negative value very close to zero, not positive.
  - patfla 5y ago
    Traditionally, you had _decreasing_ returns to scale. What's new with digital technologies is _increasing_ returns to scale. Very counter-intuitive for traditional economists - or even business people. People like Gates, Bezos, Brin & Page, Zuckerberg and so on have ridden this for all its worth. Let's out distance them as much as we can before they figure this out. Whether competitors or regulators. That said, I like the story about someone observing Gates at, I think, a graduation ceremony where Gates had brought along a biography of Rockefeller (John D.). Did Gates know before or after the fact that MS had in fact used a competitive strategy comparable to Standard Oil? Meaning, unlike increasing returns to scale that was something for which there was an historical precedent. The basic idea being: when my competitors revenues go up, my revenues also go up. A fatal long-term proposition for those competitors.
    - Ericson2314 5y ago
      I'm very skeptical of this "decreasing returns to scale" thing the traditional economists do being true in either era.
neonate 5y ago
https://archive.is/WmkqB https://archive.is/WmkqB
- jareklupinski 5y ago
  ty for the link. i love how the source only shows the url for a second before replacing it with the root domain to prevent people like me from copy/pasting the story url into an incognito tab the cat and mouse game goes on, wapo engineers!
peder 5y ago
Big-time survivorship bias in this article and thread. Just yesterday we learned that Verizon is dumping Yahoo and the related media brands. Those acquisitions were a major failure. The reason that Big Tech got so big is that they're really really good at growing their high-margin core business and have a ton of free cash flow. That's really all it is.
- georgeecollins 5y ago
  You are right to point out the issue of survivorship bias, but that doesn't tell the whole story either. Google without Doubleclick and YouTube would be a different animal. Facebook without WhatsApp and Instagram as well. You can't deny the impact of those acquisitions.
baby 5y ago
This goes both way: founders create start ups with the idea that being acquired is a valid exit strategy. It's hard to quantify but perhaps not that many start ups would have been founded if they didn't see as many valid options to exit, and a founder wouldn't have created the next big thing if his previous company didn't get acquired.
- dragontamer 5y ago
  > and a founder wouldn't have created the next big thing if his previous company didn't get acquired. Hershey (of Hershey's Chocolate) failed multiple times and went bankrupt each time before finally making his Chocolate company. Repeated failures are absolutely an option.
  - asdff 5y ago
    Anecdotal stories of the survivors from 100 years ago when you could work a bottom of the barrel job for 1 week and cover a months living don't apply today. In order to insulate yourself from failure, you need wealth today to draw upon and cover your cost of living. Many americans don't have a spare $400 (1), they can't quit their job to tinker with a perennially failing side business without ending up risking living on the street. Many americans are trapped. 1. https://www.cnbc.com/2019/05/23/millions-of-americans-are-only-400-away-from-financial-hardship.html https://www.cnbc.com/2019/05/23/millions-of-americans-are-on...
    - deleted 5y ago
      [deleted]
    - dragontamer 5y ago
      Hershey was pretty well connected. I'm pretty sure his family bankrolled a lot of his early ventures. This wasn't a "by his own bootstraps" story. But its absolutely a "try try again" story. Today, there are more "by their own bootstraps" stories. Steve Jobs was the adopted. His original father was a Syrian immigrant, for example. If we go back to the 1800s, the "Gilded Age", the oppression of the "robber barons" was obvious: they destroyed small companies before the invention of antitrust laws. Maybe we'd like more "by their own bootstrap" stories today, and I'd support implementing policies that make it more possible. (including a new antitrust review of today's companies, to see if they're bad for the economy, like the 1800s robber barons were). But lets not pretend that the 1800s were easier than they actually were.
throwaway823882 5y ago
Mergers & Acquisitions are a foundational part of building any major conglomerate or corporation. Every industry does it. Energy, Media, Technology, Healthcare, Finance, Food, Clothing, whatever. Big Anything can be measured by this, but the sheer number of them does not mean as much as how much of the market they suck up through each one. The unstated end goal of every capitalist organization is to become a monopoly. Do people just not want to acknowledge this? Because that's kind of what every decision of competing corporations is always leading towards. You can't gain infinite capital unless you are always absorbing or eliminating more of the competition. The whole point of competition is not co-existence, it's domination.
mastrsushi 5y ago
How are you guys able to read WP and NYT articles? I keep getting locked out with subscription ads.
Animats 5y ago
As the article points out, weak antitrust enforcement has allowed companies to become monopolies, or near-monopolies. It's not just "tech". Look at banking. The US is down to four big banks. Until 1995, US banks couldn't operate in more than one state. Right after deregulation, there are new entrants. Twenty years later, there are a very few giant companies. See telecom, airlines, etc.
- deleted 5y ago
  [deleted]
- adrianb 5y ago
  And the ones you mentioned have major regulatory hurdles to expand internationally. In industries where a single player can dominate multiple markets we are down to 2-3 major competitors, worldwide. See airplane or train manufacturers, beer companies, computer chips... This has all been financed by more than a decade of low interest rates which fuelled the M&A.
  - omgwtfbyobbq 5y ago
    Low interest rates have helped, but I feel like it's primarily the relaxation of regulations that fueled things. We had really low interest rates for a decade or two after WWII, but I don't think we saw the same rate of business consolidation.
    - Accujack 5y ago
      "Relaxation" of regulations has been sliding downhill since about the 50s, but it reached a fever pitch during the Reagan presidency. The "new conservatives" and religious fundamentalists found they had a president they could control who was slowly forgetting everything he knew, and they used that to the fullest advantage. Much of where we are today is due to the processes that began then, from (lack of) fairness in news reporting to the permissive corporate laws that allowed private equity and corporate raiding to relaxation of banking and securities laws that allowed 2008 to happen. There have been some ups and downs between the 80s and today, and a few Democratic years, but in general the slide has continued because once money gets into politics, it won't leave quietly... it has to be forced out.
zxcb1 5y ago
“Software” is eating the world
miguelrochefort 5y ago
For those wondering how big “Big Tech” companies are, I compiled a spreadsheet of over 600 products and services that illustrates the scope of their offering. https://news.ycombinator.com/item?id=27040162 https://news.ycombinator.com/item?id=27040162
kartoolOz 5y ago
How big tech got so big, passive funds.
- lotsofpulp 5y ago
  I would rather point to the astronomic profit margins and ever increasing cash flow for 10+ years.
jedberg 5y ago
I think it's disingenuous to say that Amazon acquired cloud computing companies as a new line of business. They built that unit in house and were well established before they started buying related companies. Those acquisitions should be on the "core business" side of the graph.
narrator 5y ago
There is an enormous difference in how expensive capital is at the startup level vs public company level. Startups have to convince Angel investors $25k at a time to invest in their startup through a long and laborious sales process. Publicly traded companies just have to issue stock and the market just pays for it out of millions of people's dividend reinvesting 401k plans. The difference also comes into play in real estate. Putting together the money to do a multi-family apartment building takes lots of talking to banks, personal guarantees, developing relationships over decades with other investors, not hitting a bad market cycle, etc. Once a property becomes worth about $50 million dollars, usually due to a growing economy in the area or the neighborhood becoming more valuable, a REIT will come in and buy it like it's nothing. That's because the REITs have all that public market money to play around with that they get for a much lower cost of capital. The REIT doesn't even have to run it that well because their cost of capital is so low that the profitability requirements for the project are much less. Same thing goes for big tech which has bought hundreds of startups and shut them down or run them poorly.
alexott 5y ago
McAfee is a good example when acquisitions didn’t went well…
banbanbang 5y ago
Share repos afforded by low interest rates really helped big tech and other profitable enterprises. It allowed them to make acquisitions and retain talent.
EGreg 5y ago
This is the free laissez faire market at work. What's the problem? There is no problem with capitalism BUT....
notacoward 5y ago
The article seems to overlook that they also got big by going on insane profit-fueled hiring binges. Or at least I didn't find it skimming through that awful format. Tens of thousands of engineers, at salaries that make other companies turn green with envy, churning out products and features and supporting infra at an unprecedented rate. Then the cycle repeats. I think that counts for something too.
raspasov 5y ago
Such "analyses" simply appeal to our ape brain centers that trigger envy and seek easy explanation for complex phenomena. "How did they get big?" Oh, it's just acquisitions and the law! Nothing that a savior in the House/Senate can't fix. I am sure acquisitions played a part. But failing to admit that those companies and their leadership did many things the right way is a very one sided view of what has actually happened.
1vuio0pswjnm7 5y ago
"You're probably reading this on a browser built by Apple or Google." Nope. Guess again. "If you're on a smartphone, it's almost certain those two companies built the operating system." Not using a "phone" either. "You probably arrived from a link posted on Apple News, Google News or a social media site like Facebook." Nope. "And when this page loaded, it, like many others on the Internet, connected to one of Amazon's ubiquitous data centers." Nope. Using customised text-only browser with prefetch disabled and no suppport for autoloading resources. Browser fetches the page from archive.org instead of AWS thanks to the loopback-bound forward proxy configs I wrote. Clearly those opening statements by the four authors were just assumptions. Tired ones at that. Not the most creative way to open an article about what is for many of us an old topic. The point here is that none of the "technology" developed by the "talented engineers" assumed by the authors as the driving force behind the article's subject "tech" companies was (in theory if not in practice) necessary for me to read the same article as everyone else, without any of the tracking or negative baggage that comes with companies like Apple, Google or Amazon nor the economic havoc in which they are content to thrive. Choices matter.^1 Tech companies want to (effectively if not intentionally) remove as much choice as possible. They have been very successful at this, through acquisitions and other means, to the point where people can write articles that begin with blind assumptions about what software readers are using. 1. As in "defaults matter".
TeeMassive 5y ago
I find it odd that the article doesn't mention the High-Tech Employee Antitrust Litigation: https://en.wikipedia.org/wiki/High-Tech_Employee_Antitrust_Litigation https://en.wikipedia.org/wiki/High-Tech_Employee_Antitrust_L... > High-Tech Employee Antitrust Litigation is a 2010 United States Department of Justice (DOJ) antitrust action and a 2013 civil class action against several Silicon Valley companies for alleged "no cold call" agreements which restrained the recruitment of high-tech employees. > The defendants are Adobe, Apple Inc., Google, Intel, Intuit, Pixar, Lucasfilm and eBay, all high-technology companies with a principal place of business in the San Francisco–Silicon Valley area of California. > The civil class action was filed by five plaintiffs, one of whom has died; it accused the tech companies of collusion between 2005 and 2009 to refrain from recruiting each other's employees.
pers0n 5y ago
No need to compete when all you have to do is buy your competition.
dzonga 5y ago
one thing everyone keeps forgetting about is mindshare and talent monopoly these companies have. bunch of startups using react, k8s because FB etc use them. how is this bad, well you they can change API's or introduce new features into these tools. Forcing companies who're using these tools to play catch up. instead of developing features. plenty of smart engineers that would be founders are reduced to being cogs in a system. countless examples even here on HN where people question, why work on something interesting eg in the Lichess thread instead of FAANG and get the massive salary. to me that's the most dangerous form of monopoly there could be.

426 points by kjhughes 5y ago

dkyc 5y ago

This is a strange analysis. "Number of acquisitions" seems like a weird metric, without accounting for their significance (in purchase price, impact on the business, or any other real-world metric). facebook buying Instagram was probably more significant than all the other acquisitions combined.

Alex3917 5y ago
> facebook buying Instagram was probably more significant than all the other acquisitions combined. Deja News was probably the biggest tech acquisition by a FAANG company. The average white collar worker spends ~6 hours a day in their Gmail, and about 5 min a day using search.
- jeffbee 5y ago
  How did buying Deja’s hard drives — they did not acquire the company, only “significant assets” — lead to Gmail?
  - Alex3917 5y ago
    IIRC their email parsing code became the basis of Google Groups, which then became the basis of Gmail.
    - jeffbee 5y ago
      As someone intimately familiar with that software, I doubt this. Every line of the Gmail delivery stack is home-grown, but if you were to identify an acquisition that most influenced the project it would be Neotonic, not Deja.
      - deleted 5y ago
        [deleted]
      - throwaway3699 5y ago
        Gmail started life as a 20% project that was basically a Frankenstein version of Google Groups.
        deleted 5y ago
        [deleted]
        Alex3917 5y ago
        Yeah, this is the version I remember also. PB has said many times that he built the first version that could only display threads of his own email in a day. But going from a series of raw email messages to an email thread that can be displayed conversationally on the web is a multi-year project, so clearly there was some already existing code doing the heavy lifting. E.g. the email parsing code in Thunderbird dates back to at least the late 80s, and even after decades of working on it at a cost of hundreds of millions of dollars, it's still a work in progress.
        jldugger 5y ago
        I mean, the UI/theme was clearly borrowed, but that's not necessarily any indication of the backend implementation. And they probably both use bigtable, but so did basically everything customer facing at the time.
- sokoloff 5y ago
  I'd have estimated more like 10x that on search and around 1/4 of that in gmail.
mrkurt 5y ago
Google buying Doubleclick helped them crush the ad market for publishers. Number of acquisitions is interesting, though, because you can also phrase it as "number of potentially viable independent companies that no longer exist". We are better off with more independent companies.
- dageshi 5y ago
  They all learned from MS. MS tried to buy Netscape but didn't offer enough and got turned down. So MS set out to use its position to boost its own browser instead, anti-trust followed because it was obvious MS was using its position to muscle out an independent company. For the big Tech companies now, small acquisitions are win win wins, they get the people, they get whatever was developed and they permanently avoid Microsofts Netscape situation. That being said, I'm guessing no small number of these startups were setup with the express purpose of being bought out like this.
  - pjmorris 5y ago
    > For the big Tech companies now, small acquisitions are win win wins, they get the people, they get whatever was developed and they permanently avoid Microsofts Netscape situation. I have a theory that this is why MS treats its research division staff and interns so well. It reduces the amount of competitive pressure MS would face if they were all working elsewhere/on their own startups.
CarelessExpert 5y ago
> "Number of acquisitions" seems like a weird metric, without accounting for their significance (in purchase price, impact on the business, or any other real-world metric). This comment sounds like the nirvana fallacy striking again. There is no perfect metric for measuring something like overall market dominance. Thanks to a series of supreme court rulings, the traditional approach has been to look at consumer harms. But that metric alone fails to account for the way modern large conglomerates make money: not by gouging the consumer, but by dominating entire industries. So how else can you look at it? Acquisition are just another lens. Is it an imperfect lens? Yes, of course. I challenge you to find an analysis that isn't. But is it still meaningful? Yes, I absolutely think so! It is undeniably the case that these tech giants have used acquisitions as a way to protect their market position. So it absolutely makes sense to analyze their behaviour from that perspective. Furthermore, this is a news article not a whitepaper. Yes, there is an enormous amount of nuance in this kind of argument, and if you were prosecuting these guys for antitrust violations in a court of law, you'd probably do a deeper dive. > facebook buying Instagram was probably more significant than all the other acquisitions combined. How do you know that? There's simply no way to know how some of these companies would've fared because these anti-competitive practices have ensured that promising startups are smothered before they become a threat.
- scyzoryk_xyz 5y ago
  Alot to agree with here - how would Google have faired without being able to strategically acquire companies that made specific tech for ads and search?
- piva00 5y ago
  > How do you know that? There's simply no way to know how some of these companies would've fared because these anti-competitive practices have ensured that promising startups are smothered before they become a threat. Exactly, and adding to that: what about the tons of smaller companies/startups bought for a unique technology that was implemented under the hood across major products of the tech giants? We don't know about them except if some former employee leaked it, most projects will be private/secret and the public at large will never heard about the impact. Think lots of small "Doubleclick"-ish companies that were bought for a small set of features that were then transferred to major products.
ahartmetz 5y ago
It makes some sense. The more acquisitions, the higher the chance of doing well (that wording doesn't apply to price) in the metrics you mention. Especially if the perspective is extrapolating the past to the future. The thesis of the articles seems to be: Big tech will stay dominant because they will keep buying lots of companies and they will likely continue to win with some. To stop this, blah blah law changes or something (I only skimmed the article).
the_duke 5y ago
Many corporate acquisitions have the sole purpose of killing off/absorbing companies early, before they gain traction in the market and become viable competitors. Focusing on real world metrics will give a very incomplete picture of the impact acquisitions might have had on the market.
divbzero 5y ago
Yes, I would have wanted to see the graph of acquisitions weighted by purchase price but that data is hard to find for many acquisitions. Impact on business (e.g., revenue contribution) would be even better but requires subjective judgment and estimation.

richardwhiuk 5y ago

I'm always surprised that FAANG - or Big 4, excludes Microsoft....

jasode 5y ago
>I'm always surprised that FAANG - or Big 4, excludes Microsoft... Because the original context in 2013 of Jim Cramer popularizing "FANG" / "FAANG" was growth and even though Microsoft was already one of the biggest tech companies, their stock price wasn't really growing like the newer FANG. https://hackapedia.com/terms/f/faang https://hackapedia.com/terms/f/faang Others later tried to revise the acronym to include Microsoft with variations like FANGAM -- but it doesn't seem to gain any popularity in internet discussions or mainstream media.
- asiachick 5y ago
  In Japan it's called GAFA at least in the news I watch https://ja.wikipedia.org/wiki/%E3%83%93%E3%83%83%E3%82%B0%E3%83%BB%E3%83%86%E3%83%83%E3%82%AF#GAFA,_The_Four https://ja.wikipedia.org/wiki/%E3%83%93%E3%83%83%E3%82%B0%E3...
  - mrep 5y ago
    In france, it is GAFAM: https://fr.wikipedia.org/wiki/GAFAM https://fr.wikipedia.org/wiki/GAFAM
- guerrilla 5y ago
  > Jim Cramer The guy yelling on TV all the time?
- tempfs 5y ago
  MSFT not growing? https://www.nasdaq.com/market-activity/stocks/msft/advanced-charting?timeframe=5y https://www.nasdaq.com/market-activity/stocks/msft/advanced-...
  - jasode 5y ago

dangus 5y ago

This is the inevitability of capitalism. It has no built-in control for a company that becomes too big to the point of being a detriment to society. In my mind there are only three kinds or tech companies: 1. Growing fast enough to eventually become huge and irreplaceable, losing money all along the way. When they are too big to fail, they flip the switches and de-invest and cost-cut to profit indefinitely (Uber and Lyft) 2. Attempting to just run a sustainable business, which translates to languishing and eventually being replaced or acquired by companies in category #3 or #1 (Tile, Pebble) 3. Giants that deserve antitrust attention but never seem to get any because they buy out the government (Google, Apple, Facebook) That’s why there’s no room for companies that won’t surrender to venture capital. Just making a profitable product isn’t enough, they have to surrender their autonomy to people who have no expertise or innovative tendencies besides having a bigger bank account.

EarthIsHome 5y ago
Yes, capital has a tendency to concentrate and centralize. A 19th century philosopher summed [0] this phenomenon of the concentration and centralization of capital: Capital grows in one place to a huge mass in a single hand, because it has in another place been lost by many.... The battle of competition is fought by cheapening of commodities. The cheapness of commodities demands, caeteris paribus, on the productiveness of labour, and this again on the scale of production. Therefore, the larger capitals beat the smaller. It will further be remembered that, with the development of the capitalist mode of production, there is an increase in the minimum amount of individual capital necessary to carry on a business under its normal conditions. The smaller capitals, therefore, crowd into spheres of production which Modern Industry has only sporadically or incompletely got hold of. Here competition rages.... It always ends in the ruin of many small capitalists, whose capitals partly pass into the hands of their conquerors, partly vanish. [0]: https://en.wikipedia.org/wiki/Capital_accumulation#Marxist_concept https://en.wikipedia.org/wiki/Capital_accumulation#Marxist_c...
bhupy 5y ago
> It has no built-in control for a company that becomes too big to the point of being a detriment to society. That's verifiably untrue. One of the key traits of capitalism is that businesses are allowed to fail, and we see that they do fail. 30 years ago, the retail and supply chain behemoth was Sears; today that's Amazon; 30 years from now, it might be someone else. Berkshire Hathaway recently remarked on the dynamism as seen in the top 20 companies in the world in 1990 vs today. https://twitter.com/brettberson/status/1388555627698429953 https://twitter.com/brettberson/status/1388555627698429953 It's almost entirely a different set of companies.

zepto 5y ago

The thing that’s missed is that vertical Integratron is far more efficient for core products than relying on third parties. Apple won out over Microsoft in consumer electronics because they were able to make decisions up and down the stack as a unit whereas Microsoft had to deal with layers of device makers and consortia. All the talk of breakups and “big is bad” ignores the fact that vertical works better. I don’t think it has to be this way. I think it’s entirely possible that a network of companies can outperform a monolith with the right kind of coordination. This would be a new, evolutionary strategy, and would be good for everyone. It won’t however, emerge if we roll the clock back to the late 90’s by force.

ocdtrekkie 5y ago
It's efficient, sure, but Windows still effective counts as an open platform compared to Mac, because so many different vendors are welcome and involved. Closed vertical integration is worse for consumers. And that consumer standard is also often based on price: Windows platforms are almost always cheaper than the Apple equivalent. So that efficiency doesn't benefit consumers.
- mikepurvis 5y ago
  I don't think either of those is necessarily a slam dunk. A lot of consumers really appreciate the non-openness of platforms like iOS when it comes to security, privacy, parental controls, and so on. I know your argument is specifically about the Mac, but on the "openness" spectrum, MacOS sits somewhere between Windows and iOS, so iOS is a helpful reference point for where the Mac could end up. And as for cost— I don't think that's necessarily strictly worse either. I have a Dell XPS now, and it's.... fine. But relative to my old MBP, the screen is worse, the build quality is worse, the trackpad is worse, the keyboard is worse, the power management is way, way worse. So although there might be slightly more compute here in terms of the raw numbers, a lot of corners had to be cut to make this machine work out, and all things considered, I'm not sure that the market is in a better place when even "premium" non-Apple computers don't have the profit headroom to invest in the little stuff.
  - 5y ago

jyu 5y ago

This is lazy reporting. Where did the money come from to do the acquisitions? Google and Facebook have great monetization by data mining their audiences for advertisers. All they needs is to buy more eyeballs (youtube, whatsapp, instagram, etc). Amazon is slightly different. They benefit from the creative destruction caused by physical retail purchases migrating to ecommerce and the subsequent value capture by Amazon. Any revenue increase from them is from behavior changes, efficiency gains, and death of inefficient retail.

NortySpock 5y ago
Under Amazon, I would also include commoditizing compute and selling you their spare compute cycles (AWS) as their major efficiency win. Finally, Amazon is automating warehousing in their logistics (first using automated checklists for people walking around the warehouse, now using Amazon Robotics, formerly Kiva Systems)
- scarface74 5y ago
  The myth that Amazon “sold their excess computer capacity” has been disproven for years. Just think about it. If Amazon had excess computer capacity and sold it to other companies, what was it going to do when it needed that excess computer capacity? Kick others off?
  - NortySpock 5y ago
    Yes, that's what preemptible spot pricing is; you pay a discounted rate for some compute time with the knowledge that you could be bumped out at any time. Alternately, Amazon could lease time at an hourly rate which varies with available capacity; just raise the hourly rates around Christmas because you need them for your e-commerce site.
    - scarface74 5y ago
      I know what spot pricing is. I work at AWS in Professional Services. AWS was always built from the ground up as a separate service. Amazon Retail is still migrating some of their infrastructure to AWS. It would be slightly inconvenient if customers needed more capacity at the same time that Amazon Retail needed more capacity. https://readwrite.com/2012/04/26/popping-the-amazon-web-services-capacity-myth/ https://readwrite.com/2012/04/26/popping-the-amazon-web-serv... From Werner Vogels himself. https://www.quora.com/How-and-why-did-Amazon-get-into-the-cloud-computing-business-Rumor-has-it-that-they-wanted-to-lease-out-their-excess-capacity-outside-of-the-holiday-season-November%E2%80%93January-Is-that-true https://www.quora.com/How-and-why-did-Amazon-get-into-the-cl...

h2odragon 5y ago

How many companies were started over the last 20 years where the expressed goal, the "win condition" in the founders minds, was a buyout? The idea of building something neat is a lot more attractive than running a business that sells the neat thing to customers. The people who want to run businesses are in the lovely position (for them) of having more fresh, good ideas offered to them than they can review, much less use.

formercoder 5y ago
That's what happens when there's a flood of venture capital money whose intention with its investment is to see a specific return on capital on a specific investment horizon.
- schnevets 5y ago
  I am much further removed from the "startup frenzy" of the early 2010s, but does it seem like this model has trended downward since the start of lockdown? As optimism about the pandemic rises, it seems like the innovation that you would expect from this kind of volatility never panned out. I suppose capital was pumped into the public market instead?
ryandrake 5y ago
History repeats! 20 years ago, some business exit plans basically boiled down to "...and then we'll get bought by Microsoft!" Not too bad, at least for the founders. Especially if your goal is to land a nice FAANG job anyway. It's gotten to the point where interviewing is so competitive, exhausting, opaque, and ultimately random, that it might actually be easier to do a bootstrapped start-up for a year and get bought by Facebook than it is to grind leetcode and interview-prep for a year and roll the dice on the interview circuit. I wish I were joking. EDIT: Wow, no disrespect to founders, I did not intend to trivialize the work you do. Instead of "easier" I should have said something like "more controllable" or "less random".
- wskinner 5y ago
  If the acquisition is mainly about talent, and in many cases, even if it's not, FAANG will expect you to interview like everyone else. Source: founder of a company which was acquired by a non-FAANG company, but talked to a few FAANGs as part of the process.

deleted 5y ago

[deleted]

annadane 5y ago

The fact Facebook used Onavo and lied out the ass about Instagram and Whatsapp automatically means they should be broken up, in my opinion

commandlinefan 5y ago

I always thought that a tech company buying another tech company was the strangest thing: if another company makes software, and you make software, and you want software that does what that other company's software does... why not just write new software to do that? But, clearly, these guys know something I don't know.

fakedang 5y ago
Acquisition is not about buying the software, it's about buying the user base.
bhupy 5y ago
Because of the time-value of money. https://www.investopedia.com/terms/t/timevalueofmoney.asp https://www.investopedia.com/terms/t/timevalueofmoney.asp
wott 5y ago
Sometimes they don't want the software that much that they want the customers.
staysaasy 5y ago
I think that this is a very reasonable observation. It's definitely weird in theory, but the reasons that I've seen are: * Very large tech companies build software (relatively) slowly due to their size * Sort of like a toddler, you don't know what you want until you see that someone else has it. Another company hitting product/market fit + traction proves the value of a product that you might have just hypothetically wanted * You're often buying a go-to-market motion (marketing, sales, services, etc) that complements a product * In some cases, you're buying talent that would be difficult to hire + train on your own _fast_. Ie even if you could theoretically hire 50 traffic mapping engineers, you can get them onboarded onto your team faster by acquiring Waze
throwaway3699 5y ago
Software is about domain knowledge more than code. Also, userbase and customers are valuable.
5y ago

andyxor 5y ago

WaPo?? not gonna give this garbage source a click

robbyt 5y ago
Why do you think the Washington Post is garbage?
- andyxor 5y ago
  it's a political propaganda machine spewing misinformation for years.
  - SeanLuke 5y ago
    The WP is one of the most highly respected newspapers in the world. Extraordinary claims require extraordinary evidence. Please provide your extraordinary evidence.
    - deleted 5y ago
      [deleted]
    - andyxor 5y ago
      the last 5 years of non-stop propaganda is quite extraordinary
      - SeanLuke 5y ago
        So... no evidence at all then?
        deleted 5y ago
        [deleted]

brobdingnagians 5y ago

Software had the promise of massively decentralizing business; anyone with a computer and a bit of knowledge could start hacking away at a new product. It is a bit sad to see big tech becoming a way of even more centralization of power. I guess it had the potential for either; individuals being able to easily capitalize on it, or businesses being able to replicate infinitely and have huge margins from very little input capital. But maybe both are happening at the same time. A double edged sword, like so many other things.

dredmorbius 5y ago
That's the myth we were sold. It's the myth many of us believed. I certainly did. In truth, greater efficiencies don't decentralise, they centralise. The market area expands. Suppliers or vendors, rather than competing locally, compete regionally or globally. In winner-take-all markets, there is only one winner, worldwide. There are some twists on this, having to do with regional customs, language, and law, mostly. There's also the time element, where tech monopolies tend to be ascendent, then (often but not always) replaced. Still, a technological advantage can last a very long time, as with IBM and AT&T. Two of today's FAANG date from the 1970s, another two from the 1990s. Dominance can be long-lived. There were some who saw this coming. Andrew Shapiro's The Control Revolution (1999) kinda-mostly saw this coming, and certainly called out the major aspects. Shoshana Zuboff recognised at least some of the potential in the 1970s and 1980s. The crowd still believes the lie, for the most part.
- api 5y ago
  In biology we understand fairly well that environmental complexity leads to greater biodiversity. If the Earth's environment were entirely uniform there would probably be only a few species and nothing would ever change. Global highly efficient markets are like a polished flat globe with a uniform climate everywhere. Evolution would produce only one or two species in permanent equilibrium.
  - TeMPOraL 5y ago
    The more I think of it, the more I realize, biology is very much unlike the market in such analogies. In a way, the market is biology flipped on its side, like a transposed matrix - where in nature, life forms mostly cooperate within their species (or at least ignore each other) and prey on other species, on the market, companies of the same type fight it out, while ignoring or cooperating with companies of different types. But I think the main difference is scale. The area of influence of a life form - where they live, hunt, reproduce - is very limited. Same is true with companies serving local markets. A local glass factory. A corner market. You say: > Global highly efficient markets are like a polished flat globe with a uniform climate everywhere. But it's not just a flat globe. It's a globe with a surface of couple dozen square kilometers! It's literally a single niche. Not even that - it's a cage. Imagine a zoo that decided to put all its animals in a single, large cage. You won't have to wait much before there's only one big animal standing (and a bunch of insects scattering about). On a more general note: biology is a good example that you can make a complex and robust system by giving imperfectly-self-reproducing agents a lot of space to play in, and then throwing calamities at them to keep things interesting. But I honestly don't like using it as a recipe for designing systems, because of all the waste that's involved. Waste of effort, waste of resources, waste of life. I feel we should avoid this kind of hard self-regulation whenever we can.

breck 5y ago

Big Tech got so big because of Intellectual Slavery laws. That is the gravity here.

guerrilla 5y ago
> Intellectual Slavery laws What is this intended to refer to?
- CPLNTN 5y ago
  Probably the H1B
- breck 5y ago
  Copyrights and patents.

gregwebs 5y ago

My understanding is that the vast majority of these M&A destroy capital. The reason to own dividend stocks is not because they pay dividends but because they don't have tons of cash lying around to spend on low value projects or M&A. It would be a lot more insightful to discuss the aquisitions that have a known positive impact. The truth is probably that each company had just a few very important acquisitions (that should be more closely scrutinized). Our current tax laws make vertical integration or even conglomerates more tax efficient. Greater scrutiny of anti-competitive mergers is needed, but we should also make separate companies just as tax efficient (VAT tax, etc) and otherwise closely examine how we can change economic incentives here.

taurath 5y ago
I’m sitting here wondering whether there might ever be a tax on user data. It sounds a bit strange but I do feel like we underestimate how much data consolidation creates uncompetitive environments.
- Kadathan 5y ago
  Even worse is that all of this data can be used to infer other data. Once you know enough about a person, you can start making some alarmingly accurate guesses about them. I'm hoping for a lot more than a tax on this kind of data, myself.
dcolkitt 5y ago
> My understanding is that the vast majority of these M&A destroy capital. It'd be interesting to see whether the modern tech industry is an anomaly with regards to this longstanding pattern. In particular, I wonder there's an exception for the typical acquisition of smallish, fast growth startups by a tech giant who can generate synergies by quickly integrating the tech on to their platform. Historically these types of acquisitions wouldn't show up in the M&A literature, because the targets are private companies, and the standard estimation techniques rely on public equity returns.
s1artibartfast 5y ago
> My understanding is that the vast majority of these M&A destroy capital. I think this would be very difficult to tease out of the data. Many acquisition are de facto defensive, even if they or not anti-competitive from a legal monopoly perspective. How could one measure the the loss of brand value if the acquired companies were allowed to mature or be acquired by a competitor?

coliveira 5y ago

This a point that is missed by the people who still say the the big tech companies got there "by merit and by the choice of consumers". Most big tech had a single idea, and then used the money to buy others who could pose a threat. So in effect the consumer has little choice. For example, consumers didn't have a choice in selecting Google to watch video, they had to accept the fact that Google bought Youtube.

chillacy 5y ago
Hmm, but by the time Google could afford to buy YouTube, they were already very popular and had a well liked search product. Ask Jeeves didn’t buy YouTube.
- conductr 5y ago
  This is along my initial-not-fully-formulated thought process. Majority of business doing the acquiring are still primarily in the business of what allowed them to do the acquiring. There’s only a few I can think of where the acquisition is a meaningful/noteworthy part of their current business. I don’t necessarily feel like valid competition was squashed in most cases. Following tech M&A headlines has led me to feel mostly it’s acquihiring and the underlying product has no value to the acquirer.

ceilingcorner 5y ago

He's uh, not so popular here these days, but I recently heard a quote by Peter Thiel and thought it was insightful. Not sure where it was from, exactly. "The way to build a big company is to never get acquired."

avrionov 5y ago

Growing through acquisitions is not limited to Big Tech. Almost every big company has an endless list of acquisitions. Berkshire Hathaway is a conglomerate of acquired businesses. All big banks were results of M&A. Same with the oil companies.

throwawaysea 5y ago

I don't think they got big through acquisitions. They simply got big due to first mover advantages, favorable sentiment among investors (which gives them lots of capital), network effects that prevent competition, massive patent portfolios (which let them copy smaller company's innovations without consequence), running around regulations (like avoiding sales taxes in US for a long time, or avoiding taxes in Europe), and so on. Yes, there are some acquisitions that added a lot to these companies and took away competition (YouTube, Instagram, Doubleclick, etc.). But the majority of the market share in these companies is not driven by just those pieces. The reality is that we do not have sufficiently modern anti-trust laws to capture the ways in which these companies hurt customers. It doesn't take a 90% market share in some segment or explicit abuse of market position to create harm. Their mere existence is enough, soaking up talent from the market, creating massive centralization of power and influence, and so on. I'm not sure what the best way to address this is, but rather than wasting time proving consumer harm, I think it's better to just treat giant companies differently to limit their size and growth - perhaps graduated corporate income taxes, or automatic splitting up above a certain market cap, or whatever else.

yrgulation 5y ago
> They simply got big due to first mover advantages, Neither facebook nor google were first movers. They actually joined the game at a tome when there were established competitors. But they beat them with a much better execution (and other key ingredients such as those you mentioned) which markets rewarded. Then they started buying off possible threats, effectively blocking late starters as they themselves were, to the point where they became monopolies and, frankly, a nuisance to customers and society.

goatcode 5y ago

Reminder that WaPo is owned by Jeff Bezos.

olliej 5y ago

As opposed to the car companies, military contractors, airline manufacturers

varispeed 5y ago

Not paying taxes, using all possible loopholes and paying as little to workers as they could get away with...

asdff 5y ago
Investing in psychological research to make their product more addictive, practically buying legislation to further profitable abuses of labor, the list goes on.

solutron 5y ago

Gov't is going to try and break the big ones up, and stop M&A's as anti-trust sentiment warms up. Startups will become much, much harder to benefit from. The cost of capital is going to go up and make it harder to fund-raise, and people will get much more judicious about what they invest in. If your company isn't tied to some other industry or sector of the economy and is a tech company, just consider if your business can survive on its own for the next 3 - 5 years.

patfla 5y ago

Big Tech got so big because digital technology is different from preceding industries in that increasing (not decreasing) returns to scale prevail. In particular, in software where marginal costs are near 0. It's a different ballgame. I think regulators have figured this out but for the most part it appears that they don't know how to act upon it. https://en.wikipedia.org/wiki/Returns_to_scale https://en.wikipedia.org/wiki/Returns_to_scale

rmah 5y ago
Um, the concept of "econommies of scale" is something that has existed since the start of the industrial revolution. This is nothing new to Big Tech.
- marcosdumay 5y ago
  The GP is talking about the second derivative of the price, not the first one. What he talks about is new. And I believe he is wrong, it's just a negative value very close to zero, not positive.
- patfla 5y ago
  Traditionally, you had _decreasing_ returns to scale. What's new with digital technologies is _increasing_ returns to scale. Very counter-intuitive for traditional economists - or even business people. People like Gates, Bezos, Brin & Page, Zuckerberg and so on have ridden this for all its worth. Let's out distance them as much as we can before they figure this out. Whether competitors or regulators. That said, I like the story about someone observing Gates at, I think, a graduation ceremony where Gates had brought along a biography of Rockefeller (John D.). Did Gates know before or after the fact that MS had in fact used a competitive strategy comparable to Standard Oil? Meaning, unlike increasing returns to scale that was something for which there was an historical precedent. The basic idea being: when my competitors revenues go up, my revenues also go up. A fatal long-term proposition for those competitors.
  - Ericson2314 5y ago
    I'm very skeptical of this "decreasing returns to scale" thing the traditional economists do being true in either era.

neonate 5y ago

https://archive.is/WmkqB https://archive.is/WmkqB

jareklupinski 5y ago
ty for the link. i love how the source only shows the url for a second before replacing it with the root domain to prevent people like me from copy/pasting the story url into an incognito tab the cat and mouse game goes on, wapo engineers!

peder 5y ago

Big-time survivorship bias in this article and thread. Just yesterday we learned that Verizon is dumping Yahoo and the related media brands. Those acquisitions were a major failure. The reason that Big Tech got so big is that they're really really good at growing their high-margin core business and have a ton of free cash flow. That's really all it is.

georgeecollins 5y ago
You are right to point out the issue of survivorship bias, but that doesn't tell the whole story either. Google without Doubleclick and YouTube would be a different animal. Facebook without WhatsApp and Instagram as well. You can't deny the impact of those acquisitions.

baby 5y ago

This goes both way: founders create start ups with the idea that being acquired is a valid exit strategy. It's hard to quantify but perhaps not that many start ups would have been founded if they didn't see as many valid options to exit, and a founder wouldn't have created the next big thing if his previous company didn't get acquired.

dragontamer 5y ago
> and a founder wouldn't have created the next big thing if his previous company didn't get acquired. Hershey (of Hershey's Chocolate) failed multiple times and went bankrupt each time before finally making his Chocolate company. Repeated failures are absolutely an option.
- asdff 5y ago
  Anecdotal stories of the survivors from 100 years ago when you could work a bottom of the barrel job for 1 week and cover a months living don't apply today. In order to insulate yourself from failure, you need wealth today to draw upon and cover your cost of living. Many americans don't have a spare $400 (1), they can't quit their job to tinker with a perennially failing side business without ending up risking living on the street. Many americans are trapped. 1. https://www.cnbc.com/2019/05/23/millions-of-americans-are-only-400-away-from-financial-hardship.html https://www.cnbc.com/2019/05/23/millions-of-americans-are-on...
  - deleted 5y ago
    [deleted]
  - dragontamer 5y ago
    Hershey was pretty well connected. I'm pretty sure his family bankrolled a lot of his early ventures. This wasn't a "by his own bootstraps" story. But its absolutely a "try try again" story. Today, there are more "by their own bootstraps" stories. Steve Jobs was the adopted. His original father was a Syrian immigrant, for example. If we go back to the 1800s, the "Gilded Age", the oppression of the "robber barons" was obvious: they destroyed small companies before the invention of antitrust laws. Maybe we'd like more "by their own bootstrap" stories today, and I'd support implementing policies that make it more possible. (including a new antitrust review of today's companies, to see if they're bad for the economy, like the 1800s robber barons were). But lets not pretend that the 1800s were easier than they actually were.

throwaway823882 5y ago

Mergers & Acquisitions are a foundational part of building any major conglomerate or corporation. Every industry does it. Energy, Media, Technology, Healthcare, Finance, Food, Clothing, whatever. Big Anything can be measured by this, but the sheer number of them does not mean as much as how much of the market they suck up through each one. The unstated end goal of every capitalist organization is to become a monopoly. Do people just not want to acknowledge this? Because that's kind of what every decision of competing corporations is always leading towards. You can't gain infinite capital unless you are always absorbing or eliminating more of the competition. The whole point of competition is not co-existence, it's domination.

mastrsushi 5y ago

How are you guys able to read WP and NYT articles? I keep getting locked out with subscription ads.

Animats 5y ago

As the article points out, weak antitrust enforcement has allowed companies to become monopolies, or near-monopolies. It's not just "tech". Look at banking. The US is down to four big banks. Until 1995, US banks couldn't operate in more than one state. Right after deregulation, there are new entrants. Twenty years later, there are a very few giant companies. See telecom, airlines, etc.

deleted 5y ago
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adrianb 5y ago
And the ones you mentioned have major regulatory hurdles to expand internationally. In industries where a single player can dominate multiple markets we are down to 2-3 major competitors, worldwide. See airplane or train manufacturers, beer companies, computer chips... This has all been financed by more than a decade of low interest rates which fuelled the M&A.
- omgwtfbyobbq 5y ago
  Low interest rates have helped, but I feel like it's primarily the relaxation of regulations that fueled things. We had really low interest rates for a decade or two after WWII, but I don't think we saw the same rate of business consolidation.
  - Accujack 5y ago
    "Relaxation" of regulations has been sliding downhill since about the 50s, but it reached a fever pitch during the Reagan presidency. The "new conservatives" and religious fundamentalists found they had a president they could control who was slowly forgetting everything he knew, and they used that to the fullest advantage. Much of where we are today is due to the processes that began then, from (lack of) fairness in news reporting to the permissive corporate laws that allowed private equity and corporate raiding to relaxation of banking and securities laws that allowed 2008 to happen. There have been some ups and downs between the 80s and today, and a few Democratic years, but in general the slide has continued because once money gets into politics, it won't leave quietly... it has to be forced out.

zxcb1 5y ago

“Software” is eating the world

miguelrochefort 5y ago

For those wondering how big “Big Tech” companies are, I compiled a spreadsheet of over 600 products and services that illustrates the scope of their offering. https://news.ycombinator.com/item?id=27040162 https://news.ycombinator.com/item?id=27040162

kartoolOz 5y ago

How big tech got so big, passive funds.

lotsofpulp 5y ago
I would rather point to the astronomic profit margins and ever increasing cash flow for 10+ years.

jedberg 5y ago

I think it's disingenuous to say that Amazon acquired cloud computing companies as a new line of business. They built that unit in house and were well established before they started buying related companies. Those acquisitions should be on the "core business" side of the graph.

narrator 5y ago

There is an enormous difference in how expensive capital is at the startup level vs public company level. Startups have to convince Angel investors $25k at a time to invest in their startup through a long and laborious sales process. Publicly traded companies just have to issue stock and the market just pays for it out of millions of people's dividend reinvesting 401k plans. The difference also comes into play in real estate. Putting together the money to do a multi-family apartment building takes lots of talking to banks, personal guarantees, developing relationships over decades with other investors, not hitting a bad market cycle, etc. Once a property becomes worth about $50 million dollars, usually due to a growing economy in the area or the neighborhood becoming more valuable, a REIT will come in and buy it like it's nothing. That's because the REITs have all that public market money to play around with that they get for a much lower cost of capital. The REIT doesn't even have to run it that well because their cost of capital is so low that the profitability requirements for the project are much less. Same thing goes for big tech which has bought hundreds of startups and shut them down or run them poorly.

alexott 5y ago

McAfee is a good example when acquisitions didn’t went well…

banbanbang 5y ago

Share repos afforded by low interest rates really helped big tech and other profitable enterprises. It allowed them to make acquisitions and retain talent.

EGreg 5y ago

This is the free laissez faire market at work. What's the problem? There is no problem with capitalism BUT....

notacoward 5y ago

The article seems to overlook that they also got big by going on insane profit-fueled hiring binges. Or at least I didn't find it skimming through that awful format. Tens of thousands of engineers, at salaries that make other companies turn green with envy, churning out products and features and supporting infra at an unprecedented rate. Then the cycle repeats. I think that counts for something too.

raspasov 5y ago

Such "analyses" simply appeal to our ape brain centers that trigger envy and seek easy explanation for complex phenomena. "How did they get big?" Oh, it's just acquisitions and the law! Nothing that a savior in the House/Senate can't fix. I am sure acquisitions played a part. But failing to admit that those companies and their leadership did many things the right way is a very one sided view of what has actually happened.

1vuio0pswjnm7 5y ago

"You're probably reading this on a browser built by Apple or Google." Nope. Guess again. "If you're on a smartphone, it's almost certain those two companies built the operating system." Not using a "phone" either. "You probably arrived from a link posted on Apple News, Google News or a social media site like Facebook." Nope. "And when this page loaded, it, like many others on the Internet, connected to one of Amazon's ubiquitous data centers." Nope. Using customised text-only browser with prefetch disabled and no suppport for autoloading resources. Browser fetches the page from archive.org instead of AWS thanks to the loopback-bound forward proxy configs I wrote. Clearly those opening statements by the four authors were just assumptions. Tired ones at that. Not the most creative way to open an article about what is for many of us an old topic. The point here is that none of the "technology" developed by the "talented engineers" assumed by the authors as the driving force behind the article's subject "tech" companies was (in theory if not in practice) necessary for me to read the same article as everyone else, without any of the tracking or negative baggage that comes with companies like Apple, Google or Amazon nor the economic havoc in which they are content to thrive. Choices matter.^1 Tech companies want to (effectively if not intentionally) remove as much choice as possible. They have been very successful at this, through acquisitions and other means, to the point where people can write articles that begin with blind assumptions about what software readers are using. 1. As in "defaults matter".

TeeMassive 5y ago

I find it odd that the article doesn't mention the High-Tech Employee Antitrust Litigation: https://en.wikipedia.org/wiki/High-Tech_Employee_Antitrust_Litigation https://en.wikipedia.org/wiki/High-Tech_Employee_Antitrust_L... > High-Tech Employee Antitrust Litigation is a 2010 United States Department of Justice (DOJ) antitrust action and a 2013 civil class action against several Silicon Valley companies for alleged "no cold call" agreements which restrained the recruitment of high-tech employees. > The defendants are Adobe, Apple Inc., Google, Intel, Intuit, Pixar, Lucasfilm and eBay, all high-technology companies with a principal place of business in the San Francisco–Silicon Valley area of California. > The civil class action was filed by five plaintiffs, one of whom has died; it accused the tech companies of collusion between 2005 and 2009 to refrain from recruiting each other's employees.

pers0n 5y ago

No need to compete when all you have to do is buy your competition.

dzonga 5y ago

one thing everyone keeps forgetting about is mindshare and talent monopoly these companies have. bunch of startups using react, k8s because FB etc use them. how is this bad, well you they can change API's or introduce new features into these tools. Forcing companies who're using these tools to play catch up. instead of developing features. plenty of smart engineers that would be founders are reduced to being cogs in a system. countless examples even here on HN where people question, why work on something interesting eg in the Lichess thread instead of FAANG and get the massive salary. to me that's the most dangerous form of monopoly there could be.