With the proliferation of new technology ventures entering the market, this CNN Money article asserts that either the companies can "get big, get bought, or go broke" and that most startups are choosing option two.
Many of the larger and well-known tech giants like eBay, Google, Facebook and Twitter are trying to integrate backwards to acquire firms with specialized products. For example, eBay recently acquired Hunch, a predictive analytics recommendations engine, in order to gain the ability to use Hunch technology to direct shoppers toward certain matched goods. While this type of integration is good for the largest companies, it may not be positive for the newer tech companies who feel the pressure to earn as much money now if they expect to be acquired or dissolved in the future.
Tech founders report that many new technology companies are wildly overvalued by investors looking for the 'next big thing,' but that usually (at best) acquisitions by larger firms leave the company's investors breaking even. It is rare to see acquisitions like Hutch - which was valued around $80 million over the initial $20 million investment - simply because of the proliferation of new products and services offered by these competing new companies.
The last piece of this is that many of these takeovers are driven by the talented employees of a new tech firm. In an industry that has been widely reported to be lacking in the needed human capital to continue growing, the largest firms are eagerly acquiring firms that already employ a talented labor force. These high-skilled workers are quickly gaining value (which come across in terms of wages) as the demand for the tech firms' products grow. Solution for the entrepreneurs? Hire the most talented people and keep them around.
Source: The startup choice: Get big or get bought, CNN Money, December 1, 2011
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