Acquisition Games

A quick look at the acquisitions of the largest technology giants over the years would impress even impartial observers who are not interested in the topic at all. As if the Big Five - Amazon, Alphabet (Google's mother company), Microsoft, Apple and Facebook - have decided to buy up all profitable and promising projects on the market.

Microsoft spent billions of dollars for the VoIP application - Skype (USD 8.5 billion), the business social network LinkedIn (USD 26.2 billion), the Swedish Mojang - creator of the world-famous Minecraft video game (USD 2.5 billion) and the Yammer social network (USD 1.2 billion). In a few years, Facebook has added to its assets  Instagram social network (USD 1 billion), WhatsApp messenger chat (USD 19 billion), and Oculus virtual reality eyeglass developer (USD 2 billion).

Google was among the first companies to acquire recognisable players in the online segment. Among its assets are YouTube video chat platform, the AdMob mobile advertising network, the DoubleClick online advertising network, the Waze GPS navigation software, DeepMind Technologies for artificial intelligence development, Motorola and HTC.

In the group of online giants that are actively acquiring smaller IT companies, we can also include eBay, the Chinese Alibaba and Tencent, the Japanese Rakuten and SoftBank, as well as the US Verizon telecom. An independent observer would say that, at the end, the technology industry will be reduced to a few large corporations that swallow up all other promising solutions and services long before they become their competitors.

But does such a danger really exist? Maybe not. A careful analysis of the sector shows that the opposite is true - the dynamic acquisition of smaller companies by large IT corporations is likely to increase the diversity and the participants in this segment and, ultimately, lead to a wider choice of new consumer services. For many, it may seem paradoxical, but there are logical reasons for this, which we will try to systematise in the following lines.

More Serial Entrepreneurs

When Google, Microsoft, or Facebook acquire another promising startup, everything that the public sees is that another service loved by millions of people becomes part of a digital giant. What is often left unnoticed is that its founders who leave the company with a significant amount of money most often do not remain with their arms folded. The entrepreneurial spirit is something that is hard to lose, and most of those already successful businessmen usually use the new resources to start new ventures.

Maybe the most famous example is the PayPal co-founder Ilon Musk who started his present companies Tesla Motors and Space X with resources from the sale of the eBay payment platform. Another popular case is with two of YouTube's co-founders - Steve Chen and Chad Hurley who sold the Google video platform in 2006 for the impressive for its time amount of USD 1.65 billion. Later, with some of this money they created the online company AVOS Systems, which introduced a number of successful applications and services. Then, Steve Chen became a partner in the Google Ventures Fund and launched another online project - the Nom Cooking Platform.

Niklas Zennström and the rest of Skype’s founders initially sold the eBay platform for the amount of USD 2.6 billion, after which Zennström created the Joost online video distribution service. In 2009, he took part in a consortium for buying up Skype from eBay for USD 2.75 billion and reselling it this time to Microsoft for USD 8.5 billion. Subsequently, Zennström founded the Atomico investment fund, which has invested in more than 50 technology companies all over the world, including Rovio - the creator of the Angry Birds game, Last.fm, Klarna, etc.

More New Investors

An unwritten law in the Silicon Valley is that when an entrepreneur sells their business, they start investing in the next wave of startups. Whether as a business angel or as part of an investment fund. The examples are hundreds. Another co-founder of PayPal - Peter Thiel - for example, today is among the most prominent venture investors and founder of one of California's most popular funds - Founders Fund. He is also one of the first investors in Facebook who bought up 10.2% of the social network in August 2004 and eight years later sold it for more than USD 1 billion. Thiel is also one of the partners in the world’s most famous start-up accelerator - Y Combinator, which in fact imposed the present model of accelerators.

More Positive Examples

No matter if the founders who have successfully sold their companies create new start-up projects, or become risky investors, they always become a positive example for hundreds of young people by motivating them to develop their own ideas. The logic is simple: Bill Gates, Jeff Bezos and Mark Zuckerberg are exceptions, and to create Google, Microsoft or Facebook is almost impossible, but to make a smaller digital project and sell it to one of the biggest players is a realistic goal. There are thousands of such cases, and this seems like a justified risk for every startup entrepreneur.

The above reasons explain why, despite active consolidation, the number of new technology companies in recent years has grown significantly. Yes, there really are not many that could reach the scale of the Big Five. Companies with a market capitalisation of more than one billion (the so-called "unicorns"), and those with a value of more than USD 10 billion ("decacorns") are more than ever before.

The number of digital startups that in the recent years have become so big that it is now almost impossible for them to be swallowed even by the five "behemoths" in the sector is growing. To this group we can add Uber and its competitor Lyft, Twitter, Airbnb, WeWork, Dropbox, Snap, Space X and many others. Although Google or Microsoft have a small share in them, it is unlikely that they will ever acquire a majority share. At the same time, the development of new technological sub-segments such as Artificial Intelligence, brain-computer interfaces, autonomous cars, fintech, or the Internet of Things could very soon lead to the emergence of the next giants that in the future could stand up to even to the Big Five.