After the appearance of Facebook, which took its place among the technological giants of the world, no Internet company has been able to achieve comparable success.
Silicon Valley is used to perceive as a place where a couple of guys in a garage or dorm room start companies that are changing the world. This happened with Apple and Microsoft in the 1970s, with AOL in the 1980s, with Amazon, Yahoo, Google in the 1990s and with Facebook in the 2000s.
But from 2010, there was a start-ups drought. People, of course, continue to launch startups. But the last really big startup success, Facebook, is 13 years old.
Until the last year it seemed that Uber was waiting for the fate of the new technological giant of Silicon Valley. But now the CEO left the company and its future is in doubt. Other start-ups launched over the past 10 years play in a slightly different league. Airbnb – the American startups with the highest rating after Uber – costs $ 31 billion – about 7% of Facebook’s capitalization. Other projects like Snap, Square and Slack are much less expensive.
So what happens?
Internet pioneers tore down the “fruit hanging from the ground”, taking advantage of profitable niches, including search, social networks and e-commerce. By the time other companies such as Pinterest and Blue Apron began to pick up, the fruit was crushed.
Today’s technological giants have become much more savvy in assessing and preventing threats to their dominance. They did it aggressively, expanding into new markets and buying potential competitors, when they were still relatively small. Some critics argue that corporations have become better at controlling and securing key parts of the Internet infrastructure, closing the way that start-ups used to enter the mass market.
As a result, the industry, famous for the constant change of players, began to resemble the usual oligopoly, where several large companies dominate, whose place on the top seems more and more protected.
Technological giants buy startups early and often
Everyone in the Silicon Valley is once familiar with the great companies like Digital Equipment Corporation, Sun Microsystems, AOL and Yahoo, who lost their positions due to technological shifts. The current technology giants have learned their mistakes well and are not aiming to repeat them.
The management of today’s corporations – Facebook, Amazon, Google and Microsoft – understands risks much better.
For Facebook, the first major test came with the advent of a smartphone. Social network began as a desktop website and the company could easily be caught off guard by a shift towards mobile devices, as it happened with Yahoo. But Zuckerberg saw the importance of mobile devices with a touch screen and directed the efforts of engineers to make the mobile application the company’s top priority.
Zuckerberg also went to buy up companies that seemed to be gaining a large audience on mobile devices. In 2012, he bought Instagram, where there were only a few employees. Two years later, he bought WhatsApp messenger for $ 19 billion.
Facebook founder followed the model that Google used for the first time. In 2006, Google paid $ 1.65 billion for YouTube, a site that grew into one of the most popular Internet destinations. Most importantly, Google bought a small little-known software company called Android in 2005, laying the foundation for the corporation’s dominance in the mobile operating system market.
These purchases proved to be extremely important. One ranking shows WhatsApp and YouTube as the main social network of the Internet after Facebook. Instagram – next in the list, if you ignore the Chinese platform. If these companies remained independent, they could easily develop into the main competitors of Google and Facebook. Instead, they became another brick in their empires.
Amazon followed a similar strategy. They bought the Zappos online shoe store in 2009, and the following year bought Quidsi, the company behind the popular Diapers.com.
Technological companies that preserve independence face tough competition
Not all technological startups accept the proposals of the giants. CEO Snapchat Evan Spiegel declined the $ 3 billion deal proposed by Zuckerberg in 2013. Four years later he brought the company, already called Snap, to the stock exchange.
Facebook responded by creating its own versions of many features of Snapchat. Facebook-owned Instagram presented its version of the popular in Snapchat format Stories last year. Six months later, Instagram’s stories gained more daily users than Snapchat itself.
Instagram also introduced a version of the Snapchat lens. It allows you to place cartoon hare or dog ears on the selfie. Concerns about the competition from Instagram had a negative impact on Snap shares.
The threat of tough competition can be a powerful incentive for independent start-ups to sell to established players. Quidsi, the company that ran Diapers.com, initially refused Amazon’s takeover. Amazon responded with a sharp drop in prices for diapers. Quidsi could not afford price war, so in the end the company sold Amazon in 2010.
The nature of innovation is changing
Take, for example, Tesla. In some ways, it’s a classic Silicon Valley company. They are based in Palo Alto, and the army of programmers is developing everything – from touch screen interface to unmanned system.
But in some ways Tesla departs from the norms of the Valley. While Apple produces the iPhone in China, Tesla operates a factory in Fremont, California. While Uber and Airbnb avoided ownership of cars and homes, Tesla spent billions on the battery factory.
Therefore, although established players like Google, Facebook and Amazon continue to dominate the online services market, this does not mean that they will continue to lead the broader scale of technological innovation. Rather, innovation can move to very different directions. For example, towards electric vehicles and drones for delivery instead of applications for smartphones. We are used to thinking about the Silicon Valley, the Internet and innovations, as synonyms. But the next wave of innovation may not look the same as we used to.