Big tech vs. startup: Giant technology firms use influence to resist competitors

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  Quantumrun Foresight
• July 15, 2022

Insight summary

The rise of large technology firms marks a shift from their early startup agility to a focus on safeguarding their market dominance, often through non-competitive practices. These practices include acquiring startups to prevent competition and concentrating industry talent, which may stifle innovation and market diversity. In response, governments and regulators are considering antitrust actions and laws to encourage a more competitive and transparent technology sector.

Big tech versus startup context

Facebook, Amazon, Alphabet (Google’s holding company), Apple, and Microsoft were all once startups themselves that introduced disruptive products and services to the market. By 2022, these goliath firms have lost the nimbleness that characterizes startup companies and often endeavor to protect their positions through non-competitive business practices.

The post-dot-com economy has changed drastically from the startup, “tech-bro” environment of Silicon Valley in the early 2000s. Then, startups like Facebook offered products that revolutionized how society communicates, establishes connections, and consumes media. Venture capitalists and investors were not afraid to place their bets because the services provided were revolutionary and captured market attention, with extraordinary returns realized. 

Today, Facebook, Apple, Google, and Amazon have become among the largest corporations on Earth. Their market value is equivalent to the gross domestic product of some national economies. While these companies have become industry leaders, their size, influence, and financial power have increased scrutiny of their business practices. As regulators on both sides of the Atlantic threaten to break up these companies and as the public loses trust in how these firms handle customer data, large technology companies are doing everything within their power to justify their scale and eliminate competition.

Since 2010, large technology companies have exhibited predatory behavior by acquiring startups before they can grow large enough to challenge their market dominance. (For example, in 2014, Facebook acquired messaging app WhatsApp for USD $19 billion.) These deals are called kill zone or killer acquisitions, which some researchers argue stifles innovation.

Disruptive impact

Startups often introduce unique products and services that challenge traditional business models, acting as catalysts for change in various industries. These companies typically prioritize groundbreaking ideas and technologies, driving them to create products or services that distinguish themselves from established market players. In contrast, large technology companies tend to focus on developing incremental improvements to their existing products and services. This strategy, while less risky, may lead to a stagnation in innovation as these companies opt for safer, more predictable enhancements over bold, market-shaping innovations.

In addition, the approach of large technology firms to talent acquisition and retention poses a significant challenge for startups. By offering higher salaries and comprehensive benefits, these established companies often attract the best talent in the industry, which startups struggle to match. This aggressive talent acquisition strategy not only impacts the ability of startups to innovate and grow but also leads to a consolidation of expertise and ideas within the larger firms. Over time, this concentration of talent and resources in a few companies can diminish the vibrancy and competitiveness of the wider technology ecosystem.

If this trend continues, with a decrease in new business creation and growth, governments are likely to intervene. They may introduce antitrust legislation aimed at breaking up these larger entities into smaller, more manageable companies. Such actions would be intended to dilute the overwhelming market power of these tech giants and reinvigorate competition within the industry. 

Implications of deepening market dominance of large technology firms 

Wider implications of large technology companies impeding the growth of smaller startups may include:

• Activist politicians and regulators applying stricter antitrust regulations and oversight, leading to increased tax transparency and the elimination of tax evasion strategies by large technology firms.
• In certain scenarios, large technology corporations being divided into multiple smaller companies, fostering a more competitive and diverse technology market landscape.
• Large technology firms intensifying their lobbying efforts to influence the creation of laws governing the technology industry, potentially shaping regulations in their favor.
• The development of new technology and software solutions being incentivized, decreasing the costs associated with starting, running, and scaling businesses, enabling them to more effectively compete with larger corporations.
• Enhanced consumer protection laws as a response to increased public awareness of data privacy concerns, leading to a more transparent and accountable technology sector.
• A shift in the labor market with more professionals choosing to work for smaller, more dynamic companies, leading to a decentralization of talent and expertise.
• The potential for a more collaborative and open-source approach to innovation in the technology sector, as smaller companies and startups often rely on shared resources and knowledge.
• Governments potentially establishing new funding programs and incentives to support small and medium-sized enterprises in the technology sector.

Questions to consider

• How do you think large technology companies will change amid regulatory and public pressure?
• Do you think more startups are being founded with the long-term strategy of being acquired by a large technology company?