The startup fantasy is still very much alive and well in Silicon Valley and beyond, with plenty of founders and entrepreneurs dreaming that their idea has the potential to turn into the next multibillion dollar company.
It’s easy to see why this is. Some of our culture’s most revered and powerful business figures started out as scrappy nobodies with an idea to sell. The idea that every company is just a diamond in the rough waiting for an injection of cash is a tempting one. But as we approach the end of the second decade of this internet-enabled century, the real truth is that it’s beginning to look as if the dream of the internet startup-turned-mega-successful-behemoth is less and less an available path.
Vox recently published an article with the headline “The end of the internet startup” which posed this question. The author wrote: “The 2010s seem to be suffering from a startup drought. People are still starting startups, of course. But the last really big tech startup success, Facebook, is 13 years old. Until last year, Uber seemed destined to be Silicon Valley’s newest technology giant. But now Uber’s CEO has resigned in disgrace and the company’s future is in doubt. Other technology companies launched in the past 10 years don’t seem to be in the same league. Airbnb, the most valuable American tech startup after Uber, is worth $31 billion, about 7 percent of Facebook’s value. Others — like Snap, Square, and Slack — are worth much less.”
So is this viewpoint just pontificating, or is it reality? The answer to that depends on who you ask, but there certainly is a case to be made that the so-called “low-hanging fruit” of the internet world was taken early on by companies who had virtually no competitors, and thus a huge advantage when it came to getting big. Meanwhile today, even when a company comes up with a novel idea or previously undisrupted industry, they find it hard to compete in terms of valuation with larger entities like Facebook, Google, and Amazon, which acquire companies who even hint at being competitive. In a sense, because these once-small internet companies were so successful early on, they’ve created a hostile climate for today’s small companies to grow on a global scale.
Take, for example, the recent case of Amazon announcing that it will enter the meal kit market after acquiring healthy food supermarket Whole Foods. Meal kits are hardly related to Amazon’s initial endeavor—selling books—but now that it’s become so large, there is virtually nothing Amazon can’t do if it puts it weight behind it. Meal kit delivery has been big startup business for some, but as The Guardian reported, “Shares in Blue Apron, the largest purveyor of meal kits in the US, fell 2.5% in the first 20 minutes of trading following the news.” It appears that even an announcement from a massive internet company is enough to spook smaller competitors.
This acquire-and-conquer model was pioneered by Google who bought out a little-known company called Android in 2005, which went on to be the basis of Google’s smartphone software. Today, when you look at a lot of the companies that could’ve become major internet companies, most of them were acquired before they could get there.
As the Vox piece went on to say: “One ranking shows WhatsApp and YouTube as the internet’s top social networks after Facebook. Instagram is next on the list if you ignore Chinese sites. If these companies had remained independent, they easily could have emerged as major competitors to Google and Facebook. Instead, they became one more piece of the Google and Facebook empires.”
It’s true that the tech world has a reputation for making bold predictions that never come to pass, and this could very well be such a case. But it’s hard to ignore the fact that in today’s startup climate, the scales are weighted heavily in the favor of existing internet companies that were founded in an era where there was little competition.