As the article points out, weak antitrust enforcement has allowed companies to become monopolies, or near-monopolies. It's not just "tech". Look at banking. The US is down to four big banks. Until 1995, US banks couldn't operate in more than one state.
Right after deregulation, there are new entrants. Twenty years later, there are a very few giant companies. See telecom, airlines, etc.
It's my biggest gripe with current society. It's everywhere, and it's not going away. Nobody is tackling it, or talking about it seriously. At some point I thought that companies would become more powerful than states, but I've changed my mind on that. Nations do retaliate hard if they feel threatened. Maybe I've just turned naive again. But when it comes to monopolies I just don't see them ever going away now. Too much globalization combined with lobbying power and corporate veils. People talk about companies and never about the people who make the decisions, and I feel like people have trouble with accepting that in the end nobody actually wants to be in a society where companies can do whatever they want and end up being a negative contributor to society.
This has had a big impact on the economies of regional mid-sized metros as jobs consolidated in coastal megacities. Arguably, this resulted in a lower quality of life in both classes of cities.
Don't forget media companies. Everybody forgets media companies because media companies that have no qualms writing articles condemning mergers by Bank of America have a different incentive when it comes time to look in the mirror.
And the ones you mentioned have major regulatory hurdles to expand internationally. In industries where a single player can dominate multiple markets we are down to 2-3 major competitors, worldwide. See airplane or train manufacturers, beer companies, computer chips...
This has all been financed by more than a decade of low interest rates which fuelled the M&A.
Exactly correct. The FTC and SEC have failed us completely in the 21st century. Things have gone bad ever since the focus of all companies has been shareholders above all else.
yes it is def. not tech only. telecom, banking, airlines are great examples as well. One recent example. My phone company Sprint got acquired by T-Mobile. Btw, Sprint used to be Spring PCS many years ago which I think was a merger b/w Sprint and PCS. Consolidation/mergers are endless.
> Until 1995, US banks couldn't operate in more than one state.
I can't think of a worse example of regulation. People obviously want to be able to access their money when they travel 30 minutes away. Your example undermines your point.
How many companies were started over the last 20 years where the expressed goal, the "win condition" in the founders minds, was a buyout?
The idea of building something neat is a lot more attractive than running a business that sells the neat thing to customers. The people who want to run businesses are in the lovely position (for them) of having more fresh, good ideas offered to them than they can review, much less use.
History repeats! 20 years ago, some business exit plans basically boiled down to "...and then we'll get bought by Microsoft!" Not too bad, at least for the founders.
Especially if your goal is to land a nice FAANG job anyway. It's gotten to the point where interviewing is so competitive, exhausting, opaque, and ultimately random, that it might actually be easier to do a bootstrapped start-up for a year and get bought by Facebook than it is to grind leetcode and interview-prep for a year and roll the dice on the interview circuit. I wish I were joking.
EDIT: Wow, no disrespect to founders, I did not intend to trivialize the work you do. Instead of "easier" I should have said something like "more controllable" or "less random".
Most of this tech has strong network effects. And while the marginal cost of shipping an additional unit tends to be close to 0 (creating the incentive to grow almost boundlessly), the costs of complying with regulation in dozens or a hundred countries is quite high.
Thus, it entirely makes sense for a founder want to build great tech and a great product, but NOT want to be in the business of complying with a dizzying array of local and international regulations, in a world where they effectively have to expand globally to "win".
Big companies aren't typically nimble enough to respond to the whims of consumer tastes or catch the latest fads.
So, it's a great symbiotic relationship between "big tech" and startups.
Acquisition, cash out, bolt on regulatory and legal framework, wash, rinse, repeat.
Its a no-brainer for most. Put in a couple years of work, cash out big, go live the dream. Every incentive aligns with this though process so why stop doing it now?
At any given time, there are founders in the "sprint-to-buyout" camp and those in a "build to own" camp. In any given year, there are many founders who hold to their principle and those who change their minds.
People make choices. Nothing is deterministic. That said, the number of companies founded, run or exited with a buyout win condition mentality is governed by price economics. FB, Google, etc offered a very high price for Android, Instagram, etc. because those M&As were worth a lot to them. Given this, a lot of M&As are going to happen.
The interesting question, to me, is "why is the price so high?" It's silly to get all huffy about M&As and ignore the consequences of M&As.
Your comment assumes that the people buying the business and the people running the business are the same. In the 21st century, this is less & less the case, as people with capital are uninterested in hands-on management.
That's what happens when there's a flood of venture capital money whose intention with its investment is to see a specific return on capital on a specific investment horizon.
My understanding is that the vast majority of these M&A destroy capital. The reason to own dividend stocks is not because they pay dividends but because they don't have tons of cash lying around to spend on low value projects or M&A.
It would be a lot more insightful to discuss the aquisitions that have a known positive impact. The truth is probably that each company had just a few very important acquisitions (that should be more closely scrutinized).
Our current tax laws make vertical integration or even conglomerates more tax efficient. Greater scrutiny of anti-competitive mergers is needed, but we should also make separate companies just as tax efficient (VAT tax, etc) and otherwise closely examine how we can change economic incentives here.
> My understanding is that the vast majority of these M&A destroy capital.
I think this would be very difficult to tease out of the data. Many acquisition are de facto defensive, even if they or not anti-competitive from a legal monopoly perspective.
How could one measure the the loss of brand value if the acquired companies were allowed to mature or be acquired by a competitor?
>Our current tax laws make vertical integration or even conglomerates more tax efficient.
>...we should also make separate companies just as tax efficient (VAT tax, etc) and otherwise closely examine how we can change economic incentives here.
Big Tech got so big because digital technology is different from preceding industries in that increasing (not decreasing) returns to scale prevail. In particular, in software where marginal costs are near 0. It's a different ballgame. I think regulators have figured this out but for the most part it appears that they don't know how to act upon it.
This is a strange analysis. "Number of acquisitions" seems like a weird metric, without accounting for their significance (in purchase price, impact on the business, or any other real-world metric).
facebook buying Instagram was probably more significant than all the other acquisitions combined.
> "Number of acquisitions" seems like a weird metric, without accounting for their significance (in purchase price, impact on the business, or any other real-world metric).
This comment sounds like the nirvana fallacy striking again.
There is no perfect metric for measuring something like overall market dominance.
Thanks to a series of supreme court rulings, the traditional approach has been to look at consumer harms. But that metric alone fails to account for the way modern large conglomerates make money: not by gouging the consumer, but by dominating entire industries.
So how else can you look at it?
Acquisition are just another lens. Is it an imperfect lens? Yes, of course. I challenge you to find an analysis that isn't.
But is it still meaningful? Yes, I absolutely think so! It is undeniably the case that these tech giants have used acquisitions as a way to protect their market position. So it absolutely makes sense to analyze their behaviour from that perspective.
Furthermore, this is a news article not a whitepaper. Yes, there is an enormous amount of nuance in this kind of argument, and if you were prosecuting these guys for antitrust violations in a court of law, you'd probably do a deeper dive.
> facebook buying Instagram was probably more significant than all the other acquisitions combined.
How do you know that? There's simply no way to know how some of these companies would've fared because these anti-competitive practices have ensured that promising startups are smothered before they become a threat.
Google buying Doubleclick helped them crush the ad market for publishers.
Number of acquisitions is interesting, though, because you can also phrase it as "number of potentially viable independent companies that no longer exist". We are better off with more independent companies.
Many corporate acquisitions have the sole purpose of killing off/absorbing companies early, before they gain traction in the market and become viable competitors.
Focusing on real world metrics will give a very incomplete picture of the impact acquisitions might have had on the market.
> facebook buying Instagram was probably more significant than all the other acquisitions combined.
Deja News was probably the biggest tech acquisition by a FAANG company. The average white collar worker spends ~6 hours a day in their Gmail, and about 5 min a day using search.
It makes some sense. The more acquisitions, the higher the chance of doing well (that wording doesn't apply to price) in the metrics you mention. Especially if the perspective is extrapolating the past to the future.
The thesis of the articles seems to be: Big tech will stay dominant because they will keep buying lots of companies and they will likely continue to win with some. To stop this, blah blah law changes or something (I only skimmed the article).
Yes, I would have wanted to see the graph of acquisitions weighted by purchase price but that data is hard to find for many acquisitions. Impact on business (e.g., revenue contribution) would be even better but requires subjective judgment and estimation.
The thing that’s missed is that vertical Integratron is far more efficient for core products than relying on third parties.
Apple won out over Microsoft in consumer electronics because they were able to make decisions up and down the stack as a unit whereas Microsoft had to deal with layers of device makers and consortia.
All the talk of breakups and “big is bad” ignores the fact that vertical works better.
I don’t think it has to be this way. I think it’s entirely possible that a network of companies can outperform a monolith with the right kind of coordination.
This would be a new, evolutionary strategy, and would be good for everyone.
It won’t however, emerge if we roll the clock back to the late 90’s by force.
Software had the promise of massively decentralizing business; anyone with a computer and a bit of knowledge could start hacking away at a new product. It is a bit sad to see big tech becoming a way of even more centralization of power. I guess it had the potential for either; individuals being able to easily capitalize on it, or businesses being able to replicate infinitely and have huge margins from very little input capital. But maybe both are happening at the same time. A double edged sword, like so many other things.
This goes both way: founders create start ups with the idea that being acquired is a valid exit strategy. It's hard to quantify but perhaps not that many start ups would have been founded if they didn't see as many valid options to exit, and a founder wouldn't have created the next big thing if his previous company didn't get acquired.
He's uh, not so popular here these days, but I recently heard a quote by Peter Thiel and thought it was insightful. Not sure where it was from, exactly.
"The way to build a big company is to never get acquired."
This is lazy reporting. Where did the money come from to do the acquisitions? Google and Facebook have great monetization by data mining their audiences for advertisers. All they needs is to buy more eyeballs (youtube, whatsapp, instagram, etc).
Amazon is slightly different. They benefit from the creative destruction caused by physical retail purchases migrating to ecommerce and the subsequent value capture by Amazon. Any revenue increase from them is from behavior changes, efficiency gains, and death of inefficient retail.
Growing through acquisitions is not limited to Big Tech. Almost every big company has an endless list of acquisitions. Berkshire Hathaway is a conglomerate of acquired businesses. All big banks were results of M&A. Same with the oil companies.
The article seems to overlook that they also got big by going on insane profit-fueled hiring binges. Or at least I didn't find it skimming through that awful format.
Tens of thousands of engineers, at salaries that make other companies turn green with envy, churning out products and features and supporting infra at an unprecedented rate. Then the cycle repeats. I think that counts for something too.
There is an enormous difference in how expensive capital is at the startup level vs public company level.
Startups have to convince Angel investors $25k at a time to invest in their startup through a long and laborious sales process. Publicly traded companies just have to issue stock and the market just pays for it out of millions of people's dividend reinvesting 401k plans.
The difference also comes into play in real estate. Putting together the money to do a multi-family apartment building takes lots of talking to banks, personal guarantees, developing relationships over decades with other investors, not hitting a bad market cycle, etc. Once a property becomes worth about $50 million dollars, usually due to a growing economy in the area or the neighborhood becoming more valuable, a REIT will come in and buy it like it's nothing. That's because the REITs have all that public market money to play around with that they get for a much lower cost of capital. The REIT doesn't even have to run it that well because their cost of capital is so low that the profitability requirements for the project are much less. Same thing goes for big tech which has bought hundreds of startups and shut them down or run them poorly.
This a point that is missed by the people who still say the the big tech companies got there "by merit and by the choice of consumers". Most big tech had a single idea, and then used the money to buy others who could pose a threat. So in effect the consumer has little choice. For example, consumers didn't have a choice in selecting Google to watch video, they had to accept the fact that Google bought Youtube.
> High-Tech Employee Antitrust Litigation is a 2010 United States Department of Justice (DOJ) antitrust action and a 2013 civil class action against several Silicon Valley companies for alleged "no cold call" agreements which restrained the recruitment of high-tech employees.
> The defendants are Adobe, Apple Inc., Google, Intel, Intuit, Pixar, Lucasfilm and eBay, all high-technology companies with a principal place of business in the San Francisco–Silicon Valley area of California.
> The civil class action was filed by five plaintiffs, one of whom has died; it accused the tech companies of collusion between 2005 and 2009 to refrain from recruiting each other's employees.
Gov't is going to try and break the big ones up, and stop M&A's as anti-trust sentiment warms up. Startups will become much, much harder to benefit from. The cost of capital is going to go up and make it harder to fund-raise, and people will get much more judicious about what they invest in. If your company isn't tied to some other industry or sector of the economy and is a tech company, just consider if your business can survive on its own for the next 3 - 5 years.
Such "analyses" simply appeal to our ape brain centers that trigger envy and seek easy explanation for complex phenomena. "How did they get big?" Oh, it's just acquisitions and the law! Nothing that a savior in the House/Senate can't fix.
I am sure acquisitions played a part. But failing to admit that those companies and their leadership did many things the right way is a very one sided view of what has actually happened.
Big-time survivorship bias in this article and thread. Just yesterday we learned that Verizon is dumping Yahoo and the related media brands. Those acquisitions were a major failure.
The reason that Big Tech got so big is that they're really really good at growing their high-margin core business and have a ton of free cash flow. That's really all it is.
[+] [-] Animats|4 years ago|reply
Right after deregulation, there are new entrants. Twenty years later, there are a very few giant companies. See telecom, airlines, etc.
[+] [-] fwsgonzo|4 years ago|reply
[+] [-] rustybelt|4 years ago|reply
Good Atlantic article on the subject: https://www.theatlantic.com/business/archive/2016/04/how-ame...
[+] [-] jean_tta|4 years ago|reply
[0] https://www.hup.harvard.edu/catalog.php?isbn=9780674237544
[+] [-] AnthonyMouse|4 years ago|reply
Don't forget media companies. Everybody forgets media companies because media companies that have no qualms writing articles condemning mergers by Bank of America have a different incentive when it comes time to look in the mirror.
[+] [-] adrianb|4 years ago|reply
This has all been financed by more than a decade of low interest rates which fuelled the M&A.
[+] [-] snarf21|4 years ago|reply
[+] [-] codegeek|4 years ago|reply
[+] [-] BlueTemplar|4 years ago|reply
[+] [-] walshemj|4 years ago|reply
Look how the US lags in Chip & Pin.
Having a lot of local monopolies is worse than larger regulated ones in my opinion.
[+] [-] dools|4 years ago|reply
[+] [-] throw123123123|4 years ago|reply
[+] [-] nly|4 years ago|reply
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] coachtrotz|4 years ago|reply
Can you clarify what you mean? The National Bank Act was originally written in 1863.
[+] [-] will4274|4 years ago|reply
I can't think of a worse example of regulation. People obviously want to be able to access their money when they travel 30 minutes away. Your example undermines your point.
[+] [-] h2odragon|4 years ago|reply
The idea of building something neat is a lot more attractive than running a business that sells the neat thing to customers. The people who want to run businesses are in the lovely position (for them) of having more fresh, good ideas offered to them than they can review, much less use.
[+] [-] ryandrake|4 years ago|reply
Especially if your goal is to land a nice FAANG job anyway. It's gotten to the point where interviewing is so competitive, exhausting, opaque, and ultimately random, that it might actually be easier to do a bootstrapped start-up for a year and get bought by Facebook than it is to grind leetcode and interview-prep for a year and roll the dice on the interview circuit. I wish I were joking.
EDIT: Wow, no disrespect to founders, I did not intend to trivialize the work you do. Instead of "easier" I should have said something like "more controllable" or "less random".
[+] [-] rconti|4 years ago|reply
Thus, it entirely makes sense for a founder want to build great tech and a great product, but NOT want to be in the business of complying with a dizzying array of local and international regulations, in a world where they effectively have to expand globally to "win".
Big companies aren't typically nimble enough to respond to the whims of consumer tastes or catch the latest fads.
So, it's a great symbiotic relationship between "big tech" and startups.
Acquisition, cash out, bolt on regulatory and legal framework, wash, rinse, repeat.
[+] [-] spamalot159|4 years ago|reply
[+] [-] dalbasal|4 years ago|reply
People make choices. Nothing is deterministic. That said, the number of companies founded, run or exited with a buyout win condition mentality is governed by price economics. FB, Google, etc offered a very high price for Android, Instagram, etc. because those M&As were worth a lot to them. Given this, a lot of M&As are going to happen.
The interesting question, to me, is "why is the price so high?" It's silly to get all huffy about M&As and ignore the consequences of M&As.
[+] [-] whimsicalism|4 years ago|reply
[+] [-] formercoder|4 years ago|reply
[+] [-] sumedh|4 years ago|reply
Doesnt Amazon bully small players to accept their offer or risk going bankrupt? I think that is what they did to diapers.com
[+] [-] gregwebs|4 years ago|reply
It would be a lot more insightful to discuss the aquisitions that have a known positive impact. The truth is probably that each company had just a few very important acquisitions (that should be more closely scrutinized).
Our current tax laws make vertical integration or even conglomerates more tax efficient. Greater scrutiny of anti-competitive mergers is needed, but we should also make separate companies just as tax efficient (VAT tax, etc) and otherwise closely examine how we can change economic incentives here.
[+] [-] s1artibartfast|4 years ago|reply
I think this would be very difficult to tease out of the data. Many acquisition are de facto defensive, even if they or not anti-competitive from a legal monopoly perspective.
How could one measure the the loss of brand value if the acquired companies were allowed to mature or be acquired by a competitor?
[+] [-] iicc|4 years ago|reply
related:
"Biggest companies pay the least tax, leaving society more vulnerable to pandemic – new research (2020)" -- https://theconversation.com/biggest-companies-pay-the-least-... -- (https://news.ycombinator.com/item?id=22786371)
[+] [-] patfla|4 years ago|reply
https://en.wikipedia.org/wiki/Returns_to_scale
[+] [-] dkyc|4 years ago|reply
facebook buying Instagram was probably more significant than all the other acquisitions combined.
[+] [-] CarelessExpert|4 years ago|reply
This comment sounds like the nirvana fallacy striking again.
There is no perfect metric for measuring something like overall market dominance.
Thanks to a series of supreme court rulings, the traditional approach has been to look at consumer harms. But that metric alone fails to account for the way modern large conglomerates make money: not by gouging the consumer, but by dominating entire industries.
So how else can you look at it?
Acquisition are just another lens. Is it an imperfect lens? Yes, of course. I challenge you to find an analysis that isn't.
But is it still meaningful? Yes, I absolutely think so! It is undeniably the case that these tech giants have used acquisitions as a way to protect their market position. So it absolutely makes sense to analyze their behaviour from that perspective.
Furthermore, this is a news article not a whitepaper. Yes, there is an enormous amount of nuance in this kind of argument, and if you were prosecuting these guys for antitrust violations in a court of law, you'd probably do a deeper dive.
> facebook buying Instagram was probably more significant than all the other acquisitions combined.
How do you know that? There's simply no way to know how some of these companies would've fared because these anti-competitive practices have ensured that promising startups are smothered before they become a threat.
[+] [-] mrkurt|4 years ago|reply
Number of acquisitions is interesting, though, because you can also phrase it as "number of potentially viable independent companies that no longer exist". We are better off with more independent companies.
[+] [-] the_duke|4 years ago|reply
Focusing on real world metrics will give a very incomplete picture of the impact acquisitions might have had on the market.
[+] [-] Alex3917|4 years ago|reply
Deja News was probably the biggest tech acquisition by a FAANG company. The average white collar worker spends ~6 hours a day in their Gmail, and about 5 min a day using search.
[+] [-] ahartmetz|4 years ago|reply
The thesis of the articles seems to be: Big tech will stay dominant because they will keep buying lots of companies and they will likely continue to win with some. To stop this, blah blah law changes or something (I only skimmed the article).
[+] [-] divbzero|4 years ago|reply
[+] [-] zepto|4 years ago|reply
Apple won out over Microsoft in consumer electronics because they were able to make decisions up and down the stack as a unit whereas Microsoft had to deal with layers of device makers and consortia.
All the talk of breakups and “big is bad” ignores the fact that vertical works better.
I don’t think it has to be this way. I think it’s entirely possible that a network of companies can outperform a monolith with the right kind of coordination.
This would be a new, evolutionary strategy, and would be good for everyone.
It won’t however, emerge if we roll the clock back to the late 90’s by force.
[+] [-] brobdingnagians|4 years ago|reply
[+] [-] baby|4 years ago|reply
[+] [-] ceilingcorner|4 years ago|reply
"The way to build a big company is to never get acquired."
[+] [-] jyu|4 years ago|reply
Amazon is slightly different. They benefit from the creative destruction caused by physical retail purchases migrating to ecommerce and the subsequent value capture by Amazon. Any revenue increase from them is from behavior changes, efficiency gains, and death of inefficient retail.
[+] [-] avrionov|4 years ago|reply
[+] [-] notacoward|4 years ago|reply
Tens of thousands of engineers, at salaries that make other companies turn green with envy, churning out products and features and supporting infra at an unprecedented rate. Then the cycle repeats. I think that counts for something too.
[+] [-] neonate|4 years ago|reply
[+] [-] richardwhiuk|4 years ago|reply
[+] [-] narrator|4 years ago|reply
Startups have to convince Angel investors $25k at a time to invest in their startup through a long and laborious sales process. Publicly traded companies just have to issue stock and the market just pays for it out of millions of people's dividend reinvesting 401k plans.
The difference also comes into play in real estate. Putting together the money to do a multi-family apartment building takes lots of talking to banks, personal guarantees, developing relationships over decades with other investors, not hitting a bad market cycle, etc. Once a property becomes worth about $50 million dollars, usually due to a growing economy in the area or the neighborhood becoming more valuable, a REIT will come in and buy it like it's nothing. That's because the REITs have all that public market money to play around with that they get for a much lower cost of capital. The REIT doesn't even have to run it that well because their cost of capital is so low that the profitability requirements for the project are much less. Same thing goes for big tech which has bought hundreds of startups and shut them down or run them poorly.
[+] [-] coliveira|4 years ago|reply
[+] [-] TeeMassive|4 years ago|reply
> High-Tech Employee Antitrust Litigation is a 2010 United States Department of Justice (DOJ) antitrust action and a 2013 civil class action against several Silicon Valley companies for alleged "no cold call" agreements which restrained the recruitment of high-tech employees.
> The defendants are Adobe, Apple Inc., Google, Intel, Intuit, Pixar, Lucasfilm and eBay, all high-technology companies with a principal place of business in the San Francisco–Silicon Valley area of California.
> The civil class action was filed by five plaintiffs, one of whom has died; it accused the tech companies of collusion between 2005 and 2009 to refrain from recruiting each other's employees.
[+] [-] solutron|4 years ago|reply
[+] [-] raspasov|4 years ago|reply
I am sure acquisitions played a part. But failing to admit that those companies and their leadership did many things the right way is a very one sided view of what has actually happened.
[+] [-] peder|4 years ago|reply
The reason that Big Tech got so big is that they're really really good at growing their high-margin core business and have a ton of free cash flow. That's really all it is.