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The Destruction of Value

Business and technology news is awash with the latest rounds of M&A.

Amidst the noise, Fred Wilson adds some perspective:

The Internet is decomposing into a vast array of micro-services that we, the end user, stitches together to make our own unique web experience.

And yet, these large behemoths are trying to do their normal consolidation play on the Internet. First of all, it’s not going to work. They are destroying value with all of their M&A efforts and the bigger they get, the more value they will destroy, for them and their shareholders.


Here’s the problem. The company/web service creation process needs some kind of end game. The entrepreneurs who spend years and risking a ton need a way to get paid for that effort.

… if you can’t take a company public, how do you get out? M&A has been the primary answer in the web/tech sector for the past eight years. And it’s been a great period to sell companies.

But if you look deeper, I wonder. Delicious grew nicely for a while under Yahoo!’s ownership but recently the user base has fallen off pretty dramatically. I double checked this chart in compete and alexa and they all show the dropoff.

But who am I to complain? We got paid right? So sit down and shut up.

Except I am also a user of these services. I see what happens when a company gets purchased. The service languishes. The team leaves. It stops getting better. And often gets worse.

Fred sees this from both sides, as a VC looking for liquidity and as a consumer of web services looking for quality.

The problem with consolidation is in how large companies typically innovate. To get a new idea through requires either skunkworks, acquisition or sixteen layers of approval to risk people’s time. It becomes a problem of permission.

On the flip side, for a start-up you have two options: innovate or die.

Large companies are trying. Google’s 1 day a week program gives explicit permission for people to tinker. Microsoft invests big dollars in R&D and the start-up community. Unfortunately, it isn’t enough.

Fred is quite right. There needs to be a better path to liquidity. Or stated differently, start-ups need a way to become companies, not food for dinosaurs.