Monday, March 31, 2014

The Minnows Feed the Sharks

Most everybody likes a good story because, amongst other things, it helps put information into a context easily understood.  Let me begin this post with just such a story.

"Way back" when I was in college I had four friends who shared an apartment in Moscow, Idaho.  Because the place was large enough to house four guys, there was also room for other accessories.  In this case, the accessory (not counting the huge TV and stereo) was a very large aquarium.  I'm no judge of volume when it comes to fish tanks, but I think this one must have held at least 50 gallons.  When it was time to put actual animals into the aquarium the four gentlemen selected an interesting mix of creatures.  If I remember correctly, here is what was in it:
  • 2 small crabs
  • 1 clownfish
  • 7 ornamental fish (the cheap kind)
  • 4 guppies
  • 3 piranha
Just looking at the list, you can start to form an idea of what happened in that aquarium.  Over the space of about three months there was a steady attrition of fish.  Some of them were found floating belly up but others just...disappeared.  The interesting thing during this time was that, as the fish disappeared, the piranha seemed to be getting bigger.  Fast.

Over the Thanksgiving holiday of that year occurred the first culling.  When everyone returned after about a week, both crabs were gone with only one dismembered claw remaining as a clue.  There were also four more missing fish.  Skipping forward to the Christmas break, the aquarium was down to just two ornamental fish, three guppies (two were newly added), and three large-ish piranha.  The biggest piranha was named "Huey", the second largest "Dewey", and the smallest "Louis" (pronounced Lew-ee).  After we all returned, only Huey remained along with a few chunks here and there what I think was the remains of Dewey and Louis. 

One could say that all the smaller animals and fish were predestined to end up in Huey's stomach.  Which brings us to an interesting perspective on how the world of technology functions today.

As we get started, ask yourself this question.  If you look at any of the "Tech Giants" today (and I'll list a number of them), how many of them are doing much if any innovation?  While hardly scientific, I have personally observed over the years that the larger a tech company grows, the less innovative they become through organic methods.  In other words, as they mature these companies seem to switch their efforts to managing their existing portfolio, not pushing creativity.  Back around Y2k I remember a lot of jokes about Microsoft being like the Borg from Star Trek.  If they saw a company doing anything cool and gaining market share, they would "assimilate" that company.  In the off-chance that you don't know anything about a Borg assimilation, it might be worth it to fire up Netflix/AppleTV/AmazonInstant and watch an episode or two.  I guarantee you'll get the joke.  In fact, I wish I could see into Skype HQ right now to watch all of the newly created drones walking around since Microsoft assim...uh...bought them recently.

Today I see the small startups as the lifeblood of our future technological products and advancement.  They are the minnows that are feeding the sharks in our corporate ecosphere.  And you know something?  I don't think this is a problem at all.  I see it as a symbiotic relationship that benefits all sides.

If you are a minnow (innovator), there is little to encumber you from taking a great idea and getting it "birthed" into the world.  However, as the small innovator you do not have the ability to commercialize your wonder product into something that can benefit the masses.  If you are a shark, it's likely that you have grown too big in size, structure, and bureacracy to have much luck envisioning or innovating in a timeframe fast enough to be relevant.  However, you likely have bucketloads of cash that you can use to separate an individual or small company from their technological marvel.  Everyone ends up benefitting.  After Yahoo! gave young David Karp $1.1 billion for Tumblr, I can guarantee that tens of thousands of young coders and inventors disappeared into their garages to work on the next big thing.

It is a testament to free-(er) market system in the United States that this pipeline transfer of ideas and technologies from smaller to larger entities has developed.  I know the same happens in other parts of the world as well to a lesser extent and is the lifeblood of the future tech industry.

As a finale, let's take a list at a number of larger tech companies and see just how they are fueling their growth in the minnow-to-shark method.

Facebook -- 46 acquisitions in less than nine years including Instagram, WhatsApp, and just recently Oculus (virtual reality!)

Yahoo -- In the two years that Marissa Meyer has been CEO, Yahoo has made over 40 acquisitions including Tumblr and and InterClick.

VMWare -- They have been building their entire mobility strategy around acquired technologies including Nicira and AirWatch.

Cisco -- Over 25 acquisitions since 2010 including Tandberg, Meraki, and Sourcefire.

Citrix -- Almost 15 acquisitions since 2010 including Zenprise,, and Bytemobile.  Citrix is building in large part its entire mobile device management (MDM) strategy around the Zenprise technology.

Google -- This giant shark, or megalodan, has made about 150 acquisitions since 2001.  One of their biggest acquisitions was actually another shark named "Motorola Mobility".  Ever heard of them?  Imagine being able to pay $12.5 billion for another company just so you can have its patents while you throw away all the other components.  And oh, don't forget about Waze, Meebo, and Bump.

Apple -- The Fruit company has been more frugal with its money, which is probably why they have a pirate's hoard of booty, somewhere north of the $100 billion mark.  Still, they have made about 20 acquisitions since the death of Steve Jobs.

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