If we have to envision the key “game changers” within the technology business we find two main agents:
- Startups as the natural way to give birth to innovation. Small teams shaping ideas with high potential to change a market. Through investment, startups achieve to run successful models that, being simple enough, grow and spread globally at unbeatable speed.
- Internet Tech Giants, which started not so far away as startups and have grown significantly to become super big corporations. Also, these are constantly entering new markets not as a new player but as a game changer.
In this post you’re going to find the magic combination of both. That is, how main Internet Tech Giants are able to manage disruptive growth in several markets by working along with startups.
We are considering in this perspective Google, Apple, Facebook, Amazon and Alibaba. The big five that have been named as “GAFAA” and specifically their activity in relation with startups. The analysis of startups financed and acquired exposes completely their growth strategies.
Startup operation distribution
In the following graph you’ll find the total number of operations run by GAFAAs in relation with startups.
An analysis of 845 investment and acquisition operations, from 2010 to 2016 has been analyzed in order to expose the strategies of these 5 tech giants.
On the one hand, acquisitions, when the company integrates the startup in their global activity or in one of its subsidiary areas. Like Google did with Bandpage, a distributed marketplace for musicians to engage and sell to fans across the largest music services in the world, to enrich YouTube.
On the other hand, investments play a very important role too. Sometimes with the target of being a future acquisition and sometimes as part of their Venture Capital activity. In some cases, even two Internet Tech Giants invest in the same startup, as we will see later in this post.
In the following graph you’ll find the total number of operations run by GAFAAs in relation with startups. We can here observe the balance ratio (acquisitions VS investments) as well as the time evolution of the operations.
Click graph to make it larger:
A collection of interesting facts and conclusions can be made from the graph. First of all, Google has a great advantage over the other Tech Giants mentioned. Its portfolio is larger than the total sum of the others’. 71.4% of the total operations (investments plus acquisitions) between 2005 and 2016 were controlled by Google. The proportion of operations performed by Alibaba (79), Facebook (56), Amazon (56) and Apple (51) is similar, being Alibaba the strongest of all.
From another point of view, the analysis of the investment-acquisition ratio splits the GAFAAs into three groups. The first group made by Google (151/444) and Alibaba (9/70) had less startup acquisitions than startup investments. Secondly, Facebook (53/3) and Apple (50/1) seem to be more inclined to acquiring startups rather than investing in them. Finally, Amazon has a more balanced approach with 32 acquisitions versus 24 investments.
What is interesting about startup investment/acquisition ratio?
A few reasons why these companies continue strengthening their position over the years:
- They have a real capacity to manage big data (because it’s part of their DNA): Enterprises have been managing huge amounts of data for years. However, not many of them know how to make good use of it. When Google entered the Insurance world, they have had enough information regarding the field to be potentially successful.
- They understand the power of the user over a client: while many companies focus their strategies on clients, GAFAAs are mastering the art of building communities, and this lets them have an immense advantage. Why? Because community users become clients, and not the other way around.
- They are recruiting the best talent: many startup acquisitions coupled with exclusive recruiting strategies help them create cutting edge teams. These companies attract the world’s best talent because of a dynamic internal culture & an innovative collaborative environment.
- Their business model makes it comparatively easier to integrate disruptive technologies: they are integrating new technologies in their daily routine. For example, Amazon’s vast fulfillment warehouses in the US. Thousands of robots in their locations gather merchandise for individual orders.
- They are creating stuff in fields where there aren’t government policies yet: One symptom of being innovative is entering a market where there are no regulations yet. For example, the debate about Google’s Self-Driving cars has gone beyond the U.S. and in fields highly regulated, they are creating their own lobbies like FIN.
- They know how to have control over their competition: they are game changers who are entering new markets in a very disruptive way. Traditional players are in most cases behind them, giving GAFAAs a great advantage.
- They continuously search for strategic new markets: They have a big capacity to enter new markets because they are constantly exploring new opportunities and have not only used data, but they have done an exhaustive analysis of it.
Which startups are being invested by GAFAAs?
Each year until now, Bill Maris, CEO at Google Ventures, has $400 million to invest in startups. So far, Google Ventures, of which he is managing partner, has poured $2 billion into more than 300 of them, including the likes of Uber, the car hailing service; Slack, the office messaging system; Medium, the blogging platform; and a host of life-sciences and health companies.
You may think that the hottest startups would have been invested concurrently by multiple tech giants. Well, not really. Just a small proportion of the operations (2.5%) have taken place within “common startups”. Have a look at them and their main activity:
- Jet: The smartest way to shop and save on pretty much anything. Combining a revolutionary pricing engine, a world-class technology and fulfillment platform it creates a new kind of e-commerce experience
- Magic Leap: A head-mounted virtual retinal display which superimposes 3D computer-generated imagery over real world objects, by projecting a digital light field into the user’s eye. It is attempting to construct a light-field chip using silicon photonics.
- Concept.io: Acquired by Apple on July 28, 2014. Concept.io develops the application Swell Radio, which provides personalized audio, news and information based on users’ interests.
- Parse: Parse is a cloud app platform that enables users to add a scalable and powerful backend to launch a full-featured app.
- Hello Heart: Hello Heart is a new category of community health program and consumer experience targeting heart risk using mobile therapeutics. It combines the latest in behavioral and clinical science with a highly contextual mobile experience.
- Kabam: Kabam is the leader in the western world for free-to-play core games with first and third party published titles available on mobile devices via the Apple Store, Google Play, Amazon Appstore, and on the Web via Facebook, Yahoo, Kabam.com and other platforms.
- Songza: Acquired by Google on July 1, 2014. Songza predicts what you’re doing or feeling and then serves an expertly-curated playlist designed to make it better.
Operation Evolution 2010-2016
In the following graphs it can be identified the operation evolution during the last 6 years. It should be noticed that 2016 has been considered too, but just the initial 3 months.
Interesting data regarding the operation evolution includes the following:
- Google investments have increased until 2014 but a slightly recession can be perceived in the last two years. Regarding the number of acquisitions completed is settled between 20 and 40 each year.
- Alibaba shows a sustained acquisition activity with 5 operations per year. Nevertheless, the investment activity started to widely expand in 2012 to date.
- In the case of Facebook, the acquisition operations have been decreasing since 2012 while investments grew moderately during that time.
- Amazon shows a standard operations set and evolution, with around 5 to 7 operations per year with barely any oscillations.
- Apple’s strategy is almost dedicated to acquisitions, with a slight raise in the last two years.
Along with every graphic, find the evolution within their latest operations. The complete list is available download it at the end of the post.
*Note: Google’s graph has a different scale than the others.
Compare the investment versus acquisition ratio and its evolution from 2010 to 2016 in the following graph:
Find below a collection of insights gathered along the article.
- Startups are a key piece within the innovation and disruptive growth strategy for big corporations. So big corporations should have a framework to make that possible and valuable.
- Among the GAFAAs, Google leads an aggressive strategy clearly ahead of the others.
- Each GAFAA maintains its own model sustainable with an apparently planned strategy, not opportunistic or random.
- The impact or benefit of a startup investment or acquisition goes beyond market focus, it expands into also achieving objectives in areas such as data management, talent acquisition or competence control among others.
- GAFAAs are investing in diverse fields that have any capacity to be disruptive or game changing in the future. Until now, each of the GAFAAs opportunity identification has not been limited to just their core businesses but rather adding value to multiple industries.
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