There are many factors that determine the popularity of the product on the market. On the ground are different people with different ideologies, personalities, way of life. These people create products in the same way-focusing on their preferences and focusing on their own interests. Therefore, all specialists will always have a different vision of the ideal product, as well as ways to create it.
Some rely on the design, others develop the technical features of the product and widely use cloud technologies. By the way, these technologies allow programmers to use the resources of powerful computers combined into one even more powerful machine. Cloud technologies solve many technical problems. In addition, with their help, the user can effectively work with programs that require high performance, and huge databases. These technologies have recently been actively used by companies and government agencies. The other team will prefer client-server technology. It allows you to perform most programming functions on a single machine.
Someone will prefer to do everything cheap and angry. And someone who does not have a lot of technical knowledge will win the market with a primitive product with the help of ingenious marketing moves.
Predicting who will win in this fierce fight is pointless. Because even large corporations that allocate huge amounts of money to create modern technologies cannot guarantee the success of their products.
In fact, large companies such as Yahoo, Google, or Microsoft assemble a separate team of specialists to create a new product. They choose a specific strategy. And this team is competing with another 20 startups that are developing exactly the same or very similar technology at the same time. Often, startups begin to sound wistful notes, saying that it is not profitable to take up technology that is already engaged in competitors-giants. This is an erroneous judgment. Just the fact that the Corporation is working on the same product means that it needs it and will eventually choose the best one. It remains only to deal with them closely and all around.
Buy the best
Large corporations can afford to simply wait for the right product to appear on the market, without spending resources on its development. Moreover, by purchasing an entire company that created the desired technology, the Corporation saves a lot and gets the best that is on the market.
If the technology is very important, the Corporation will develop it independently. But at the same time, it must keep its finger on the pulse and monitor what is happening in the market in this area. Of course, if another company presents a better product, then there is nothing to be done. But if it’s a startup, you can just buy it.
For example, MSN Messenger, which was created by Microsoft and became quite popular, eventually lost the competition to Skype technologies. And Microsoft bought them together with the company itself for $8.5 billion, and closed its project. This story allows us to trace the logic of modern business development.
Let’s start with the fact that Skype is a unique program, a “pioneer” in its field. It was the first to give users the ability to make phone calls as simple as possible, and most importantly, safely. By the way, because the modern encoding mechanism of the program allows you to transfer data without a Central server, some countries are trying to prohibit Skype.
One of the founders of Skype — Niklas Zennstrom at that time already created a file-sharing program Kazaa, the principle of which could be compared to a network for sharing music content. In fact, this software often became a cause for gossip. However, it brought a lot of useful knowledge and experience to Zennstrom. Creating Kazaa, he was able to solve many technical problems, so that his next creation was already close to perfection.
Let’s start with the fact that conversation data is transmitted directly between users (the so — called peer-to-peer network, or P2P). This means that to keep the negotiations or correspondence of the third parties can’t. The Skype team decided to take advantage of this. The fact is that back in 2003, when the first release of this program took place, data warehouses cost a lot of money, and only large companies could afford them.
Skype technology created a sensation. First, the P2P solution saved a lot of money. Secondly, the simplicity of the method and at the same time its uniqueness was quickly appreciated by ordinary users. It gave people the opportunity not only to make calls for free, but also to send text messages from anywhere in the world.
However, after Skype was acquired by Microsoft, the situation changed a little. The software giant was criticized for passing encryption keys to government agencies, in other words-the company agreed to “wiretap” Skype users (of course, after obtaining permission in court).
However, Skype remains the safest way to communicate today. That’s why 40 million users use it at once during rush hour. Thus, Microsoft, having acquired this technology, became a serious competitor for Google and Apple, which also cherished a dream in the near future to take the place of a leader in providing Internet telephony services.
Skype, among other things, is an example of how the product of an unknown, small company won the recognition of millions of users in the blink of an eye. They very quickly appreciated the novelty and convenience and began to share links to it with friends.
With the acquisition of Skype, Microsoft not only got all the rights to its product. She bought a company that is used by the whole world, got a professional team that serves Skype. When counting all the advantages, $8.5 billion is not such a large sum for such an acquisition. To create such a service from scratch, you need years, money, and people…. And at the exit — the unknown. No one knows for sure whether the project will “shoot”.
Skype has once again proved that it is much easier for a start-up company to win the minds and hearts of users. Therefore, before a large Corporation decides to create something new, its specialists carefully study the market and get acquainted with startups in this area.
The story about Skype will be incomplete if I do not mention that long before the deal with Microsoft, this company was already becoming the object of a takeover. For more than $3 billion, it was acquired by eBay in 2005. But unlike Microsoft, the eBay team has not found a place for Skype technologies in its business. And after a while, eBay founder Pierre Omidyar asked a rhetorical question: “How many free calls do I need to make to justify buying Skype?»
But if the Corporation is clearly aware of its needs, it will develop the technology acquired with the startup, regardless of the current losses on the project. This is just a story about Google and the YouTube it bought. Back in late 2006, Google was trying to develop its own video hosting service on its own. But the project failed, the audience did not accept it. Unlike YouTube, which was associated with interesting videos and products of modern mass culture. By purchasing YouTube, the Google team in some way got all the users of the video hosting service. So, the Corporation saved not only its money, but also time.
The service is associated with the company
Many companies created social networks: MySpace, Orkut, Hi5, Microsoft, Google, and even Apple managed to present their creations. But the most popular project in the world with a huge gap from competitors remains Facebook. No one was able to beat it, although they tried to buy it, in particular Microsoft.
Social networks appeared before Facebook, but after its launch, the development of such services almost lost its meaning — it’s like reinventing Santa Claus. Although… If you replace it with Santa Claus, you can achieve some success in the local market — the audience of Vkontakte, created by Pavel Durov, is higher in Russia than the brainchild of Mark Zuckerberg.
In General, the situation with Facebook turned out to be very interesting. Before him, the phrase “social network” was perceived by ordinary people as a scientific term rather than a platform for communicating with friends. But today, the mere mention of a “social network” is associated with the name of a particular site and mobile app by many people in the world.
Mark Zuckerberg’s creation has become a symbol of simple, convenient, interesting communication with friends. It should be a long time before, say, Google+ means the same thing to people. It is not a fact that this day will ever come. Now we know about the existence of Google+. But why “move” there if everything is familiar and simple in Facebook, if there are already dozens, and someone has thousands of friends and acquaintances?
Sometimes, no matter how hard you try, users simply refuse to accept the service.
Everyone knows what Twitter is and what “tweeting”is. Users tend to identify the service with the name. For some, it has become so important that they can’t imagine their lives without it.
Twitter is used by celebrities, presidents, politicians, businessmen, TV channels — everyone who wants to quickly communicate themselves to the world. Again, it has become a part of our daily life. I also use this unique invention. Like most entrepreneurs, I have my own account where I occasionally share news about our company GetJar.
By the way, despite the scope and loyalty of the audience, this Internet service is not one of the financially successful ones.
They buy it so that competitors don’t get it
In addition to the listed reasons for buying up companies, there are other reasons. Sometimes a deal is made to ensure that startups do not interfere with the development of large enterprises with their activity. Or that they do not get competitors.
For example, Oracle, a Corporation that specializes in the production of database management systems, recently acquired its competitor MySQL. Prior to this Swedish company, Oracle was the market leader and provided its services to large corporations and government agencies. Its database management systems were the most reliable and fastest. Naturally, this pleasure cost a lot of money. With the introduction of MySQL, the situation has not changed for the better for Oracle. It turned out that databases can be used over the Internet absolutely free of charge. For a long time, competitors were fighting. After all, why create an expensive database if you can implement a similar solution without paying a cent? The Swedish company’s policy was very damaging to Oracle’s business.
At some point, the Corporation had to use a new tactic and just buy MySQL. After this transaction, the acquired company was not closed, because such a move would have greatly angered numerous users. Just after the purchase, Oracle had the opportunity to control the activities of a former competitor. And that now, along with free services, paid ones are provided.
Not so long ago, experts were very surprised by another strange purchase. Instagram Facebook acquired the app for $ 1 billion in 2012. For such a small project, this was a huge amount. However, really, everything brilliant is simple. The application is very quickly won the sympathy of users. After all, using Instagram, people can not only share photos, but also quickly create a variety of effects, for example, add brightness or age a photo by 30 years. At the same time, improving photos takes little time and is a lot of fun.
But the photo-sharing feature was Facebook’s Forte from the very beginning. Of course, it is difficult to say what the social network was guided by when it bought a fashion app. However, most experts believe that this purchase was made only to prevent Instagram from getting a competitor-Twitter. Just imagine how much and not for the better the image of Facebook would have changed if this popular app around the world had acquired an equally popular microblogging service.
Of course, Facebook is not only loved for the fact that it can be used to easily share photos. Rather, it is perceived as a convenient platform for exciting and simple communication with friends. However, if users were able to share photos on another site, they would spend most of their free time there. This could seriously hurt the reputation of Facebook. Naturally, the company worth $100 billion tried to protect itself and just bought Instragram.
Facebook had to win the trust of investors by showing its strategy and prospects. If Instragram’s owners accepted an offer from another company, allowing It to provide better photo-sharing services, Facebook would lose that trust. So $1 billion was worth it and has already paid off.
Another well — known mobile advertising company, AdMob, was acquired by Google for $750 million. In fact, this is a very decent amount for a company that does not even have a profit, but revenue of $50 million a year. And this deal was not based on financial gain. At that time, AdMob had other advantages in the market. The company successfully provided its services on the iPhone platform, and for Apple, which did not have such a developed advertising network, it was profitable to cooperate with it.
Everyone knows that Apple has a reputation as a closed company that likes to do everything, down to the smallest details, on its own. Therefore, everyone believed that it would acquire AdMob. This didn’t happen. AdMob investors from Accel skillfully used the intrigues that companies often weave around themselves. Apple offered $600 million for AdMob, but was in no hurry to sign the contract. Then Google offered a higher price. Although this Corporation already had a similar service — Adwords. Thus, by paying $750 million, Google once again showed everyone who is the owner of online advertising.
It’s easier to buy a team than to create a new one
In the offices of large corporations, you can often hear a sarcastic joke: they say that with the help of a small startup, you can very quickly implement the most daring ideas.
In fact, the easiest, cheapest, and most effective way to assemble a team of specialists and launch a new product is to buy a small business.
Maybe you remember how Google introduced the new Google service.Maps? Before its introduction, Google was a search engine that had no surveyors or other specialists who could work with maps.
In General, when a company decides to develop a new field of activity, it always faces a lot of questions. One of the most important is the new team. Forming it is not an easy task and takes a lot of time. No matter how much free money the company has, it is impossible to solve it in a day. Highly qualified specialists rarely look for work. And if you are starting a new project, you may need 50 or even 100 employees. Their search will take six months or longer, even if you are a giant company like Google or Microsoft.
Creating a team is not easy, not only because you need a certain level of knowledge and skills, but also because you never know if all these people will be able to work together. Mutual understanding in the team is an important aspect for the success of the entire enterprise.
It happens that a new place of work or a new product is not to the liking of a new employee, and he leaves the company before he has worked for two months. Therefore, in such cases, large companies begin to search for small companies engaged in similar activities. First of all, they pay attention to startups that already have certain achievements and a well-coordinated team.
At the same time, it does not matter what market position the company occupies, for what audience it creates its products, what revenue and profit the startup has got in the field of view. The main thing here is the effectiveness of the team.
For example, mark Zuckerberg values his employees very highly. Each member of the Facebook team is worth $1 million, which means that each specialist already has high qualifications, experience and has created many good products. Investment in the team, by the way, is a widespread practice. To create a good team of, say, 20 specialists, you need to spend about $20 million.
For example, one of our clients, the Israeli startup Snaptu, created a graphical environment for weak mobile phones. This technology was developed specifically to use Facebook and other social networks on old-generation phones.
Despite the fact that Facebook is the market leader, the mobile version of this social network was one of the company’s weakest points. Oddly enough, the rapid development of the company was one of the reasons for the lag in this direction. The growing company was constantly faced with a lot of problems and tasks that had to be solved immediately. And it is very difficult to create the best team for each problem area.
So Facebook did the next best thing. Having studied the market well, she decided to buy Snaptu. Having paid about $ 70 million for the startup, the social network’s management hoped to benefit not from the company itself, but from the team that started developing Facebook technologies at the same time.
Business benefits-in the future
As I have said many times, in this business, it is impossible to know in advance whether the technology being created will take root or will sink into Oblivion. When a new concept appears on the market, such as “social network”, everyone begins to wonder what the future holds. In fact, we have to guess a lot, because there is no reliable way to find out the fate of a new service. Unless it makes sense to pay more attention to new startup products.
For example, Larry page and Sergey Brin, creating a completely new search engine, believed that in the future they would search for the necessary information by entering keywords. However, it was not possible to sell this service immediately. Yahoo refused page and Brin’s product. For some reason, they thought that this search engine would not be used. Yahoo believed that first of all, all information should be decomposed structurally and show users all possible search categories, such as” art”,” cars”,”entertainment”. The Corporation was sure that the person does not know what he is looking for, and he certainly needs to put everything on the shelves and offer various options. And today we see what all these rants have resulted in. Google has become much more powerful than Yahoo.
And this is not an exceptional case. It is not uncommon to see large corporations miss out on unique opportunities and do not believe that a giant company can grow out of a small enterprise.
Yet with each new technology, corporate experts sit down and start thinking about whether it’s worth their attention.
They need to find out whether this technology is ordinary or something breakthrough. If experts see that the product has a future, the Corporation tries to buy the company that owns the product.
All this is like a lottery-you still don’t know until the last moment whether you will win or lose. After buying a startup, there is a waiting time.
Above, we discussed other strategies, the principle of which is to try to integrate the team of the new company after the transaction is concluded. Here, the idea is different. Specialists closely monitor the market and product promotion of the acquired company. The success of the new technologies that the purchased startup develops is a signal for the Corporation to start investing in it.
Google has the most aggressive policy in this regard (of the companies I have encountered). This Corporation buys up small companies, even when it doesn’t see any real benefits for itself. As I said, YouTube is still unprofitable and is waiting for its “star” hour. For many, this service is associated with a particular video culture. But the day is not far off when Internet TV will replace traditional TV. Technologies have already been created for this purpose. Therefore, most likely, Google will throw all its efforts to ensure that YouTube wins this audience.
Ilya Laurs. Chapter from the book ” Startup: a model for building»
Publishing House “Alpina Publisher»