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Tech M&A: Stifling or Innovative? Can Startups Escape the Kill Zone?
There were abundant tech mergers and acquisitions throughout 2019.
Some of the notable acquisitions include:
Paypal buys Honey for $4 billion.
Google buying Fitbit for $2.1 billion.
Facebook acquires CTRL-Labs for $1 billion.
Workday buys Scout for $540 million.
That’s a lot of money changing hands, but are acquisitions like these good for technology and/or for consumers?
Often the purchasing company in an M&A deal is acquiring software or a platform as complementary technology that can allow the company to leapfrog into new areas or to add value to an existing product.
But another common ulterior motive for an M&A deal is to acquire a company to remove it from being a current or potentially future competitor, effectively killing it. Top tech companies survey the landscape of potential startups and try to copy the best of the ideas or buy out the businesses to choke off any competition. These M&As are called “Kill Zone Deals.”
Richard Schmalensee, MIT Sloan professor emeritus, said that “a lot of people have argued for being tougher on acquisitions. It’s not an extension of U.S. antitrust law or policy for that matter, to say ‘You really ought to be a little more skeptical of mergers, even with small companies, when they might grow into big competitors or have technology that can be used to make it difficult for others to compete.’”
Mike Driscoll, partner at Data Collective, said that “Venture capitalists attend [annual big tech conferences] to see which of their companies
are going to get killed next. [from technologies have been copied and introduced as new features by big tech]”
Albert Wenger, partner at Union Square Ventures, said that “The Kill Zone is a real thing. The scale of these companies [digital platforms] and their impact on what can be funded, and what can succeed, is massive.”
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