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ICD What's New

Tech giant 'kill zone' making life difficult for new startups
Kind: ICD What's New  Organization: Department of International Cooperation  Publish Date: 2019-11-12 11:23
According to a report by The Economist titled "The future of tech startups: Into the danger zone," established tech giants, such as Google, Facebook, Apple, Amazon and Microsoft, are making life difficult for startups. Analysts now talk of a "kill zone" around the giants in which startups can find it hard to survive once they enter.

The tech giants try to stamp out these startups by copying their business models or acquiring them outright in order to eliminate the threat to their supremacy. They also make life difficult for such startups by recruiting the top talent by offering enormous salaries and benefits which the newly formed firms cannot hope to compete with.

Amazon has employed the copying tactic by allowing startups to use its cloud service and then labelling them "partners" only to copy their functionality and offer them as a cheap service, or by launching a competitor with the same services. An example of the latter is data-management firm Elastic, whose sales crashed after Amazon Web Services launched a competitor, namely Elasticsearch.

Regarding the acquisition strategy, Alphabet (parent company of Google), Amazon, Apple, Facebook and Microsoft spent a combined total of over US$31.6 billion on acquisitions in 2017. Facebook's acquisition of Instagram to neutralize a threat is an example of this strategy in action.

Talent recruitment is also used by all the giants, with the aforementioned big five firms allocating a combined US$23.7 billion toward stock-based compensation for employees in 2017 alone.

Furthermore, the tech giants are making it difficult for new firms to get noticed, charging very high fees for new apps and services by these up and comers to be made available on their dominant platforms.

Given the growing prevalence of such tactics, regulators need to consider ways of reining in the tech giants in order to foster greater competition that will ultimately benefit the consumer.

Sources: The Economist, 06/02/2018;National Geographic 02/2019
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Update: 2019-06-17
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