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Challenges for startups posed by Big Tech: 5 FAQs

On Behalf of | Oct 18, 2017 | Business Formation

In an age of technological revolution, the success of startup businesses in all sorts of industries is often greatly dependent on tech. No matter what your product or service is, in the internet age there may very well be a make-or-break tech component.

As an entrepreneur with a startup business, you already know this on some level. But are you filly aware of the degree to which the business practices of so-called “frightful five” of big tech companies may threaten your business?

In this post, we will discuss use a Q & A format to discuss this emerging phenomenon and how it affects startups’ ability to compete.

Who are the Frightful Five?

The companies that the media has dubbed the Frightful Five are tech giants that have an outsized foothold in daily life in the U.S. Alphabetically, the list starts with Amazon and Apple. It also includes Facebook, Google and Microsoft.

Why is it so hard to compete against them?

Steve Jobs and Steve Wozniak famously started Apple in a garage. No one could have foreseen how successful they would be competing against the monolithic hold of IBM in the computer industry.

Today, the playing field is more complicated. The Big Five have created ongoing channels for innovation by leveraging features like ad networks, app stores and connections to venture capital firms.

To be sure, there are still startups that break through to a wide audience. But the most successful of those are often bought by one of the Five. This is what happened with WhatsApp, for example, and Instagram.

What happened with Snapchat?

After failing in a bid to buy Snap (the company behind the Snapchat app), Facebook sought aggressively to adapt Snapchat’s concept of disappearing messages.

Google was interested in Snap as well. Earlier this year, after Google came calling, Snap entered into a cloud-hosting deal with Google worth hundreds of millions of dollars. Snap is paying Google, not the other way ’round.

Aren’t there times when David defeats Goliath, and a startup finds a niche not controlled by the big dogs?

Yes, there are certainly ways for startups to complete effectively by creating a market niche by navigating around the giants. Several of these companies are associated with IAC, a media and internet company with a track record of finding opportunities on the margins.

Such success is more likely to come when avoiding head-to-head competition against gargantuan rivals like Facebook or Google. It also helps to get sound legal counsel when starting your business.

What about when one of the Five owns some, but not all, of a startup?

Obviously things get complicated when a tech giant provides part of your funding. One example is Uber, which has been wildly successful in so many major markets in disrupting the taxi industry in favor of ride-sharing services.

One of Uber investors, however, is Google’s parent company, Alphabet. And Alphabet has its own self-driving vehicle project that is a competitor to Uber’s.