Feeds

Google dangles needle over Web Bubble 2.0

And no one notices

Beginner's guide to SSL certificates

Open...and Shut Back in the bad ol' days of Microsoft's dominance, many a venture capitalist was scared off from an investment because of the looming possibility that Microsoft might enter the startup's market.

But as the startup landscape shifted to web-oriented technology, startups and the VCs who love them appear to have forgotten to invent a bogeyman. Despite Facebook's heft in social networking and Google's shadow over most everything else, VCs continue to throw money into Bubble 2.0.

Will Google come back to haunt them?

Google isn't alone, of course, in casting a shadow over the Valley. Facebook and Twitter also exercise outsized influence on Silicon Valley's talent pool. As alluring as the picture of a Valley filled with risk-seeking developers may be, the reality is that most seem to want to work at an established giant.

Those that remain find themselves pressured to capitulate early and sell out to Google or Facebook in a talent acquisition. The clearest sign to me that we're in the midst of a serious bubble is how crazy the M&A market is. Anyone with a skilled web/server engineering team has likely had an offer from each of the web giants. Perhaps several.

But while a $20 million paycheck for a year's work isn't something to sniff at, it's also not going to get a VC's interest up. It's therefore often a race to see whether Google et al. or the VCs will "fund" a startup first. While Microsoft put startups out of business, Google and Co. buy startups out of business.

And yet VCs don't seem to fret too much about Google.

But they should, because Google dominates more than the market for Silicon Valley talent. Google, as Simit Patel points out, also has great potential to wreak havoc on would-be web entrepreneurs' business models.

Google, after all, dominates the online advertising market, which feeds many of the most promising web companies. And though Facebook seems to have been able to grow beyond Google's grasp, Patel is right to ask the question: "how far can any of these companies grow in terms of real profits before running into Google's turf?"

Can these startups grow users? Sure. Sales and profits? Perhaps not so much.

Not with Google content to use its advertising dollars to fuel a number of other unprofitable products, which often put the hurt on competitive offerings from startups and giants alike.

And yet VCs seem content to continue funding startups in the shadow of Google. Perhaps this is because, as Nicolas Vandenberghe, a vice president at LightSquared, speculates, there are "lower barriers to entry and [they have] longer illusions of success." In other words, it's cheap to have a go at a Google-threatened market, but it's also cheap enough to continue fueling a flawed startup that there's no real downside to trying to do so.

In Microsoft's day, failure was expensive and absolute. In Google's, everyone can pretend to be The Next Facebook, even if very, very few will make it – one, in fact.

Maybe it's a consumer services versus enterprise software thing. Or maybe it's that VCs see in Facebook, Groupon, and Twitter companies that have managed to thrive despite Google's interest in their markets.

As with Apple, the idea of direct competition with Google doesn't always match reality. As Mike Elgan argues, Google's advertising business model is very different from Apple's hardware business model, and leaves room for lots of cooperation between the two.

Even so, with web-related investing at a 10-year high, some argue that it's simply not sustainable due to the paltry number of exits. VCs may believe that there's gold investing in Google's shadow, but the exits don't yet prove that thesis.

Whether it's because Google (and its peers) are squashing competitive startups or buying them out, perhaps a healthy dose of Microsoft-era fear should prompt more VCs' investment decisions.

Matt Asay is senior vice president of business development at Strobe, a startup that offers an open source framework for building mobile apps. He was formerly chief operating officer of Ubuntu commercial operation Canonical. With more than a decade spent in open source, Asay served as Alfresco's general manager for the Americas and vice president of business development, and he helped put Novell on its open source track. Asay is an emeritus board member of the Open Source Initiative (OSI). His column, Open...and Shut, appears two times a week on The Register.

Choosing a cloud hosting partner with confidence

More from The Register

next story
Phones 4u slips into administration after EE cuts ties with Brit mobe retailer
More than 5,500 jobs could be axed if rescue mission fails
Driving with an Apple Watch could land you with a £100 FINE
Bad news for tech-addicted fanbois behind the wheel
Phones 4u website DIES as wounded mobe retailer struggles to stay above water
Founder blames 'ruthless network partners' for implosion
Radio hams can encrypt, in emergencies, says Ofcom
Consultation promises new spectrum and hints at relaxed licence conditions
Special pleading against mass surveillance won't help anyone
Protecting journalists alone won't protect their sources
Big Content Australia just blew a big hole in its credibility
AHEDA's research on average content prices did not expose methodology, so appears less than rigourous
Vodafone to buy 140 Phones 4u stores from stricken retailer
887 jobs 'preserved' in the process, says administrator PwC
prev story

Whitepapers

Secure remote control for conventional and virtual desktops
Balancing user privacy and privileged access, in accordance with compliance frameworks and legislation. Evaluating any potential remote control choice.
Intelligent flash storage arrays
Tegile Intelligent Storage Arrays with IntelliFlash helps IT boost storage utilization and effciency while delivering unmatched storage savings and performance.
WIN a very cool portable ZX Spectrum
Win a one-off portable Spectrum built by legendary hardware hacker Ben Heck
High Performance for All
While HPC is not new, it has traditionally been seen as a specialist area – is it now geared up to meet more mainstream requirements?
Beginner's guide to SSL certificates
De-mystify the technology involved and give you the information you need to make the best decision when considering your online security options.