Silicon Valley’s acquisition fever is bad for innovation

February 20

(AP Photo/Patrick Sison)

It's become so common that we take it for granted: a start-up is born, raises venture capital, grows rapidly, and then is acquired in an 8-, and 9-, or even 10-figure deal. In recent years, Tumblr, Instagram, Waze, Yammer, and now WhatsApp have followed this path. In earlier years, the same thing happened to household names like YouTube and Skype.

It's not hard to see why the founders of these companies would have trouble turning down a billion dollars or more for their companies. But the fact that so many founders has said yes to those deals has been bad for Silicon Valley and the U.S. economy.

It's always hard to prove what might have been. But it's helpful to imagine what the world would be like if Google had been acquired by Yahoo in 2002. Suppose that Yahoo had pledged to allow Google to operate independently from its parent company, continuing to build the world's greatest search engine. There's every reason to think that in this parallel universe, Google would dominate the search business as much as it does in our own.

But it's hard to imagine Google's founders being able to pursue the wide range of new products that the Mountain View giant has pursued over the last decade. Yahoo already had a mail client in 2004, so Yahoo probably would have vetoed the creation of Gmail. Similarly, Yahoo management would have been reluctant for Google to release Google Maps to compete with Yahoo Maps.

Chrome and Android likely would never have gotten off the ground. Yahoo doesn't have a browser or a mobile OS of its own, but it just wouldn't have occurred to the people running Yahoo's search subsidiary to branch out into web browsers and mobile OSes. Certainly, Larry and Sergey would have found it difficult to convince Yahoo's management to sink millions of dollars into self-driving car research that might not pay off for decades.

More fundamentally, if Google had been acquired by Yahoo, the distinctive "Googley" corporate culture never would have had the chance to fully develop. Google is probably the world's most engineer-driven large company. It has pioneered management practices that have set the standard for the rest of the software industry. Former Googlers have gone on to start dozens of innovative start-ups. Google would not have had such a transformative effect if it had been a Yahoo subsidiary.

WhatsApp today looks a lot like Google did a decade ago. Like Google in its early years, WhatsApp is obsessively focused on the quality of the user experience. Reliability and performance are high priorities; bells and whistles are not. Like the early Google, WhatsApp eschews marketing and relies on word of mouth to attract users. The company has its own version of "Don't be evil," avoiding advertising and data collection in favor of a simple and user-friendly $1 per year subscription model.

WhatsApp is the kind of unconventional startup that could have changed the world if it had grown into an independent public company. It might have been able to attract some of Silicon Valley's most talented engineers and pioneered new business models that don't rely on intrusive ads and pervasive data collection.

But now WhatsApp CEO Jan Koum works for Mark Zuckerberg. He may still have a lot of freedom in developing his core messaging app. But any new products he launches will be shaped by Zuckerberg's vision for the web, not his own. And that's a shame.

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