1. Get big enough to build and scale an ad network and other services

2. Get bought by an existing scaled network

Option 2 is far easier which is why startups/VCs optimize for it. FB benefits by letting them do all the experimentation and then acquiring when they have proven traction, effectively gaining control of the new users for less money than competing outright, while the founders get a nice payday and move on.

What gets really interesting is when the same VCs behind FB are the ones kicking off these new experiments, a nice little money machine once you're in the loop.

If option 2 will become illegal in the future, would that mean that startups would have to optimize to turn into real companies? You know, that kind of company that need to be profitable on their own? And perhaps, but only perhaps, with a sustainable income?

Profit isn't the only measure of value. Startups by definition are experiments in business models and scaling quickly. Maybe they build something that fails to sell but are still worth something to the acquirer. Remember there are 1000x more startups that fail completely and generate no value at all.

If you want regulation then it should be for the acquirers from getting too big, usually called anti-trust laws, but I dont see what's wrong with people putting some money together to try and make something to sell.

Pardon if I missed something in economics 101, but a large amount of mergers and acqusitions lead to market distortion, which drives the market into the opposite direction of what is good for customers. Cartel law tries to limit the damage, but more often than not prevents monopolies at the cost of tolerating oligopolies.

> Remember there are 1000x more startups that fail completely and generate no value at all

Maybe that number would be lower if startups optimized for stable income rather than acqusitions? Because then, a startup that is "merely" able to earn a living for a few people is considered a success path, rather than a failure path to avoid early on.

Sustainable income? If you're getting a check for $10 million, do you care?

Depends on the kind of values you have.

Aggregate economic decisions are not based on values, they are based on systematic incentives.

If society operated on altruistic values, it would have never invented government.

This assumes there are no coordination, planning and other services that the government offers.

At best, society would never had invented the police.

Edit: Since it appears that I wasn't clear enough, I'm saying that misrepresenting the value of a business to employees, customers, and investors is unethical. If everyone involved knows the venture is doomed to fail and you can still retire off the profits, I don't see a problem with that.

It's one thing to misrepresent, but that's fraud so that scenario is taken care of. Not sure why there's so much moral judgement going on here or who gets hurt when a company is sold, giving its workers money and opportunity rather than going bankrupt.

I can sell a company that has a business model that will expire in a few years because of new tech or laws or some other reason - if a buyer still buys the company from me then what's the problem? Who gets hurt since that's what you said would happen?

There's nothing invalid or unethical about this strategy nor do I care if the acquiring company just executes badly and ends up wasting the money.

yes.

Mark Cuban became a billionaire by selling a domain name to Yahoo.

Now he is a reality TV star.

https://www.inc.com/will-yakowicz/mark-cuban-forces-shark-ta...

You can have an exit-strategy, or become a billionaire, or a reality tv star, and achieve it by acting bad.

Call it option 3. The exit for the board is either sale or bankruptcy.

What really happens is these founders are focused on the product and don't really think much about the business model. This is understandable and actually much better than MBA types who spend months planning for stuff without even building, but the problem is there isn't really a good business model for these types of companies.

The only viable option is ads, and even this has been monopolized by big techcos so it's not easy.

Most founders don't even get to worrying about this point because their companies never take off. But the ones that do, come to a point where they need to make a decision whether to sell out or to find a viable business model.

Like I said, finding a viable business model is increasingly becoming difficult for consumer apps that rely on ads, so these companies tend to cash out.

From outside it may look like a bunch of "tech bros" hoping to strike it big with minimal effort but that's mostly not the case if you look inside. If you're curious, look up what this TBH company went through before having this "overnight success".

I know I must get with the times or whatever, but man this is sad. Essentially every consumer social app creator is just working for the ad industry, or for free.

If you want to make money with what you're doing you need to be either really good/marketing-savvy/popular or pick something that most people consider 'boring'.

Please tell that to my boss/company owner. He sees news articles about how such-and-such social startup created an app in X days and wonders why we can't do the same just as quickly.

Sure, if you want me to write a Twitter clone I can do that in an afternoon. If you want me to write an app for a very specific enterprise sector filled with regulations, while making sure it integrates with our existing desktop software (that was originally written without internet connectivity in mind at all), that'll take an order of magnitude more days.

i think there should be a lot more innovation in viable business models rather than concept of the product itself, but that doesn't seem to be a popular sentiment.

"When we met with Facebook, we were impressed with the huge pile of cash that they offered us. Most of all, it was very green and crisp, and smelled like cash it supposed to smell, so we were compelled by the ways this cash could help us realize our vision of getting rich."

Also the already stored data makes it quite the treasure. Even if every user instantly stops using it, it'll still be very valuable due to the existing data (if they keep it).

Too stray off-topic though somewhat on a self-created tangent: There's an app called Flitsmeister in the Metherlands (and abroad but several countries banned it) that keeps on growing. I wonder when they will be bought out. Not necessarily for the active social network behind it, but rather for the data that is already there. I believe such a vast amount of historic data is hugely valuable on it's own. I wonder by who, when and for how much they will be bought out.

"...we shared many of the same core values..."

Why not just say, "They made us an offer we couldn't resist. ( ͡° ͜ʖ ͡°)"

The amount of people deluding themselves that exit strategies optimized for being bought by a giant are moral, is disheartening.

Who are the modern day unicorns?

Didn't you hear? It died with DrKoop.com, eToys, Pets.com, Webvan, et al.

Silicon Valley has been a constant target for that premise for four decades. It's nothing more than people wishing for ill upon something because they dislike it, entirely separating what's actually likely to happen from what they want to have happen.

Here's what is actually going to happen.

Silicon Valley is overflowing with capital, experience, talent and a high tolerance for risk. There is no hint that any of those things is in meaningful decline today. Over the coming 20 years, new tech giants will be created there. Then someone will be saying the exact same thing you just said, just as 16 and 25 and 37 years ago.

Where did the unicorns go? All I see are the same ones that were here five years ago.

VCs have always needed founders to have an exit in mind, but 20 years ago it just wasn't vocalised. There was never a time when VCs would put money in to a business that didn't have a clear way for them to get their money+profit out again. The dot.com bubble made everyone believe an IPO was the obvious way to cash out. When that bubble popped most founders started to see the exit as acquisition. That's all.

To be honest, the startup scene has changed a great deal over the past few years. When I did my first startup you could raise a seed round with nothing more than an idea; I got in to an accelerator before we'd even spoken to a potential customer let alone made an actual sale. Now you're unlikely to get very far with investors until you've proved the idea and got some significant traction. The level of risk people are willing to accept is really low. It's a shame, but it's quite understandable.

TBH was the only app in the top 10 not owned by one of these 3 so the acquired it.

TBH could be a feature of either Facebook or Instagram in the same way that most of the history channels content could be just shows on other tv channels.

These things exist or will continue to exist as separate entities because it’s more profitable that way.

Also, Facebook is an advertising company. They now can push a lot more teen and tween brands to advertise bigger campaigns.

It doesn't have to be a potential competitor to pre-emptively buy, it just has to have access to the teenager demographic.

This will encourage more niche social networks for the purpose of being bought and Facebook's acquisitions will be costly, both financially and operationally. I don't think acquiring competitors is an effective long term strategy