Is Acquisition the Killer Whale?
What can you do to win your competition or become more innovative? You will hire more talented workforce than your competition. But what if your competition is the talent? You will follow what big companies do – ‘Acquire & Kill’ such competitions or startups, while aqui-hire the talent. So what incites the biggies of the business world who call themselves the most innovative, to make such move?
According to a study co-authored by Yale SOM researchers Florian Ederer and Song Ma, large companies may buy smaller firms only to terminate those firms’ projects. Citing the example of pharmaceutical companies, they said that these firms frequently perform such killer acquisition to eliminate competing therapies under development. An economics professor at Yale SOM, Florian also said that “It’s a little bit surprising, where you buy something in order to then shut it down”. Florian & Song estimated that around seven percent of the acquisitions in the pharma sector were killer acquisitions.
Not just pharma industry but tech industry is equally, if not more, infamous for such acts. For decades companies like Microsoft, Google and others have been indulged in the act of killing their most threatening competitors. For instance, Microsoft scrapped the two apps, Wunderlist and Sunrise, post integrating their best features in its own products, which it acquired in 2015. Even Google and Facebook keep buying hundreds of business and often shut them down. CISCO, and EMC2 are also two such companies that have acquired hundreds of businesses to stop them from becoming serious competition.
Now let’s look at the e-Commerce industry, which are also giving tough competition to the pharma and tech companies when it comes to death through acquisition. From Amazon, Walmart, to Flipkart, Snapdeal, and even Ola, they are not just silently killing competition but have also resulted in thousands of job losses while destroying the local shops/businesses.
So what causes the big fishes of the industry to eat the small ones especially when they are weak in terms of finance and employee strength? It is the innovation index that these small organizations or startups have, which kind of create a ripple effect in the industry while challenging the experts of such big organizations. They fear their position and stake in the company because their work becomes monotonous and in the process, they distract from the innovative path. Money being the biggest weapon of the biggies, even startups fell prey to acquisition trap as some of them are in need of fund to keep their wheels moving, while some startup founders start an organization with the purpose of getting it acquired.
The Other Side of the Story
Acquisition is an age-old strategy, and according to a report, in 2017 M&A deals totaled $3.5 trillion worldwide. This amount increased to $4.1 trillion in 2019. Though the motive behind M&A had always been acquiring innovative ideas and technology, and expanding/diversifying products & services. But killing innovation is not just the motive behind acquisition. Acquisition sometimes is the movers and shakers act. To enter a new market lucratively where otherwise they would have to spend millions, MNCs acquire startups in the targeted market to gain readymade market and customers. On the other hand, what does startups gain with such acquisition? They also get easy access to global market and even learn business tricks from its parent company.
However, now when the fire is all wild, what can be done? Early this year, the big five tech giants, Apple, Amazon, Google, Microsoft and Facebook were being asked to declare all business acquisitions over the last 10 years in the US to investigate if they are harming business competition. The FTC chair, Joseph Simons, said, “If during this study, we see that there are transactions that were problematic, it is conceivable we could go back and initiate enforcement actions to deal with those transactions”.
While in Europe, companies face large fines if they acquire more businesses. This ensures the market remains fair and the competition is healthy and not killed by giants outright by acquiring them. But what about other nations? I think governments need to make strategies to keep their market fair and open for all to survive, while provide a fertilize ground for the startups to innovate.
As innovation is the index to success, if it is permanently killed, the future will be bleak. Just like one of my friends said that since the world lost the master of innovation, ‘Steve Jobs’, Apple has lost the charm and is just repackaging its product to sustain in the market. So biggies, create a culture of innovation rather than the practice of acquisition to kill it. Train your executive to be at the forefront of it just like they were during their early professional years - hungry for innovation!