Scale versus innovation: The peril to Silicon Valley's future

Size matters more than innovation in most markets. Is it still possible to build large companies on the merits of their innovative ideas?


The acquisition of Tibco Software by Vista Equity Partners earlier this week, in a $4.3 billion deal, raises an important issue: can innovative companies survive long enough to become large companies? 

I meet very few startups that have the ambition to stay independent and challenge the dominant companies in their sector. ( Delphix  is the exception.) Is it a lack of ambition or simply a realistic assessment of their future? Tibco was certainly ambitious and innovative but it struggled for years to grow amid huge competitors.

Tibco was one of very few medium-sized tech companies left in Silicon Valley following a steady consolidation of IT software and hardware companies over the past two decades. Oracle, has been the most aggressive consolidator, acquiring Sun Microsystems, Peoplesoft, and many others.

Scale has become very important in the tech markets and competitors that have it, such as IBM have armies of consultants working on massive IT deployments and leaving little room for others. Tibco has been scrappy and has won customers against IBM and other giants, but scale wins most of the time and not innovation.

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The Tibco deal highlights one of Silicon Valley's most important perils to its future as the world's engine of innovation: is it still possible to out-innovate competitors and build big companies? Or is a competitor's large scale the most important factor in success?

That seems to be the message in some of the monster VC rounds we see these days, such as with Uber, the car service app, which raised $1.2 billion in June, and there are many similar examples where the goal is to buy success through scale rather than innovative ideas.

If the winner is the first company to get to scale, then that will have a large dampening effect on Silicon Valley innovation, and we will see startups unable to grow beyond a mid-sized company.

What do we see today? Hardly any middle sized companies and critics saying Silicon Valley has run out of ideas.

Scale and not ideas — seems to have become the new currency of Silicon Valley, and it only comes in $100 million and $1 billion denominations.


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