On the way to a meeting this AM, I caught the TechCrunch article discussing David Sacks view that the “End of Silicon Valley” is near.  David was Yammer’s CEO before selling his company to Microsoft for a cool $1.2 billion.

My thoughts mirroring his points:

(1) Hogwash.  Plenty of ideas out there that the big wigs haven’t caught.  Why would they be snapping up the IP and the “talent pool” then?

(2) Hogwash.  I’ve seen it done and it can be done again and again.

(3) Hogwash! They can be protectable if they have great clients, a great business model, and have reached massive scale. 

There are plenty of ideas out there.  Some ideas are actually old ones that have been re-shaped to include new business process and technology.  But they’re still valuable if users adopt the solution/concept quickly.

The problem with some acquisitions like Instagram is that they don’t make sense for the dollars.  Instagram still has no business model but has a zillion users.  All crowded around a simple, understandable human behaviour.  Viewing and sharing photos.  Photos are sticky and viral.  Facebook displaced Flickr with its own photo platform.  But then Facebook fell asleep at the wheel.  It ignored mobile for so long that mobile-centric concept companies like Instagram came in to take away some of their “attention economy”.  Facebook is now suffering in the public markets because of their inaction in mobile among a host of other issues.  Their mobile apps (iPad, iPhone) stink like an exploding Ford Pinto.  And photo-sharing in Facebook is boring and slow.

So instead of acquiring smart businesses based on viable business models, they’re dishing out insane money for 12-person companies that generate no revenue and only offer the prospect of future monetization through advertising…maybe.

In the case of Instagram, did Facebook buy the company for key IP and innovation or to stop a wider threat? Facebook measures the platform based on usage and user “actives” - this means, the more time users spend on the platform, the better for them to monetize with ad programs. In my view, Facebook acquired Instagram because of this wider threat to its own usage and activity.  Is there any innovation in the case of Instagram? Maybe. Maybe.  Hardly compelling though but in no way am I here to suggest they’re useless.  Hey, they did it and became successful with the product.  I didn’t. I get it.  I use it.  Still…worth $1 billion? You figure it out.  The “eyeball economy” feels so Dotcom 1.0.  Are we reliving it?

If anything, Silicon Valley is under threat of innovation malaise due to ruthless acquisitions that eat up a bunch of small companies with great ideas to integrate the IP, throttle the IP, or secure the “talent pool” for the larger organizational objectives.  Even worse is the prospect that some entrepreneurs get into the game with a singular strategy: Acquisition.  Not cool for the greater good.

I guess David can speak for 1.2 billion reasons but I think he’s foaming mad. 

Roger and I already discuss our concerns around acquisitions in this video.

Related articles

• One Month After Selling To Microsoft For $1.2B, Yammer CEO Predicts End Of Silicon Valley (techcrunch.com)
• Why a Microsoft buy of Yammer would be good for social business (zdnet.com)
• Why Microsoft’s purchase of Yammer is the smartest deal of the year (venturebeat.com)
• Meet The Recruiter Silicon Valley’s Hottest Startups All Use (businessinsider.com)
• The 15 Startups Everyone Is Talking About In Silicon Valley Right Now (businessinsider.com)
• Vinod Khosla: Maintain the Silicon Valley Vision (bits.blogs.nytimes.com)
• From The Archives: Watch Yammer’s First Public Demo And Launch At TC50 (techcrunch.com)