People often talk about economies of
scale … which essentially means big companies can buy pens cheaper than little
companies. But when is comes to
innovation, large companies rarely use their leverage to their advantage.
Companies like SAP, Microsoft,
Oracle, IBM, and others have amazing distribution channels. But they rarely take full advantage of
them. They rarely invest in upcoming
companies or help promote these companies. But they could.
Let's look at Microsoft … I'm not
aware of any involvement they have with any of the vertical search engines
(SimplyHired, Oodle, Trulia, Become, etc.) why? With a little involvement
they could help catapult a good company into a great company. They could provide strong distribution
through MSN, the desktop, and channels. MSFT could evaluate the market, finds what it feels are the companies
with the best people and best technology, and then really focus on helping the
start-up grow.
I know this sounds a little
pie-in-the-sky (ok .. it sounds a lot
pie-in-the-sky). But companies like
Yahoo and eBay (and potentially Google) are making it work. They are investing strategically in firms
and growing their market cap because of it. What they realize is that as an investor in private companies, a firm
like Yahoo has an unfair advantage (but completely legal advantage) over a
typical venture capital firm. Because
Yahoo immediately has an impact on the value of a company because it has the
engine and the channels to promote it.
Comcast has one of the most
successful venture groups. Rumor is
that they are doing 50% IRR while investing in companies and technologies that
are strategic to their business. That's
huge value.
Large companies have had trouble
growing shareholder value. I bet most
of them could get a higher increase in market share from investments then from
its current operations. Be like Yahoo …
if a competitor is going to form to challenge your business (a la Google), at
least make a big investment in it so you make your shareholders a big return …
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