27 August 2015

Is Google crushing tomorrow’s tech startups?


Tech firms are changing rapidly. No longer are they the sole domain of young men in hoodies, endlessly cranking out code amid pizza boxes and server cables in a garage. Increasingly, Silicon Valley’s startups are becoming all consuming conglomerates.

These firms are successfully reinforcing their own power and sucking oxygen away from smaller firms. It’s not helping their staff, or their customers.

Nowhere has the changing structure of these firms been demonstrated more than at Google. Larry Page recently announced that he and co-founder Sergey Brin had created a new umbrella company called Alphabet, of which a slimmed down Google is just one part.

The company-formerly-known-as-Google included everything from the original search company, to the Android mobile operating system, to a firm that produces glucose testing contact lenses, as well as the experimental lab at Google X. With all this organised into a new corporate structure, no wonder Alphabet is being compared to major conglomerates such as Warren Buffet’s Berkshire Hathaway, and General Electric.

That college dorm startup Facebook now has a market capitalisation – total value based on the share price – of $231bn, and is providing all sorts of services away from its core social network. Google’s market cap is over $400bn, and Apple is to all intent and purpose the most valuable company in the world. Even the relatively small Netflix has a market cap of over $43bn.

Tech firms being enormous companies is itself, nothing new. Look at IBM, or Microsoft. What is different this time around is that these new tech titans had previously positioned themselves as lean and anti-corporate. In reality, they are becoming conglomerates in their own right, and blowing away the notion of what a startup really is, and what one can become.

The growing reach of these giants is on one hand an undoubted success of capitalism. They employ thousands of people directly, and help provide services and incomes for countless more.

I’ve previously outlined on this very site how we as consumers benefit from the tech boom we are currently enjoying. Our daily lives are improved constantly by these groundbreaking companies. With every success they enjoy though, their reach and power increases further.

The essential part of the equation in free markets, the thing that keeps things working in favour of consumers, is an ecosystem that allows small companies to start, grow, and thrive to challenge existing market leaders.

Increasingly, monolithic tech giants are threatening to eat up everything around them, from Facebook hoovering up WhatsApp and Instagram, to Apple deciding it had to try and kill Spotify by launching Apple Music. Being bought up by one of the big four or five is now a legitimate endgame for many new firms, instead of trying to grow in their own right.

Ultimately, competition is good, but a few giants doing everything, and buying up every new service that comes to their attention whether or not it is good, is not positive. Over-powerful corporations warp free markets, stifle innovation, and work against consumers.

The startup scene itself is becoming a web of incubators and conferences that inflate people’s egos, but do not necessarily produce all that much of much of substance. The rapidly increasingly number of coworking spaces popping up across London and elsewhere is a positive development, but I increasingly get the sense that some of the growth has meant the bar is being set too low for what we accept as a legitimate business venture.

I was on a course the other day at one of these hubs and asked a fellow attendee what business he was working on. He described himself as “pre-startup”, explaining “I don’t have an idea yet.” The idea of “moonshots” and “x-labs” from tech corporations has dripped through to such an extent, and distorted the startup scene so greatly, that he thought “pre-startup” was a legitimate description for a business that does not exist yet.

Frankly, it all occasionally resembles something from HBO’s comedy series Silicon Valley, rather than a thriving ecosystem for new firms who want to change the world, or make life just a bit easier for people.

That creeping corporatism in tech is becoming a growing problem for those working in the industry too. It’s not all free lunches, company laundrettes, and comfy hangout areas, as seen in the New York Times’ detailing of grim corporate practices at Amazon. The stories from former employees make Jezz Bezos’ online retailer look more like a third world sweatshop for white collar workers, rather than a bastion of the new economy.

I’ve visited Facebook’s London offices a couple of times recently, which are as luxurious and trendy as you might imagine. I was just enjoying a visit to the toilets, which are decked out like a chemist, equipped with every product a girl could dream of, when I noticed an odd set of rails near the cubicles, that looked a bit like a newspaper rack.

Closer inspection revealed that this rack was a designated “lap stop”, with a sign urging people to “respect their work” by placing their computers on the rack, and not take them onto the loo with them. Yup, Facebook has had to create an actual system so people do not do their work whilst sitting on the toilet.

This is the type of thing that happens when the all consuming mentality of the startup collides with a corporate structure. They make very uncomfortable bedfellows indeed.

The notion of the startup is totally changing, as all successful things inevitably do over time. Indeed, even the phrase startup is rapidly going out of fashion. However, the growing corporatism in tech, engineered and reinforced by a few existing giant companies, means that we may not see a new Facebook, Google, or Amazon for a long time.

Guess who that suits?

Charlotte Henry is a journalist and broadcaster covering technology, media, and politics.