If you read this blog, you know that we believe that one of the only advantages that a start-up has over the big boys is the ability to execute quickly. As I mentioned in my post on the 3 advantages of a start-up, if you get there first good things can happen.
Jellyfish.com is a great example of this. Microsoft saw our head-start with a new search advertising model and decided to acquire the company to launch its Live Search cashback service.
Throughout the Jellyfish experience, we got many questions that went something like this: “won’t a big search company see your idea and just do it themselves?” Seems like a fair question and one we certainly considered.
But the reality is that big companies often perform a “make versus buy” analysis whenever they decide to launch a new innovation or enter a new market. Sure they have the money and employees to do what the start-up is doing. But big companies have big competitors too, which creates pressure to get to market fast. This time-to-market pressure often means that they put a premium on acquiring that start-up with the head start. That head-start can mean the difference between success and failure.
This concept came into sharp relief today as I read this Wall Street Journal article charting some of the early mistakes Microsoft made in the search wars that allowed Google and Yahoo! to become the two dominant search advertising companies. One central mistake was a miscalculation in0 this “make versus buy” analysis.
Microsoft had the opportunity to buy Overture, the early market innovator in paid search way back in early 2003, a move that would have given them a huge head start in paid search. But the company balked at the billion dollar price tag, instead believing that they could build the system themselves.
The result of Microsoft’s decision? Yahoo! snapped up Overture for more money, and Google and Yahoo! established themselves as the dominant players in search advertising before Microsoft finished building their offer internally. Microsoft has played catch up ever since, and will likely end up buying the Yahoo! search business for a lot more than that early acquisition of Overture would have cost them.
Lesson for entrepreneurs? If you have a window of opportunity to innovate in a market first, then do it! Get there first, build value, and good things can happen.
January 20th, 2009 at 11:56 pm
Mark,
This is a perfectly timed post. In my Entrepreneurial Marketing class our discussion topic was “What is your viewpoint on whether innovation is more likely to occur in large or small companies? Are certain types of innovations more likely in large or small companies?” I referenced this post in my response to the class and directed everyone to this blog as I think it greatly relates to our discussion. I personally wasn’t aware of the “Make Versus Buy” test that larger companies go through prior to reading this, so it was really beneficial to get that insight.
Thanks.
January 27th, 2009 at 12:26 pm
Excellent post and great article. Looks like you guys are going to be hitting the market at the right time AGAIN.
January 27th, 2009 at 4:04 pm
Thanks Ryan and Will. Timing is especially important in the start-up. Here’s hoping we got things right.
January 28th, 2009 at 3:44 pm
Thank you for sharing your expertise and insight. It is tremendously appreciated. Timing and innovation are definitely key. Sometimes getting your foot through the crack in the door is the most difficult step of all. On a completely different note, I will possibly be visiting some of our customers in your vicinity and wanted a recommendation and / or shameless plug for you favorite local pizza joint. Look forward to more of your future posts.
January 28th, 2009 at 3:53 pm
Thanks for the feedback Craig. Local pizza? Gotta go with Roman Candle in Middleton. http://77square.com/food/features/story_435256 Safe travels.