Disrupting and Competing with Gorillas
How large companies Embrace and Extend then Crush
Dealing with large gorillas is often a double-edged sword for entrepreneurs.
Startups are tiny, even if VC-funded have nowhere the industry insights, let alone the money and deep talent reservoirs at large behemoths.
So revealing too much information could expose startups to competitive risks - often all they have are a few valuable niche insights or personal experience.
“They are using market forces in a really Machiavellian way .. It’s like they are not in any way, shape or form the proverbial wolf in sheep’s clothing. They are a wolf in wolf’s clothing.” - Jeremy Levine, Bessemer Venture Partners
Left hand doesn't know what Right Hand is up to!
- Large companies use their own size to disclaim any bad intents.
"Unfortunately, there will always be self-interested parties who complain rather than build. Any legitimate disputes about intellectual property ownership are rightly resolved in the courts.” -- Amazon spokesperson
Startup Ecosystem poisoned by Big Tech companies - Reducing Competition
- Even FTC in Feb 2020 drummed up some challenge to five big-tech companies to provide details on investments in smaller companies since 2010.
Otherwise the DOJ, SEC and FTC have been very lazy in anti-trust matters in contrast to earlier days of breaking up Standard Oil, AT&T and threats to Microsoft and IBM.
Large companies ruthlessly use platforms to Beat up small guys
Amazon has been accused by Congress, FTC and DoJ of unfairly using its size and platform against competitors and other sellers on its site.
Data is valuable - knowing marketplace data
Amazon employees on the private-label side of its business have used data about individual third-party sellers on its site to create competing products. - WSJ April 2020.
VC Fund to Invest to Spy on What other Companies are up to
By investing in a startup, tons of data is obtained - it gained access to the technology startup’s finances and other confidential information. Recently, Amazon appears to be dominant abuser to use the investment and deal-making process to help develop competing products.
Often the large deep-pockets company met with startups about potential takeovers, sought to understand how their technology works, then declined to invest and later introduced similar self-branded products
Eventually, the large company often decides to launch a competing product devastated the business in which it actually invested or considered investing.
Investing in Startups is Cheap
Steal Clients and Employees
LivingSocial accused Amazon its investor of demanding client lists and other strategic sales data and lists. When direct to their clients offering better terms.
Merge with me or We will Crush you!
In some cases like Diaper.com, there is considerable arm twisting, to force a takeover at "favorable" terms, or threat of business destruction.
Acquisitions lead to HUGE footprints in emerging industries
Out of 90+ investments by Alexa Fund, just one Ring was invested in 2016 but completely acquired in 2018 for over a billion dollars. However, due to its indepth relationships with neighborhoods and police departments it gave Amazon a HUGE footprint in an emerging industries - and helped secure its deliveries to doorstops.
- Over 90+ startups have been invested in just over 6 years in just one "Alexa Fund"alone since 2015 just to invest in "voice technology".
This does not include direct Bezos/CXO investments or by other entities at Amazon.
- Over 25+ startups ended up as lunch food for Amazon, after investing in them as per WSJ report.
Echo Show copied
The Echo Show, an Alexa-enabled device with a large video screen that Amazon launched. Originally it was an idea of Nucleus that Amazon invested in it in 2016 as a home-video communication device that integrated with the Alexa voice assistant. At the time VC partners at Nucleus had advised AGAINST taking Amazon money or giving them data.
These concerns were allayed by Amazon and Alexa Fund told co-investors there is a "firewall between the Alexa Fund and Amazon itself".
After striking the deal, the Alexa Fund got access to Nucleus’s financials, strategic plans and other proprietary information, these people said. Eight months later, Amazon announced its Echo Show device, an Alexa-enabled video-chat device that did many of the same things as Nucleus’s product. .. [This happened VERY fast]. Before Amazon introduced its product, the Nucleus device was sold at major retailers such as Home Depot, Lowe’s and Best Buy. Once the Echo began selling, those sales declined sharply and retailers stopped placing orders -- WSJ
Hearing this announcement, Nucleus founders were devastated how can they compete with Amazon in its own Alexa product line.
Nucleus sued and Amazon later resolved with Nucleus for $5 million but did not admit of doing any wrong. Now this product while still good is only available on Ebay as used, without backend support. Even now, they are forced to sell on Shopify or other boutique seller not in mainstream big box.
Nucleus started to plan a pivot - essentially giving up on their own golden idea to a more difficult and limited health-care market, where it has struggled to gain traction. At $5m on top of a $1m+ original, the investment was "cheap" for Amazon - they got a finely tuned view into device potential and marketing strategies. But the founders at 2x or 3x VC would end up with NOTHING!
- Ironically Facebook also copied this concept but without investing in company (?to find), however it had a far more difficult and uphill battle as its product was far more expensive and not generally sold also at far higher price $200+ vs Amazon's $99 which undercut Facebook and killed Nucleus.
The Amazon Echo that was launched in the market was similar to products by DefineCrowd, Vocalife and Ubi.
Bleeding the Bleeding Edge of AI
- DefinedCrowd that collects and labels data - Amazon first invested then 4 years later, Amazon’s cloud-computing unit launched Amazon A2I artificial-intelligence product that does almost exactly what it did. Bit too late, right away the Founder and Chief Executive Daniela Braga limited the Amazon fund’s access to her company’s data and diluted its stake by 90% by raising more capital.
Social Commerce LivingSocial screwed!
In 2010, Amazon invested in daily-deals website LivingSocial, gaining a 30% stake and representation on the startup’s board. Former LivingSocial executives said Amazon began requesting data. “They asked for our customer list, merchant list, sales data. They had a competitive product and they demanded all of this,” said one former executive. LivingSocial declined to hand over the data. .. -- WSJ
Eventually it had to sell out to its fierce competitor Groupon, probably for chump change.