[stinkytaco]

I'm not sure if I would consider Paul Graham -- a man who largely makes his living by mentoring engineers who get "bought" -- and a terribly reliable source on this. Of course he thinks buying startups is a good way to beat the death spiral since he's in the business of producing startups.

And even if we accept that it is a good strategy, all it did for Yahoo was lease a few engineers for a year after their startup was purchased, only to have them leave a year later to do another startup. Either that or struggle to integrate a bunch of disparate teams that you purchased based on the product they made, rather than how they might best serve your mission.

[devchix]

I feel like there's a fundamental failure in this model: create and grow a business to be a target acquisition, then cash out. This implies an untested business riding on trend and PR fluff, whose creator was never committed enough to see it fully realized.

[stinkytaco]

Failure for whom?

If I'm the one cashing out, then I think it's a successful model.

It's also driven by past successes in this arena. Over the years products like Powerpoint, Android and YouTube have all been acquisitions that have gone on to be huge successes for the parent company (I can actually think of a few more Google purchases such as Waze and DoubleClick).

Of course, that means other companies see this as a successful strategy and attempt to replicate it. Now there's a rush to find the best acquisitions targets, more companies enter the market, and at least some will be acquired based on hype alone, causing some companies who focus more on their hype than their product. Bubble ensues.

I think the real failure is at companies like Yahoo who buy the hype and not the product.

EDIT: I should also note that for some companies, it seems unlikely that they could have scaled without an acquisition. Making phone hardware or hosting so many videos is expensive. In their case, acquisition was really the only viable strategy for success.

[mxuribe]

Yeah, good point. After a while, it starts to sound like what i imagine people would say in the finance heyday of 80s/90s...

Nowadays: * Hey, go and create a startup that will make itself ripe for being bought; you'll cash out like mad! What's that? Viable business model? Long term growth? Pshaw, those are just details! Chase that dollar, kid!

In the 80s/90s: * Hey, go and play with other people's money on Wall Street! Start selling and buying companies, commodities, etc.; you'll cash out like mad! What's that? What are CDOs? Viable business model? Long term growth? Pshaw, those are just details! Chase that dollar, kid!