[pigsty]

The fact everything uses software doesn’t mean Slack, a generic chat platform with dozens of absolutely identical products, being acquired for 27.7 billion dollars ever made sense.

That generic software company was valued higher than entire industries that supply components that all hardware depends on. Tech isn’t collapsing. But valuations were and continue to be fuckin nuts for a lot of companies and are coming down to more reasonable numbers, which look like collapses.

[nugget]

Tech seems somewhat unique because you can start a new company and within a relatively short period of time (<10 years) you can threaten the eventual existence of Fortune 500 incumbents. The entire venture capital/startup ecosystem exists to identify these upstarts and help them obtain unstoppable momentum as quickly as possible. If the incumbents want to survive, they usually have to pay up, and the longer they wait, the more expensive it will be. This is why Adobe pays $20 billion for Figma. Greed is good, but fear is better - for the startup looking to be acquired. There are a handful of other Figmas out there (and more will be started) and that is part of why tech has so much value.

[scarface74]

Everyone says this narrative. But 10 years ago.

- Google was the most popular search engine. Had a dominant position in adTech and YouTube was popular

- Apple became the most valuable company in the US and the iPhone was sucking up most industry profits.

- Amazon was by far the most dominant electric retailer and AWS was taking off (disclaimer: my current employer)

- Microsoft had been the dominant operating system for 15 years and Office the dominant office suite.

- Even Facebook was the dominant social network.

Not one startup has disrupted the industry in the past decade.

AirBnB is probably the only major tech company that has created a profitable large business in ten years.

[nugget]

Google acquired YouTube and Facebook acquired Instagram. Both for what seemed like insane valuations at the time. Both were brilliant defensive acquisitions in hindsight. Both fueled tech valuations by illustrating the opportunity for rapid disruption.

[Apocryphon]

Wonder how it’d go if the DoJ actually practiced antitrust towards tech again. The EU Commission does, at least.

[fallingknife]

Both of those acquisitions were tiny $1 billion buys. They only grew into massive entities under their new corporate parents. Antitrust doesn't apply to such a situation. They could only be seen as critical acquisitions in hindsight.

[kolinko]

Youtube felt like a major new platform even at the time of acquisition, and google tried to compete by launching google videos - but failed.

[scarface74]

Seeing that YouTube would have been sued out of existence, what difference would it make?

And how would a search engine company buying out a non profitable video platform that had no means of making money have triggered anti trust action?

[bckr]

Yeah, and how many startups did these companies acquire in order to maintain dominance?

[svnt]

Disruption can happen but it is the exception that feeds the narrative.

In order for these acquisitions to have high valuations, big companies must fear being replaced. It is in VC’s interest to stoke that fear. They do this by the threat of replacement at least as much as through funding for actual replacement.

VCs don’t have to care whether disruption happens, but they do have to care about their IRR, and will say or do anything they feel will with high probability increase their rates of return.

[scarface74]

Most of the acquisitions that happen aren’t because of fear of “disruption” which is a very overused and misunderstood term - especially when defined like Clayton Christensen.

They are bought to be an accretive to an existing business or the acquiring company thinks they have scale advantage to multiply the value of the acquisition.

Another way to put it, that these are “sustaining innovations”.

[svnt]

Im not sure how you’d quantify most here.

The highest valuations are not paid for sustaining innovations, but for market access risks, which is what this thread was about. The two can be the same thing functionally, but “sustaining innovations” sounds much better in a shareholder meeting.

[scarface74]

Let’s take Apple. Apple has only made two large acquisitions - NeXT and Beats - in the modern area. NeXT was bought to “sustain” the MacOS and Beats was bought to jump start Apple Music and its audio business. Is there any reason to believe that Apple who was already streaming purchased movies and musics needed Beats to bring streaming technology to the store. Beats was never going to disrupt Apple’s business. In fact, Cook said that Apple acquires a company on average every three weeks. Are all those “disruptive”?

Neither LinkedIn or GitHub were going to disrupt Microsoft in anyway.

[ehnto]

Another fun example of looking at valuations versus actual real world production and output (real value delivered?): Tesla for a period was valued at a higher market cap than Toyota, the largest auto manufacturer in the world. Consider the real world infrastructure and output of Tesla, and the real world infrastructure and output of Toyota. Toyota is an order of magnitude larger operation.

So for Telsa's valuation to mate with it's real world ambition, it has be aiming to have it's operations as big as Toyota's, great! Being as big as Toyota would put it's market cap at... oh. Less than it currently is.

[ramesh31]

>Tesla for a period was valued at a higher market cap than Toyota, the largest auto manufacturer in the world.

Tesla is still valued higher than Toyota, Honda, GM, and Ford combined.

Something is broken.

[fallingknife]

That's not true. You are looking at market cap when you should be looking at enterprise value. Toyota is $350 billion and TSLA is $380 billion.

[cgh]

Some post-Christmas humour: the other day, Cathie Wood said Tesla will go to $7000/share within five years. I am not making this up.

[cma]

They earn more profit than Toyota and have a ton of unbooked FSD revenue they can't book but could pay out as dividends if they want--apparently they never have to deliver in the average lifetime of the cars that came with it.

[MonkeyClub]

Yeah it sort of works like market self regulation, bubbling up before it reaches a calm simmer.

But it’s still fueled by hype, so unless a strong enough crash comes, it’ll keep bubbling up.

[Kiro]

Out of all companies you choose Slack, the only one that I actually think deserves an insane valuation. So many products that are just Slack integrations and that companies fully rely on. Have you worked at a big company and seen what happens when Slack goes down?

[georgebarnett]

Collaboration tools are some way from being systems of record and there is substantial difference between competitors. Generic chat apps are not yet useful enough (despite years of development) for most companies - IRC failing to win is evidence of this and so is the fact that companies aren’t switching en masse to run their infrastructure on whatever is the OSS flavour of the day. That doesn’t mean it won’t happen some day, but that day won’t be soon.

When coupled with the fact that there are still a huge number of companies which haven’t yet converted to using these tools and purchasing the market leader for a premium makes total sense.

With regards to component supply - companies that are producing unique chips are worth plenty, where as those that are making COTS components aren’t.

[JustLurking2022]

Is this a ChatGPT experiment? The comment uses a few seemingly relevant terms but almost entirely incorrectly. "System of Record" had nothing to do with being commoditized.

[georgebarnett]

Perhaps we are speaking about different concepts. I was referring to the pace layered architecture.

[JustLurking2022]

Even in PACE, I don't think it means commoditization. That said, over time I've found anyone really technical pays absolutely zero attention to Gartner. With no judgement implied, they generally seem to target non-technical people who just want some jargon and product names that will help them sound like they know what they're talking about. They also get paid by the companies they are evaluating which means they'll almost never tell you about smaller players/startups who don't have the budget. HN or Reddit are probably both better for getting a read on who's actually doing innovative stuff.

[JustLurking2022]

There are also many companies making "unique" chips that are sold as COTS - it's a false dichotomy. Aside from a few initiatives like RISC-V, I'd venture to say most are proprietary.