Adam Kalsey reminded me of an essay that Paul Graham posted last summer called Hiring is Obsolete (May 2005). The short version, Paul Graham was right.
Most folks have been trying to figure out what Yahoo, Google and to a lesser extent Microsoft are up to, especially with all of the purchases that have been going on lately. For instance, Yahoo bought Flickr, but from all reports Yahoo Photos is several times bigger than Flickr. Yahoo also bought Del.icio.us even though their MyWeb 2.0 was starting to offer similar services. A more recent example would be the purchase of Writely by Google. There is no doubt that Google has the money, time and people resources to build such a service themselves, but they didn’t.
Before I go on, if you haven’t read Paul Graham’s Hiring is Obsolete go do it now.
Okay, so back to the question of what the heck is going on with all of these folks being bought up by companies that have the resources do the same thing themselves. Honestly part of my gut says that this helps a lot with the open source, web head street cred crowd; but that certainly isn’t all of it. For one reason or another, larger companies don’t usually get around to developing the cool new “thing”. Paul lists some reasons for this under the product development portion of his essay: protecting existing turf, allowing their own people to experiment, the difficulty of project management for every project you could think of trying and big companies get in the way of themselves sometimes.
Yahoo and Google are buying these folks up because they get people who have demonstrated that they can come up with cool things. By bringing them into the fold they’ll get a chance to own any new ideas that they come up with and they’ll hopefully be able to make their existing products and services better as well. And by doing all this before they get really big (or go public) they can do it fairly inexpensively. Hard to believe that I just mentioned transactions in the millions of dollars as inexpensive.
So talk of a Web 2.0 bubble isn’t the same as the original bubble. I don’t expect many of these companies to reach the stage of going public, more likely that the good ones will just get purchased. Creating your own Web 2.0 app has become a resume for these talented folks. As for the future, I think Paul does a great job of predicting that:
I think the trend of big companies buying startups will only accelerate. One of the biggest remaining obstacles is pride. Most companies, at least unconsciously, feel they ought to be able to develop stuff in house, and that buying startups is to some degree an admission of failure. And so, as people generally do with admissions of failure, they put it off for as long as possible. That makes the acquisition very expensive when it finally happens.
What companies should do is go out and discover startups when they’re young, before VCs have puffed them up into something that costs hundreds of millions to acquire. Much of what VCs add, the acquirer doesn’t need anyway.
If you’ve made it this far you may be interested to know that Paul Graham has a blog now.
2 replies on “Paul Graham Was Right”
Buying such a service has one advantage instead of developing- you are sure that the product you have bought is effective. Google surely could come up with a product like writely but then they would have to dedicate a lot of time and in the end the project would have been a failure.
Paul Graham has always written the way he has written. That (among real reasoning) includes making assertions and peddling his own views as a kind of fact. The same people that are applauding Graham for “brilliant reasoning” when he makes assertions that fit their world-view, criticize him for the absurdity of even making assertions, when they don’t fit their world-view. Not that they shouldn’t, but the inconsistency is just funny in an ironic kind of way. 🙂