The hegemony Enjoyed by software superpowers (for new readers unfamiliar with the lingo, this means multinational IT aggregators with a product or service in every significant technology category) has long been maintained through the consistent implementation of a very simple strategy, that of market co-optation. When a superpower feels threatened by an emerging technology player they generally do their best to neutralize the threat; either through the introduction of an alternative product, like Microsoft bundling Explorer with Windows to crush Netscape, or through acquisition, like EMC’s masterful takeover of VMWare. As superpower businesses are, for the most part, highly cash generative, they have historically possessed deep war chests with which to employ such tactics. And they have generally been successful, as evidenced by the sheer size and breadth of businesses like Oracle, Microsoft and SAP. It appears, however, that the rules might be about to change.
The world was shocked in December of last year when Groupon, a high growth provider of localized promotional offers, turned down Google’s $6Billion takeover bid. On the surface, the deal appeared to be beneficial for both parties. Google would have an opportunity to diversify its business and Groupon’s stakeholders would get a mighty payout. What happened instead was interesting and bears reflection. Groupon leadership leveraged the Google bid to raise almost a billion dollars in private finance. This is not the first time a superpower has been denied in its drive to acquire a promising business. It may be the first time, however, that a small player has used the interest of a large acquirer to access a massive amount of third party capital. A new normal? A paradigm shift? Is it possible that age old mechanisms for establishing and maintaining superpower status are suddenly invalid? I think the answer is yes. Perhaps. Temporarily.
The fact is that there is an awful lot of cash on the sidelines right now, as investors attempt to ascertain which way the global economy is going. There is also a scarcity of quality high growth investment opportunities. The result is that investment banks are falling all over themselves to invent investment vehicles that enable Web 2.0 businesses to retain their independence and escape regulatory scrutiny while onboarding giant infusions of capital. This in turn allows such businesses to satisfy their own aspirations for category domination while evading the clutches of their friendly neighborhood superpower. An anomaly? The world’s biggest software businesses hope so.