The Stalking Horse

The Stalking Horse or Why Tech Giants Don’t Innovate More

Why is it that after tech companies reach a certain size they seem to stop innovating as much? Well it should first be pointed out that this question is flawed. It isn’t that they stop innovating, it’s that their innovation shifts from product innovation to platform innovation. All truly giant tech companies operate platforms of some sort, and their innovation needs to be around supporting that platform. That includes infrastructure innovation, and integration innovation. Both Facebook and Google for example have made incredible innovations around servers and other major infrastructure projects, some of which have been open sourced, and others which have been kept proprietary. Regardless, they continue to innovate in truly impressive ways that just aren’t as obvious to the average consumer.

Now, with that out of the way we can address the intention of the original question, namely why do tech giants stop innovating on products once they get huge? To understand why let’s take a look at something called “The Stalking Horse”. The following comes from Wikipedia:

A stalking horse is a figure that tests a concept with someone or mounts a challenge against someone on behalf of an anonymous third party If the idea proves viable or popular the anonymous figure can then declare its interest and advance the concept with little risk of failure If the concept fails the anonymous party will not be tainted by association with the failed concept and can either drop the idea completely or bide its time and wait until a better moment for launching an attack

This is basically what a startup is. A stalking horse. When you’re a team of 4 or 5 college kids trying out some new app idea, it doesn’t really matter if you fail, at least the stakes aren’t nearly as high for you as it is for someone like Google. When Google puts something new out into the world the expectations are very high, and the costs of failure are much higher as well. So what do giants like Google and Facebook do? They sit back and watch the startups, or stalking horses, making their way in the market. Then, once the risk level passes an acceptable threshold they swoop in an make an acquisition. Where that threshold is varies by industry, for example enterprise companies have lower risk tolerance and therefore make acquisitions once a startup has reached even higher levels of certain success.

It’s this concept that insulates many small startups from ever having to worry about direct competition from the likes of Google, Facebook or others. If what you’re doing is big enough that those companies are immediately interested, it means you’re too late to the party already, and the market is fully validated and mature enough for their interest. The best startup ideas need to be contrarian or risky enough that these guys just aren’t willing to do it yet, or the market is still too small to be worth their time.

Obviously this line of thinking doesn’t apply to more niche, bootstrappable businesses. In those cases you absolutely don’t want to go after the high risk, unvalidated ideas. You want to find a sliver of a market and then slowly expand your market share. This is more or less what Basecamp has done, and has done so exceedingly well.