Nightmare on Microsoft Street
Imagine this: — Google (GOOG) starts buying up a series of promising and innovative Web 2.0 companies that Microsoft (MSFT) is either partnered with or clearly is or should be interested in. — It starts with Digg, moves onto, say, Spot Runner and others …
Context & Ripple Effects
BoomTown's piece is a deliberate thought experiment, not a reported deal: it asks what happens if Google starts systematically acquiring the young Web 2.0 companies — Digg first, then Spot Runner and others — that Microsoft is partnered with or ought to want. The scenario sits inside a long-running thread in the coverage: tensions over Google's pull on the startup ecosystem date back years, including friction with venture capitalists over Google competing with its own investors' portfolio companies, and the same season produced wild Google/Yahoo deal rumors that showed how quickly acquisition chatter moves markets.
First-order effects
- If Google closed deals like Digg, Microsoft would immediately lose partnership leverage and optionality on assets it had counted as part of its web strategy, while founders and VCs behind those startups would pocket Google's premium.
- Every speculative Google bid raises the clearing price for the small set of 'hot' Web 2.0 targets, forcing Microsoft to pay more for the same companies or watch them disappear from the board.
Second-order effects
- Microsoft's rational response is defensive: accelerate its own acquisitions or build clones in-house, turning a handful of tuck-in deals into a sustained bidding war between the two platforms.
- Other acquirers and late-stage investors get pulled in — the pattern later repeated when Google's local ambitions triggered multi-party bidding scenarios around Groupon, with everyone asking who else could enter.
Third-order effects
- If the pattern holds, the startup ecosystem structurally bifurcates into Google-aligned and Microsoft-aligned portfolios, with independent Web 2.0 companies increasingly existing only to be acquired by one of the two giants.
- Acquisition becomes a competitive weapon in itself — denying a rival key assets can matter more than the target's standalone economics — which invites antitrust scrutiny of how platform incumbents use their balance sheets against each other.
The trend: This is an early data point in the enduring dynamic of platform giants using acquisition pipelines not just to buy growth but to deny strategic assets to each other — a logic that resurfaces with every generation of hot startups, from social media to group buying.