Last Monday, Microsoft announced it acquired MineCraft, the open-world construction adventure that has become arguably the most popular game, well, ever.
The $2.5 billion price tag for MineCraft creator Mojang AB is not chump change, even for Microsoft.
Big companies buying out smaller ones is nothing new to the tech world. It seems Facebook tries to buy a new company for billions of dollars every six months (stay strong, Snapchat). Recently, Facebook acquired Instagram and Oculus virtual-reality and Google purchased Songza.
Large companies purchase smaller ones to increase profits or to move into another market quickly and easily.
Presenting, the Pac-Man Theory.
Large companies (Pac-Man’s) eat smaller companies (Ghosts). But it goes deeper than that.
For those of you too young to know, once Pac-Man eats a ghost, after a period of time, another one pops up.
Once a large company acquires a smaller company, instead of getting rid of competition, it actually makes room in the market for another company to come in.
Thus, the Pac-Man Theory.
According to Sally Ng, executive director of Fredericton-based start-up incubator Planet Hatch, when companies are acquired, they’re moving into a new stage of business. If they don’t evolve, they face consequences.
Even in Fredericton, companies sell to tech giants for hundreds of millions of dollars. Radian6, a tech start-up founded in Fredericton, sold for more than $300 millionn when SalesForce purchased them. IBM made a huge purchase in our own backyard when they acquired Q1 Labs for an undisclosed amount.
“When a business plateaus, they lose their talent,” Ng said, “For you to retain your people, your company needs to continuously grow.”
Acquisitions can have a bad reputation because they can lead to the loss of jobs.
“Yes, you can argue jobs will be taken away, but it’s no different from a company shutting down,” said Ng.
IBM still employs 160 people in Fredericton, while Salesforce laid off about 100 of 420 Radian6 employees globally a year-and-a-half after purchasing the firm.
We live in a time where huge acquisitions happen constantly and the prices grow sky-high, making tech-industry headlines the world over on a daily basis. Huge amounts of jobs and profits are created and lost with every sale, and the roller-coaster isn’t stopping anytime soon.
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