This is the kind of fairytale analysis that gives blogging a bad name. First, not every startup would be willing to sell at their current valuation. Facebook wasn't willing to sell to yahoo for 3 billion last year. Most VCs and a lot of founders are quite willing to decline immediate gratification for the promise of a much larger return in the future.
Second, its not like you can just place an order for every startup in existence on Amazon. There would be significant acquisition costs and the overhead on buying 44 billion worth of startups would run into billions itself.
Third, the previous issues pale in comparison with the problem of what to do with all the startups once you've bought them. Do you let them continue running independently? Do you integrate them all into Microsoft? Do pick and choose and do both? In any case, they'll need large amounts of funding which previously the market would have provided. How do you manage all of them together to get the optimal outcome that again the market would have provided? Its not clear to me that Microsoft, or any other company, could feasibly do all this. The likely scenario is that Microsoft would be paralyzed and go bankrupt, or most of the startups would be neglected into oblivion.
What the article is really talking about is replacing a distributed market with a centralized system. It is well known that this is grossly inefficient.
The real lesson here is the incredible efficiency of markets. In this case a market can use only 44 billion to create something that a centralized system wouldn't be able to replicate for even a trillion dollars (warning: this number pulled out of a hat to make a point).
For $44 billion, Microsoft could buy every Silicon Valley and Silicon Alley venture-backed start-up in existence. That includes Facebook at $15 billion. It includes Slide, RockYou, and every other elemental company. It would be a Moe Green kind of scene like at the end of the Godfather when Michael Corleone takes out all the heads of the five families. It would turn Microsoft's Internet business around overnight. It would be the ultimate coup.
That is indeed the scariest thing that I have read this year.
Sure, they could buy every startup in existence. But could they hold them?
If you buy a startup and then put it on a shelf, the employees quit and use the money you gave them to make another startup, or retire to Barbados. You have to keep them busy, and interested, and to do that you have to challenge them, flatter them, help them to grow. Who has the time to do that with all the companies in the Valley at once?
The flip side of this paradox is: Steve Ballmer controls billions of dollars, but he can't buy time. There's only one Steve Ballmer, and he can only make so many decisions in a year, no matter how much he spends.
Frankly, I think giving Microsoft the gift of every startup in the Valley might be a very effective way to kill the company. They wouldn't have any idea what to do with them all. The flood of brilliant new employees would overwhelm the existing corporate culture. Everyone would spend five years sitting in cubicles, editing .emacs files, upmodding posts on news.yc, going to the occasional meeting to talk to the shell-shocked managers who are desperately trying to bolt everything together into some kind of strategy, and waiting for vesting day -- when they will all leave and start another bunch of tiny companies. In other words, it would be like Microsoft probably is now, only more so.
But Microsoft has been declared by the courts to be a monopoly that has abused it's market position. Every acquisition must be considered in that light. So they won't be buying up Silicon Valley anytime soon. (and certainly not with a Democratic administration coming to power).
OTOH they could diversify: buy up biotech & nanotechnology firms, etc. and put part of the $44 billion into VC investment.
Microsoft buying every company in Silicon Valley would just be an indication that the chance of being bought out is even greater than previously thought, leading yet more people to create startups. The whole thrust of startups is that they are "started up". It's not like our current number of startups is all we have for the foreseeable future.
What the article is really talking about is replacing a distributed market with a centralized system. It is well known that this is grossly inefficient.
The real lesson here is the incredible efficiency of markets. In this case a market can use only 44 billion to create something that a centralized system wouldn't be able to replicate for even a trillion dollars (warning: this number pulled out of a hat to make a point).