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Big Players Have Generic Solutions - Scope For Focused Approach
First of all, what these leaders provide are generic solutions. Facebook's social networking platform is a generic one and so is Google's search. Existence of these generic solutions does not take away the need for more specific and focused solutions, such as a social networking platform for entrepreneurs and investors (AngelList) or music lovers (Last.fm) or software developers (GitHub), or a search platform for research journals (Jstor) or jobs (Indeed). Similarly, while the world is going crazy over smartphones, some companies are actually doing well making low-tech cell phones for seniors and poor people. And while Oracle and IBM are the leading database software provider in the world, there is now a lot of demand for specific NoSQL solutions (such as MongoDB and Hadoop) as well. No matter how big and successful the leading player is, there is always demand and scope for focused approach.
Too Much Investment In Existing Solution
Big companies are already invested heavily in their existing products in terms of technology and money. They have roadmaps going at least a year out. It is not easy for them to change their product direction just because a small unknown irrelevant company is doing something in the area that they dominate. And even if something does show up in their radar, it is very expensive for them to make major change to their product, both technically and financially. Typically these decisions will need to be run by senior management before they are acted upon. Their investment in the existing solution does not allow them to change their direction or add extra features to the product quickly enough.
Size and Success Works Against Them
I have read many startup articles about investments, and one of the common questions that investors apparently ask entrepreneurs is, "What if Google (or Facebook) does what you are trying to do?". Well, to be honest I find that a very dumb question. First of all, just because some one or some company can do something does not mean that it will do it. And second, even if it does, it is not necessary that it will be able to pull it off successfully, case in point Google+ and Bing. The fact that these companies are successful and big, actually kinda works against them. Their size and success does not allow them to make decisions quickly and execute them fast enough. And in addition to that they have their own priorities and roadmaps to follow. A small company or a startup, however, does not have this disadvantage. It is much more agile than its more successful counterparts.
Even though general understanding is that if you are launching a new venture you are competing with the big boys right away, it is not true. Big companies are not really your competitors, and will not be so for a long time. In fact, instead of smaller players fearing the big ones, it should be the other way round i.e. big players fearing the small ones, especially because of their agility and focused approach. And this is one of the reasons why we are seeing a trend of these big players acquiring or "acqu-hiring" startups.