Startups Should Team Up to Grow

[qi:021] Earlier this week, MeeVee, an online television guide, decided to acquire Top Ten Sources, a Boston-based social news and information site. Last night, Next New Networks bought, the production company responsible for Obama Girl, for an undisclosed amount of money. And there is news that Automattic has acquired Gravatar, a small project that gives WordPress users the ability to add avatars to their profiles.

In isolation, these three deals are so marginal and unimportant that you might gloss over them. When taken together, however, they point to a trend that is starting to gather momentum. I have been hearing from many small startups that are looking to either acquire or merge with others in order to bulk up and stay competitive in a very crowded market.

“Time to market,” a phrase typically found in the vernacular of large companies, is making its way down the food chain as well. Acquiring users and boosting page views is a challenge, especially with hundreds of startups vying for attention (and usage). The low barriers to entry for building and deploying consumer web products has resulted in an abundance of companies, many of marginal utility.

Many are mere features makers that need to find a safer cocoon or else face a bleak future. Sure there are some buyers, including Google (GOOG), Yahoo (YHOO, Microsoft (MSFT), eBay (EBAY) and newly proliferate media companies from the East Coast. But they can’t buy everything — and that is why startups should start developing strategies to what is essentially the web equivalent of “marrying up.”

But the clock is ticking. Eternal optimist Tim O’Reilly, in an interview with The New York Times, today expressed concerns about the me-too, copycat startups and the generous amount of dollars they are snagging from venture capital funders. He said that when the bubble inevitably pops, “there are going to be a lot of people out of work again.”

And our good friend Scott Rafer, who has been on both the winning and losing side of the equation, is worried that we haven’t learned from our mistakes.

“Every single one of these [technology] cycles lasted between eight and 11 years. The eight-year anniversary of the last collapse is in March 2008. Now, if someone wants to stand up and tell me why this cycle is somehow going to be a longer one — I’m all ears,” he says. If Rafer is right, then it is prudent for startups to start coming up with Plan B. And maybe Plan B should stand for “buying or merging.”

Disclosure: GigaOM and Automattic share a common investor, True Ventures. Matt Mullenweg, founder of the company, is one of my close friends.