Remember Stacker? Another Look at “Killer” Acquisitions in the Digital Economy

Many acquisitions of startups by incumbents in the digital economy have resulted in a significant boost to marketplace recognition and interest in innovative, but frequently unknown and resource-constrained companies. However, some have argued that these acquisitions, far from accelerating the pace of innovation and the quality of products available to consumers, are instead “killer acquisitions” made to eliminate potential competitors. Whether these acquisitions enhance or prevent competitive innovation is a question often raised, despite the fact that they rarely result in the disappearance of the innovative products. The difficulty of this question is heightened in the digital space. In this article, we use an economic framework and two illustrative examples of acquisitions in the digital space to examine these issues.

By Benoit d’Udekem, Divya Mathur & Marc Van Audenrode¹

I. INTRODUCTION

In 1990, a small software corporation, Stac Electronics, released a drive compression software called Stacker that doubled PC hard drives’ volume. At that time, hard drives had limited capacity and were expensive. Unsurprisingly, the drive compression software was hugely successful. In 1993, Microsoft released version 6.0 of its flagship operating system, MS-DOS, which included its own compression software. This led to a long legal battle between Microsoft and Stac Electronics, at the end of which Microsoft had to remove its drive compression feature from MS-DOS