In Silicon Valley, the chief executives of big tech companies in recent years have abided by an unspoken rule. Spending vast sums of money to swallow up competitors was off the table. Even snapping up the smallest of start-ups could bring unwanted regulatory attention.
After this week, that tacit understanding may no longer be in effect.
On Tuesday, a federal judge ruled that Meta had not illegally stifled competition when it bought two nascent rivals, Instagram and WhatsApp, more than a decade ago. The decision was a sweeping victory for the social media giant — and more broadly for Silicon Valley, which has relied on big companies buying smaller ones to fuel the innovation engine.
Now Mark Zuckerberg, Meta’s chief executive, as well as the leaders of Google, Microsoft and others, may be able to resume buying young start-ups to stay ahead of the pack. The decision came not a moment too soon, as the tech industry spends billions of dollars to compete on artificial intelligence.
The Meta antitrust ruling “will eliminate a lot of the gymnastics that the major acquirers are going through, and it should really open the door” for more deals, said Tomasz Tunguz, a general partner at the venture capital firm Theory Ventures.
Meta declined to comment on whether it would begin buying companies again. Jennifer Newstead, the company’s chief legal officer, said the judge’s ruling “recognizes that Meta faces fierce competition.” She added that the company would continue to work with the White House “and to invest in America.”
Buying start-ups has long been a core part of Silicon Valley’s circle of life. Venture capital firms invest in young firms hoping that a few become home runs like Google, Meta or Uber. The start-ups that do not turn into megahits still hold something of value to bigger firms, including fresh talent, new ideas or cutting-edge products.
For years, tech’s biggest players paid premiums to gobble up their would-be competitors. In 2006, Google bought YouTube for $1.65 billion, which was considered a whopping sum at the time. YouTube is now valued at roughly $500 billion, analysts said.
Google also acquired Android, the basis for its mobile operating system, for $50 million in 2005, and Waze, the maps start-up, for just over $1 billion in 2013. Both Android and Waze have become central to Google’s offerings.
Meta, meanwhile, snapped up Instagram, WhatsApp and other small start-ups. Those services have become a major part of Meta’s offerings, with billions of users. At one point, Mr. Zuckerberg tried to buy Snapchat, though that purchase never materialized.
But the deal-making cooled this decade. After President Joseph R. Biden Jr. appointed Lina Khan to chair the Federal Trade Commission in 2021, she pursued a more hawkish strategy against tech acquisitions. The Justice Department also started investigating Amazon, Apple and Google for anticompetitive practices.
Big tech companies were forced to get creative. Many began striking deals that were acquisitions in all but name. These were often known as “acquihires,” which meant the companies paid millions to hire the top talent of a start-up but not the rest of the organization. That left the zombie carcasses of many companies littered across Silicon Valley.
These everything-but-the-company deals became especially important in the A.I. boom. In June, Meta invested $14.9 billion for a 49 percent stake in ScaleAI, a data labeling start-up, and hired its chief executive, Alexandr Wang, to be Meta’s chief A.I. officer. ScaleAI promptly downsized its work force after Meta’s investment, and a small team of its A.I. researchers joined Mr. Wang at Meta. ScaleAI is still operating, but without its founder, key employees and some former clients.
In July, Google spent $2.4 billion to hire the leaders of Windsurf, another A.I. start-up. As part of the deal, Google also paid for a nonexclusive license for Windsurf technology. And last year Google, Microsoft and Amazon all struck similar deals for the start-ups Character.AI, Inflection and Adept.
Over time, these hiring deals have hurt the start-up ecosystem by devaluing the equity of young companies and letting only a few people profit, Mr. Tunguz said. “It breaks the social contract of Silicon Valley” where everybody should benefit, he said.
Since President Trump’s inauguration, tech companies have been hopeful that regulators would be more friendly toward deals. Venky Ganesan, a partner at the venture capital firm Menlo Ventures, said Tuesday’s ruling in the Meta antitrust case would help with that.
“The thing that most people are happy about is the clarity,” he said. “Tech markets hate uncertainty.”
Strange deal structures may no longer be required for tech companies to get their hands on hot A.I. assets, added Samuel N. Weinstein, a professor of law at Benjamin N. Cardozo School of Law.
“It could be that they’ll look at this decision and the Trump administration generally and think, ‘We don’t have to do this anymore because we don’t have to hide what we’re doing,’” he said.
Eli Tan covers the technology industry for The Times from San Francisco.
The post Meta’s Victory Opens the Way for Silicon Valley to Go Deal Shopping appeared first on New York Times.
