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I never understood why these companies just didn't invest as a hedge. A lot of these startups didn't need outright purchase but wanted working capital. Blockbuster could have bought 10% of Netflix as a hedge and seems like similar things here. You also don't have all the "merge everything together" nonsense that kills deals like this AOL+Time Warner and now Verizon+Yahoo+AOL. You can hedge a call option with a put option once you understand how.

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I have wondered the same a number of times. Enough that I wrote an article on it. Business Model Fire Insurance:The Phoenix Strategy

https://www.linkedin.com/pulse/business-model-fire-insurance...

In short I was making the point that large corporations should deliberately invest in start-ups that directly attack their own current business model. Think of this as a way of stress testing your business model with the benefit that you own a stake if the attacker happens to succeed. Side benefit, those start-ups that fail will have small teams of technically talented people who now know your market, and are now needing an acquire-hire. Pick through and hire the best out of the failed efforts.

Sometimes they do.

The most famous example I can think of is Microsoft heavily investing in Apple when Apple was just about at its low-point.

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