By Tom Foremski for SiliconValleyWatcher

I just got back from India and I noticed that JotSpot has been acquired by Google. In July of last year, I had lunch with JotSpot founder Joe Kraus, also the co-founder of Excite, the "Google" of its era.

Mr Kraus complained about the "giant sucking sound" coming out of Silicon Valley's Google and Yahoo. Will these companies end up buying all the cool companies around? What will this do for innovation?

Mr Kraus's fears were well placed. However, for JotSpot, I think they got out in time. Clearly, Mr Kraus did not believe that he could go on much further.

Google Docs and Spreadsheets already had a lot of JotSpot functionality. JotSpot brings a heck of a lot more, of course, but it would only have been a matter of time before it filled in the gaps.

In addition, Google is not interested in monetizing these services, at least not for now. If you are going up against Microsoft, Redmond wants revenues and so there is somewhat more of a level playing field--even though Microsoft can out market competitors and it has enormous scale.

But if you go up against Google, you also go up against a competitor that doesn't care about revenues for most of its services. That's a

This does not bode well for SocialText or Coghead, although I'm sure that these companies are saying that it "validates" their businesses. There is still some hope for them in that they can go after the corporate market which is full of server-huggers and who will not use Google or Yahoo for business services.

To save you a click or two, here's a reprint of my post from July 25, 2005:

Will just a few big tech companies end up owning all the cool/hot tech companies? That's the way it's looking right now, and it's going to be a big problem.

That's because the big boys are controlling the valuations of startup companies. With fewer buyers around, it becomes a buyers market. Which means fewer reasons to build more startups.

Within each tech sector there are now just one or two companies of a size that can compete against each other, and the other companies in their markets are generally much smaller.

That means it's less likely a bidding war will develop over a hot company, and since there is not much of an IPO market, it's a take it or leave it type of deal.

When I met recently with Joe Kraus, co-founder of search giant Excite (pre-Google) he said he was worried that there was a giant sucking sound coming from Google as it acquires more and more companies.

Yahoo has done its fair share of sucking too, Flickr, one of the coolest/hottest startups of 2004 became part of Yahoo earlier this year.

In other sectors, tech giants such as Oracle, Intel, Cisco, IBM, Microsoft, and Broadcom behave in much the same way. They buy the most promising private companies and they do it nearly every month.

The upside to fewer companies chasing hot companies is that there is less mania and less pressure to buy. When I visited with Dan Scheinman, Cisco's head of M&A, earlier this year, he said he had more time to identify and evaluate a potential acquisition. Valuations were now more reasonable than during the dotcom boom years, he said.

Ten baggers quicken the heart

Reasonable valuations however, don't stir the blood of venture capital investors. There is no opportunity for a ten-fold return on a VC investment when valuations are "reasonable." Yet a potential ten-bagger is the minimum requirement for a VC firm to be interested, generally.

So is innovation in trouble? Will we have less of it in the future?

It is difficult to argue with the economics of scale. I'm not talking about scale in terms of being able to negotiate lower costs on resistors or disk drives. Companies such as Google, IBM, Oracle, SAP can monetize a product or service far better than the startup venture can because they have scale in infrastructure: the global distribution channels, customer base, and support.

Is there a way around this? Let me know.