This is what has been happening. Just about all of the VC-funded innovation out there has been sucked up by the incumbents. EMC has acquired over 30 companies in the last few years. Cisco has acquired well over 100 since 1999.
There have been exceptions, but they have been few and far between. 3Par and Data Domain come to mind. They had truly innovative stuff and defied the terrible IPO markets to create exits. And in the end, they were acquired, too. At least it didn't happen until after their IPOs and their chance to leave their mark on the world.
This state of affairs won't last forever. But it won't be going away anytime soon, either. The IPO market has just started coming back at long last. But it's going to take a while for VCs to adapt. Recent large-scale innovative successes will certainly get VCs' attention (you know they sat up and took notice last week when Twitter went out at $25 billion). But when it comes to tech infrastructure, how long will it take for truly innovative companies to emerge that can change the way we operate as an IT society? It could be many more years.
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