When time is the competitive weapon, a small, nimble company can out-maneuver a large company every time. A startup also doesn't have any sacred cows. It can come into a new business with a remarkably open mind. And with the Internet, it can ask questions and propose business models unlike any we have seen in the physical world. In contrast, many incumbent businesses seem wed to their channels of distribution, their partners, their payment mechanisms, and thus are not the first movers on a new business model.
Big companies have more to lose by making abrupt changes.
The Internet is a new direct distribution channel, and new distribution channels tend to benefit new companies. Incumbents have channel conflicts and business relationships that keep them from selling directly to consumers. In the PC industry, the Internet-based direct mail approach was a boon for Dell and Gateway as new entrants, but Compaq and the other incumbent PC companies failed to benefit. A startup can also partner in a very focused way. When a large company like Microsoft seeks a partnership, the partner never knows for sure who it is dealing with-which of Redmond's product groups will learn about the proposal, or which other parts of Microsoft may come around to hurt them.