There was a time, beginning about 15 years ago and ending about 5 years ago, when an entrepreneur's hopes for funding from a VC could be dashed with a single question:

"Could Microsoft incorporate this into Windows or Office?"

Microsoft had such a dominant position in the operating system that the presumption was that it could own any market it wanted, and that if a software startup was successful then Microsoft would want that market for itself. No venture capitalist wanted to invest in a company which Microsoft might squash almost as an afterthought.

Today, the killer question for web-based startups is "Can Google offer that for free?"

Google has such a dominant position in the search market, and has been spreading to other online services (mail, maps, blogging, etc.) so aggressively that the presumption is it can own any service it wants. There are exceptions, of course: Flickr remains a more popular photo sharing site than Picasa, and YouTube is winning big share in video.

But long-term, how can a startup with a few million for development compete against a billion-dollar behemoth growing 80% per year and generating almost 50% operating margins. The amount of cash Google can throw at a new market is nothing short of staggering, and the company has a history of executing well.

So any venture investor today has to presume that if a new online service is modestly successful, and Google can offer it for free, then Google will attempt to dominate the market. That gives the startup three options: sell to Google, sell to someone stupider and poorer than Google, or get crushed.