Acquisitions–a better startup exit strategy?

Late last week, Facebook quietly acquired location “check-in” service startup Hot Potato—no doubt an addition to its recently launched Places service.  This is the latest in a string of startup acquisitions for Facebook (which included 40 patents from Friendster and Chai Labs), but the company is not alone.  A number of big tech companies have been on a shopping spree lately, especially Google, which recently gobbled up social media company Jambool for $70 million. 

While Google and Facebook are clearly gearing up for a face-off in the social networking space, the growth of recent acquisitions suggests that M&A is an increasingly relevant exit option for startups.  If this is more than just a temporary trend, the question becomes how this will affect innovation and competition in the tech space–will the strong just keep getting stronger, or will the Googles and Facebooks of the next generation persevere?