This paper empirically analyses mergers and innovation in the cloud computing market, one of the fastest-growing digital markets. We first examine mergers by big tech firms and venture capital funding for young start-ups in this market. We find that leading firms in the market tend to acquire young startups, whereas non-leading firms tend to purchase more established firms to gain market share. We then conduct an ex-post evaluation of how mergers in this market affect the innovation output —measured by patents. The results show a positive impact of mergers on innovation. In this market, and our measure of innovation, acquisitions do not necessarily harm innovation. The breakdown of this empirical analysis reveals stronger positive effects when the firm holds a leadership position in the market, operates as a multisided platform, or when the target is a publicly traded company. The value of the acquisition does not exert any additional impact.