Business News Social Media, — April 11, 2012 1:09 — 1 Comment
The list of tech giants buying up hot web firms is long, but the clear benefits aren’t
So Facebook is buying Instagram for $1,000,000,000 (in a mixture of cash and shares) even though Instagram’s revenues don’t add up to $0,000,000,1. Why? Because, said Mark Zuckerberg, he wants to ”offer the best experiences for sharing beautiful mobile photos with people based on your interests.”
In other words, it’s all about the social aspect – holding friends close and, most importantly, making sure that Facebook’s gravitational attraction for all things social becomes even greater.
Nowadays, buying social networks – in whatever form – has become the rationale for big-money purchases.
But how well has that worked out in the past? Let’s look back at some of the previous – and current – acquisitions of social startups to see whether there are any clues.
• Yahoo bought the photo-sharing service Flickr for a rumoured $35m in March 2005. It grew quickly and became a reference point for online photography due to its willingness to let photos be shared. But amid Yahoo’s woes, and the growth of MySpace and then Facebook, it has withered in importance. Rumours suggest Yahoo might sell it. Unlike many Yahoo properties, it is profitable.
• Google bought Dodgeball, a fledgling “location check-in” service, where you could say where you were if you could get online, in May 2005. “We don’t have any announced plans for it,” Google said at the time. It closed it down, though it did set up its own “Google Latitude” tracking/check-in service. The founder of Dodgeball, Dennis Crowley, left and in 2009 set up FourSquare – another location check-in service which quickly became bigger than Google Latitude.
• News Corporation bought Myspace for $580m in July 2005. Heralded as a brilliant, insightful move at the time (Facebook was only a year old and hadn’t broken out beyond a few US universities), the lack of investment and inconsistent application of management doomed it when Mark Zuckerberg’s laser-like focus came into play. In June 2008 Facebook passed Myspace for viewings worldwide; it never looked back. News Corp sold Myspace in July 2011 to a private equity company (and Justin Timberlake) at a huge loss.
• Yahoo bought the social bookmarking service Delicious for a rumoured $20m in December 2005. The idea seemed to be to knit the sites people had bookmarked and tagged into search results, using human insight to tag the web. It never gained critical mass, and was sold off in late 2010 to the founders of YouTube – who had since exited Google.
• Google bought YouTube for $1.6bn in November 2006. Rather like Instagram today, the nascent video-sharing service had zero revenue but was already bigger than Google’s own Google Video; the latter was killed off. YouTube was in the right place at the right time: broadband had just come into play and video could work on desktop PCs. YouTube now sports lots of ads – though Google has never revealed whether it is profitable in its own right. It remains the biggest video-sharing site online by a gigantic margin.
• AOL bought British teen social network Bebo for $850m, the last of AOL’s giant buyups, in March 2008. For a while it looked like a smart move – but Facebook rose like the sun, and as Bebo’s users grew older they shifted allegiance. Bebo was sold for just $10m in July 2010 to a private equity company.
• Facebook bought Friendfeed, which had looked like a rival to Twitter, for $50m in August 2009. Some of the ideas of the site were wrapped into the Facebook Timeline, but essentially the purchase was done to get the developer talent inside Zuckerberg’s stable.
• Finnish mobile phone company Nokia bought Dopplr, a social travel network of sorts, for an estimated $20m in December 2009. It withered on the vine: Nokia was going through an upheaval sparked by Apple’s iPhone and Google’s Android, and any social strategy was lost as it tried to regain control of its existence.
• Microsoft bought the internet phone service Skype for $8.5bn in May 2011. Skype is still going strong, but it’s hard to see how Microsoft is ever going to earn its money back, unless it carries on for about another 100 years. Equally, Skype is a useful protection against all sorts of disruption – and the larger it gets, the harder it is for rivals to ignore. Previously, Skype had been owned by eBay, which had thought people would use it to chat about auction items; they didn’t.
• Facebook bought location service Gowalla for $3m in shares, leaving the bigger “check-in” player, FourSquare, out in the cold, in December 2011. Facebook already had its Facebook Places check-in service, but wanted the Gowalla team. The Gowalla app has been discontinued.
• Twitter bought the simple blogging site Posterous – the smaller rival to Tumblr – for an undisclosed amount in March. The two will be kept separate, Twitter says. The clear benefit is that it gives Twitter more places to sell adverts.
• Social games company Zynga (best known for Farmville) bought social game company OMGPOP, with its Draw Something app for $200m, in March. The result? Within days, the number of people playing Draw Something began to drop off precipitously. Everything now hinges on whether OMGPOP can draw something new and profitable out of its hat.
• Facebook bought photo-sharing service Instagram for $1bn – roughly $33 per user – this week. When you consider that it will be able to get location, sharing, time and camera data for those people (and more) into the future, it’s probably not a bad bet. It certainly keeps Google+, which has been growing in popularity with photographers, at bay; Instagram was initially available only for the iPhone but is now on Android phones too.
The overall pattern isn’t clear – except that Yahoo and Nokia haven’t managed to make the best of their acquisitions, while for Facebook and Twitter it may be too early to tell.
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