Dare Obasanjo wrote a post about flipping your Web 2.0 startup and gave three reasons why a bigger company would gobble up a startup: users, technology, and people. Paul Kedrosky replied that Dare was wrong, wrong, wrong and that building companies to flip is also wrong, wrong, wrong.
I happen to agree (agree, agree) somewhat with Mr. Kedrosky, in that I wish technologies weren’t being built for the express purposes of flipping (i.e. quickly going from VC funding to purchase by a Player), but, as Dare writes, it does happen. Where I disagree with Dare is in his list of reasons why a company would buy a Web 2.0 startup. He left an important one off the list: image.
One week the web is full of talk about Google, the next Yahoo, the week after that might be MSN (though it is falling far behind the other two–Ozzie just doesn’t have the 2.0 stink; maybe it can buy wordpress.com); then the cycle continues anew. How these companies make money is as much image as software provided. It’s important to all three search engine companies to be seen as the company that’s the leader into a whole new version of the web. However, this doesn’t mean that each company is going to change the way it does business.
Google bought Blogger years ago, and I remember we talked about how this would change Google searches, and we discussed what this purchase meant. Now we can see that it didn’t mean anything, other than Google bought into the hip 2.0 kid at the time–weblogging. Blogger hasn’t changed all that much, other than new features to keep up with other tools; Google didn’t change at all.
When Yahoo bought Del.icio.us, I read comments here and there to the effect that this is going to change search dynamics and the old algorithmic approaches will soon give way to new tagging ones. Yet the statistics don’t support this. Delicious has, what, 300,000 users? Out of how many billions of web users? The number of people who tag–which is really what the Del.icio.us tech is all about, tagging and storage–compared to those who don’t is so skewed as to make tagging a non-starter.
(Not to mention that no one has effectively explained how tagging is going to make for more accurate searches.)
But Yahoo’s buying of Del.icio.us put it into the front page of many publications. It kept it even, or barely even, in the fight with Google for being the ‘hip’ company — the one that people will use for their searches. The site where advertisers should place their ads; the place to connect for other companies pushing themselves as Web 2.0.
Both Yahoo and Google made a lot of money selling space for ads; enough so that they can afford to invest a few millions in small startups that could add to their web 2.0 goodness. Heck, Google just plunked a billion or so into AOL, and we all know that’s an elephant bound for the graveyard. Until it ambles its rattly bones in that direction, though, it still brings an immense number of eyeballs to Google–eyeballs that Google would rather have then concede to Microsoft (it’s competitor in this deal).
Besides: investing money is a good corporate move at tax time. And it doesn’t hurt when investors see these companies seem to diversify — there’s been a lot of talk about bursting bubbles this year.
As for the technology, most of the Web 2.0 startups are based on copious amounts of data stored, accessible via search and subscription, tagged, and wrapped in an API. None of the companies are based on what I would call revolutionary uses of technology. Much of the early popularity of the companies is because the services each offered was free. Oh, and the fact that we have, personally, come to know the folks behind the companies. This then leads to the question: do companies benefit from bringing in the people behind these acquisitions?
Of course they do. After all, the folks behind Flickr and Del.icio.us and Bloglines and so on were the originators of ideas that took off –if I were Google and Yahoo, (eBay, Microsoft, and so on) I’d rather have these people on my team then on the competitor’s. But as we’ve seen with Google/Blogger and Yahoo/Flickr, the startup seems to benefit more from the new association than the other way around. Storage costs money, scaling isn’t cheap. Or easy. (Maybe Microsoft can buy TypePad.)
Before we make an assumption that Google and Yahoo, in particular, are going to throw out their web 1.0 cash cows in favor of shiny new web 2.0 branded calves, the evidence of our eyes does not support the what ifs generated by our fevered imaginations. Disappointing, true; but it is fun to watch each company take a turn on the hamster wheel each week. (Saaayyy, that’s who Microsoft can buy….)