Our Man In Chicago

Can Tumblr still be Tumblr if it’s owned by Yahoo? It’s a complicated question. Even someone who thinks about this stuff all the time like Mathew Ingram at GigaOm acknowledges it “makes a certain kind of horrible sense” but wonders how likely it is that Yahoo won’t screw it up.

Can a startup still remain “cool” if they’re owned by a big company? And what is “cool” anyway? What’s a set of best practices when you’re acquiring something, whether it’s a media startup or a tech startup.

I’m working through some of these questions so this post will be less of a fully-realized piece and more of a scratch pad of thoughts of mine and others. I’ll update as needed. (Please feel free to jump right to the comments and offer your thoughts.)

There are plenty of reasons why acquisitions happen. One company might want the talent or technology of another or want to put a competitor out of business. In these cases, the larger company intends on shutting it down completely. Apple’s done this a few times – LaLa and Color Labs are two examples that spring immediately to mind. As my friend Rachelle Bowden pointed out to me last night on Facebook, when Google acquired Feedburner they shut it down as a company but kept the product (and, I think, some of the talent) though six years post-acquisition, the product may not be long for this world after years of neglect. (So one rule for acquisitions might be “Don’t let it languish.”)

[In the interest of limiting the scope of the discussion here, let's deal mainly with companies that seemingly want to keep a company running and keep it "cool." There's a separate question of how big a startup can get and still remain "cool." It's a separate set of considerations but two notable examples of ones that have: GrubHub - which is in the midst of a merger with Seamless - and (as pointed out on Facebook by my friend Carter last night), Southwest Airlines. Off the top of my head, Gawker's an example of a digital media company that keeps growing but retains its edgy, innovative spirit. It's new Kinja integration/redesign may just be what Nicco Mele and John Wihbey describe as the future of big media as a platform for brands. Pitchfork is another one to watch as they expand into film coverage.]

So how does one define cool? Gordon Wright pointed out that small doesn’t necessarily mean “cool.” “Some big companies have soul, many startups don’t.” 

I’d say “cool” is remaining relevant and and innovative: continuing to create new features and retain the spirit and soul of the product. (Don’t agree? Head to the comments and give me your definition.) 

Does it depend on the company who buys you? Yes and no. Yahoo’s run of acquisitions is not good as documented in this Valleywag post “A brief history of Yahoo buying and ruining things.” Flickr is a case in point and this Gizmodo post from last year explains how it all happened: they didn’t innovate, they ripped out core features and essentially alienated the audience. (So two more rules for success: Let the company be itself and help it scale.)

How does Google fare? Last year, Google’s VP of corporate development said one-third of Google’s acquisitions failed. Here’s a list of acquisitions by Google. But Google bought YouTube and that product has thrived and grown revenue as it’s become bigger. Hunter Walk explains why it was a success.

A few local examples:

On Twitter, Justin Massa points out Groupon – a company that famously refused to be acquired by Google – has been making many acquisitions as of late including Fee Fighters, a Chicago-based startup.

On the media side, there’s the Chicago Reader and Ars Technica.  The Reader was bought by The Sun-Times about a year ago and is now seeing integration of Reader content into the main paper. (Here’s a Vine I made of what that looks like.) But it’s left the Reader alone and it’s profitable. And around its 10th anniversary in 2008 Ars Technica was acquired by big magazine publisher Conde Nast yet even people who follow media are often surprised to learn this. Another example of leaving it alone, but helping it scale.

But then there’s Everyblock. It was bought by MSNBC in 2009, pivoted into a focus on community discussions and grew but was then shut down early this year. (Leading to this cautionary tale from Everyblock founder Adrian Holovaty this week regarding Tumblr: “My experience: even if people @ acquirer are great, it’s inevitable they’ll one day be replaced by clowns.” (Not sure how you craft a rule around that one.)

Last night I asked friends on Facebook whether you can remain cool as a startup after acquisition. Here’s what they said, though I have re-ordered or compressed some parts of the discussion for clarity (again, apologies for the less than visually stunning look of the below. Fancy plugins next time!) UPDATE: I’ve now made the Facebook thread public. You can read it in full here or read highlights below.

Andrew Huff: Yes so far: Instagram. Yes, though “cool” is perhaps relative: TypeKit (acquired by Adobe). No (I think): Blogger. [Ed note: Google acquired Blogger in 2003 but joked about it in 2001.]

Blagica Stefanovski Bottigliero: Yes: Orbitz. [Ed note: Acquired by Cendant in 2004.] I left before the buy but what I think was cool was the sick search technology that continued on. Motorola: jury is out. [EN: By Google in 2012.) Another thing to explore is how acquisitions that worked altered or kept monetization models.

Jackie Danicki: Qik, where I loved working in 2008-2009, was acquired by Skype right before Skype was acquired by Microsoft. Live streaming mobile video, super innovative before purchase and after. There are literally hundreds of startups that are innovative post-purchase - but they are not all household names. That is no measure of their worth ($) or innovation.

Mike Fourcher: All State and esurance: Yes. Sears and Lands End: Yes. Unilever and Ben & Jerry's: Yes. Disney and Marvel, yes. [EN: Disney is a great non-media, non-tech example of a company that let its acquisition be itself and helped it scale.]

Benjamin Lipsman: Cisco bought Flip cameras when they were popular, then shuttered it a few years later as smartphones ate into market & Cisco realized they couldn’t market to consumers. Zappos had stayed true to their values after Amazon purchase.

I asked Benjy the following: Do you think that was an example of the market overtaking it or Cisco making missteps?

Benjamin Lipsman: Cisco should’ve seen the market threat before they invested in buying Flip, then they seemed to give up pretty quickly when it was still popular. Had they been able to market to consumers, they could’ve probably sold millions more. David Pogue’s take.

Leah Jones: Considering “Flip” is still the generic word for a small, HD, simple video camera… I’m going to blame Cisco. I think you could look at Twitter acquisitions for examples of how to uncool acquisitions. [EN: Here's a history of Twitter acquisitions as of 2012. It acquired Vine in 2013.]

Andrew Huff: The time between Cisco takeover of Flip and Cisco killing Flip was shorter than a few years, I think — maybe two? [EN: Two years.] Regardless, I blame Cisco. Flip had and still has strong brand identification in the category, and could probably have evolved to remain relevant — see GoPro’s continued success. [EN: Here's a look at GoPro.]

Joanna Brandt: Tom’s? Or are they not big enough yet?

Ellen Malloy: GrubHub merger/bigness just happened. Too soon. I’d say Instagram is also too soon. That said: FourSquare is No Longer Cool with too many big years under it’s belt. Groupon was Never Cool and was also Always Big. Toss in: Apple seemed to have muffled the brilliance of Dragon from afar. 

Then Ellen made a great point about how funding startups may affect their ability to grow and stay cool.

Part of the issue you explore is the dynamic of funding cool startups. And they need funding to reach their cool goals. But the goal of folks who do the investing is the exit. Not the coolness. So the system of how startups get from cool to big is set up to ensure big not cool. Which is not wrong… Since the investor is in the business of the exit not in the business of cool. And it is his money doing the funding. 

Carter Liotta: Ben & Jerry’s is an interesting case study. To a lesser degree, Southwest Airlines.

Here, Mike Fourcher noted SWA was never acquired. Still, they got big but still retained what their customers loved about them.

Carter Liotta:  They retained a fun attitude, but their core business changed dramatically. Their prices are now often higher than legacy carriers on many routes, and they no longer serve many small airports (Providence RI and Manchester NH) after starting service to Boston Logan. The whole point of SW was keeping costs low by flying to small airports… At least at first. Now they act more like a legacy carrier. But you’re right- no acquisition that I know of.

Mike Fourcher: Carter, I disagree. Their first strategy was not small airports, it was low-cost, point-to-point flights, rather than the traditional hub-spoke system. Second, they placed a high emphasis on creating value with hiring and personnel, rather than the cost-plus system competitors had been using. SWA is still behaving that way, but now has enough margin to afford gates in more central airports.

Benjamin Lipsman: Something interesting to watch will be to see how effectively Southwest extends their “coolness” and company ideals to the employees of AirTran, which SWA acquired last year and is finally beginning to integrate.

Ellen Malloy: One follow up on Justin Massa: Groupon looks to have killed Breadcrumb, a company they bought a year ago.

On Twitter, Justin says Breadcrumb is “far from killed, a major focus for them. giant booth at NRA show this last weekend. same for Savored.”

Laura Chavoen: Tom’s Shoes/Warby Parker. Easy Jet.

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I’m going to continue to use this post as the hub for this discussion happening on Facebook and Twitter and pull interesting posts from there as well. Updates to come. But let’s take this to comments: What other examples are there of acquisitions that kept the spirit of the acquired startup? Or ones where it all went horribly wrong? Thanks for contributing.

UPDATE 5/24/13:

This post became the basis for the first hour of WBEZ’s The Afternoon Shift. In thinking this through with host Niala Boodhoo, we started to think about some of the big issues behind Yahoo’s acquisition.

Yahoo is the third biggest display ad server, behind Google and Facebook. Yahoo gets 76% of its revenue from display ads. If you look at what it’s done with Flickr recently, it’s clear they want to scale out Tumblr’s ad business.  Zach Sweard of Quartz looks at how this might work for Yahoo/Tumblr.

So who will Yahoo be serving those ads to? Peter Kafka at All Things D notes Tumblr has 300 monthly uniques but no one’s really sure how many active users; Kafka estimates it at 30-50 million. But it’s not just about Tumblr’s raw numbers, it’s about who those users are, specifically how old they are. If you look at Quantcast’s numbers on Tumblr’s users 29% of them at 18-24 (Internet average is 12%) and 24% are 25-34 (Internet average 17%). Yahoo’s audience is significantly older and the purchase of Tumblr youngs those numbers up quite a bit.

As the news unfolded this week, we also saw Xbox reveal its new Xbox One and how its always-on functionality was meant to deliver a seamless gaming experience. Of course, it also collects data: usage data and data on the physicality of its users. And then during the show, we learned Yahoo made a formal bid for Hulu, confirming rumors about its interest.

Here’s how all of the above played out during our discussion on the show with Samuel Axon, Editorial Director of Sprout Social – with a drop-in from Jim DeRogatis with some breaking news about the Congress Theater. There are a few callouts by me of comments from the Facebook post above.