in Google, M&A, tech

License, don’t acquire

Silicon Valley has a bad habit – that of buying outright any company that might prove useful to them and the tech community. When Google bought Waze, Facebook bought Spool and Pinterest bought Icebergs, they all did it to bring to their platforms, users and companies, ideas, technologies and features that they believed would be a good fit with their own setup.

But they did it wrong. Waze is a great app and when it finally disappears (as do all Google acquisitions), it will be a great loss for it’s users. Waze has a unique UI, a dedicated user following and features that are not at all present in Google Maps. While the integration went well, Google Maps is an overloaded app with too many features. Eventually, they’ll simplify and drop a few features, getting rid of many core things that Waze is known for. In no circumstance will Waze ever recover from this setback.

Spool was a good app. Today, it’s site is a default “Apache is working on your cPanel server” message and it’s features are nowhere to be seen in the Facebook app (a bloated, messy app as is). Icebergs was something I signed up for and promptly forgot. Recently, I got an email from them to tell me that Pinterest was acquiring them. The email was very upbeat and listed out how Icebergs would be ‘joining forces’ with Pinterest, adding private messaging features to the platform. Icebergs would feel perfectly at home at this visual discovery tool. Unfortunately, in the second last paragraph, Icebergs was planned to be discontinued from the first of this month, it’s users asked to download their data. There’s nothing like Icebergs out there. There’s no place for Icebergs data and no open-source or a thin-client which users can use offline. It’s dead.

All of these calamities could have been avoided. Each service could have benefitted hugely if the larger company would have licensed their technology instead of acquiring the company outright. The users would have benefitted from a company that has a steady source of corporate income, the company would have been able to think long term and use the incoming money to expand features and services for their core product and their ‘free’ users. Waze could easily have licensed to Google, providing them with the data that Google Maps now uses to show me traffic patterns on my routes, Icebergs could have used their internal design team to help guide Pinterest into making better services for their users and Spool, though a two-man effort, could have spent time helping Facebook and raking in potential millions through that effort; though sadly, many apps out there are made often with the express interest of getting acquired.

Currently, silicon valley has an unhealthy obsession with acquiring companies. This manifests mostly in VCs forcing entrepreneurs into making services that are ‘acquirable’ and entrepreneurs often trying to game the system by making apps that gather huge following only to sell them to the highest bidder as soon as possible. This is bad because –

a. It’s a system that can be gamed. (Kind of how VCs and PE Firms make ‘real money’, I guess)

b. It promotes short-term thinking and very little real problem solving.

c. Large companies get into fits of trying to become lean, firing teams, cutting down features and splitting apps and services into multiples, thus destroying the value created by the acquired app.

d. It leads to distrust in the users. Any new app or service is looked upon as potential deadweight. The more popular the service, the faster it’ll start talking of getting acquired and the worse it is for users. In this, the users are still trusting folk and keep falling for the same old trap of spending way too much time and effort in build ecosystems around platforms that die out too quickly. But eventually, they’ll wisen up to the act and start punishing new services.

e. Dont even get me started on investors eternal question of “So how exactly did that old acquisition add value/provide ROI ?”

Licensing is a good thing for the larger companies too – it gives them the opportunity to dictate the general direction of the service while maintaining the necessary distance from the actual operation. If at any time, they feel that the service isn’t worth their time any more, they can simply walk away at the end of the contract, without costly layoffs, shutting down of services and disrupting their own apps and features too much. This’ll only lead their users to trust them more, because when they see a new feature, they’ll realize it’s coming only after a good amount of thought and effort, instead of a hasty acquisition from the head honchos.

There are, of course, risks in licensing instead of acquiring. While a license (and contract) gives them some control over the service’s future, the larger company cannot be guaranteed complete control over every aspect of the smaller service. This headache is reason enough for the larger fish to swallow the smaller one whole. But the contract can be binding in drawing a roadmap for the future of the smaller company and in case of financial issues or creative differences, the larger companies can then acquire the smaller one out-right anyways. The habit of buy-first-ask-later is bad for the image of the larger companies and the trust of the users of the smaller ones.

I don’t expect this modus operandi to change overnight or to change at all, but it’s time for companies to stop thinking of acquisitions as the ‘easy way out’. It’s more troublesome and less healthy for the industry, the users and the companies themselves to acquire than to license, and the exhaustive large list of “failed” acquisitions are a testament that something needs to change, and this is just ONE recommendation!

 

Note: This post was edited by my brother and lifelong editor, Nipun Khanna. His changes are extremely valuable to the shape of this post.