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Acqui-hires are strange

March 31, 2013

It’s common in the tech industry for big companies to buy startups. Acqui-hires are a new trend, and what makes them interesting, is that they don’t buy the startup’s product, but their talent. What makes them ridiculous – the reason I’m writing this article – is the money being thrown around compared to the actual talent being hired. The sums of money are enormous, and often the startups are extremely young.

Recently Yahoo bought Summly for $30 million. While this is small change for Yahoo, is it a good investment? Business Insider point out many things in that article:

  • It’s a 3 person team
  • The lead developer is really young and immature ( Gizmodo made him cry )
  • The app itself has less than 1 million downloads
  • They’re based in London

To me this doesn’t sound like a well planned purchase. Are developers so hard to come by in the US that Fortune 500 companies have to pay $10 million per developer? If I was in Marissa Mayer’s shoes, I probably wouldn’t have done it. What did stand out about Summly ( and especially the CEO, Nick D’Aloisio ) is how vocal and out there their product was. I guess it was the same tactic that got that Gizmodo article which brought them into Yahoo’s crosshairs, but I’m not sure that’s a good thing.

If I was looking into acqui-hires, I wouldn’t buy the loudest company. It’s easy to scour mobile app stores to see apps/games with over 1 million downloads. Sometimes those apps are developed by single developers, or really small teams. Some of them go on to become huge ( like Instagram or WordFeud ), some stay relatively quiet ( like my own DigiClock, or Tupsu ). When they’re in that ½ million to 10 million range, is the perfect time to buy them. Those developers have proved their worth as developers, but aren’t big enough to cost the company a lot.

This also helps avoiding massive expenses on one-hit developers. When I heard about Zynga’s purchase of OMG Pop, I took a good look at their catalogue. Historically, they are not an overly successful developer, and got lucky with a fantastic game idea. Because of this, their price was over inflated. Zyga’s money could have been better spent buying a smaller developer like Evgeni Gordejev.

A little bit of market research when doing acquisitions can go a very long way! Companies like Zynga and Yahoo, who don’t have the rosiest future forecast at the moment, should probably be more cautious when splashing out large sums of cash.

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