One more! This time FC Now reports on the acquisition by United Online (UNTD) of "certain assets" of PhotoSite, a division of HomeStead Technologies, for $10M in cash and a licensing agreement with the former parent. HomeStead is this web site building company that was named "DEMO God" at Demo@15 after a memorable presentation.
The press release says the following:
PhotoSite is a premier photo-sharing service that enables anyone - from casual to amateur to professional photographers - to quickly and easily display photos on their own personal photo website. With both free and subscription packages available, PhotoSite includes custom albums and photoblogs, full-screen slideshows, online print ordering and much more. [...]
[...] we also intend to integrate it into our existing services - including Classmates.com, NetZero and Juno, and our consumer Web-hosting businesses - enabling us to enhance our current offerings while reaching out to the more than 45 million registered users across our numerous services. [...]
PhotoSite is a "traditional" photo sharing site, allowing users to organize their pictures in albums with themed templates, print them, etc. There does not seem to be a concept of rich community, tags/folksonomies, syndication, blog import, etc. that characterize Flickr or Buzznet.
The press release says it all I guess: United Online has 45 million users, who for a large percentage might not change the homepage "conveniently chosen for them" upon installation of their Internet service. Since photosharing and photoprinting have become so popular, United Online must have looked at striking a deal with one of the market players to offer this feature to their ISP and community site users. Looking at the proposals they got, they ultimately decided to build a "walled garden", or a differentiation, around their own, acquired, photo property as opposed to helping a 3rd party build a strong position and eventually seeing it bought by a competitor.
David Lidsky in the aforementioned piece complains:
Frankly, I'm a little depressed. With the emergence of Flickr (and a far inferior PhotoSite, among others), I thought we'd moved away from the idea of photo-sharing as a secondary or tertiary feature in a portfolio of photo-related commerce. Photo sharing as loss leader or afterthought. I thought photo sharing, which had been revived as a business within the last year, was going to be another example of a dot-com boom era idea that failed only for poor execution, not because it wasn't sustainable as a business.
Fact is, we don't know the answer to that and maybe we never will. Rumor has it that the cofounding couple behind Flickr were exhausted from the startup grind and that's why they sold out. Homestead cashing out a division is a bit of a mystery to me at the moment. The price tag was $10 million in cash and a licensing deal. Chump change, in the scheme of things. Snapfish had already sold itself once, so what's one more time?
What this feels like is a return to the "build a feature, not a business" days of 1999 and early 2000, the same built to flip mentality that Jim Collins wrote about in Fast Company five years ago at the peak of the bubble. Read the Collins piece and tell me what you think. Has this latest resurgence in tech again fallen victim to a bout of the get-rich-quicks? What's the next exciting development in tech that will become a boring land grab for the Internet blue chips? Or is this picture not fully developed?
The main difference with the 1999 incarnation of "built to flip" are:
- Back in those days, companies were raising mega-bucks at astronomical valuations, were spending a lot of it on marketing, and were flipping to the public market or M&A suitors whose stocks was also overinflated, on the basis of "next generation" multiples (earnings before marketing expenses, etc.).
Now a company is built on "Macaroni & Cheese" and word of mouths, and founders can elect to sell off or go the VC route once they have started to prove their value. - Established Internet companies have also learnt their lessons from the bubble, and the corporate development teams at YHOO, GOOG, MSFT, AOL, and other vertical players (travel, jobs,...) are very well plugged in the early stage market. And when they see a company they like, with talent, ideas and some level of technology assets, they might try and make a move.
In that case, buying early means that there is a chance to influence the underlying back-end infrastructure that the startup is going to build upon. Otherwise they'll end up rewriting a lot, if not most, of the code anyway, to make it fit their overall architecture. And they will tell you frankly that if they can make a deal which makes sense for founders and employees, and leave VCs out of the equation, they'll be quite happy. Note that I am not making one of these "VCs suck" kind of rant, that I always find over-generalized (or weird). - A company needs to build a very large footprint in order to be sustainable on the basis of a typical Internet "eyeballs" business model: subscription, e-commerce, and mostly advertising. It is very hard work to reach "escape velocity" and become a major player in a given vertical, and I don't see a take-out a la Bloglines or Flickr as anything to be ashamed of. In this particular case, I have no clue as to the number of users of PhotoSite, or the size of their photo archive, but $10M in cash does not strike me as ridiculous.
As to whether it is possible to build a sustainable business around photo sharing, given the growth in usage of camera phones and digital camera, broadband penetration, and the fact that photoblogging is *SO* much easier to engage into than text blogging, I would say YES. One trick is to add other sources of revenues to the "traditional " Internet mix, and execute on it with scale. But that will be the subject of future posts.
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