Web 2.0 Buyouts: Butchers vs. Farmers

As Web 2.0 Buying Season winds down, it is pleasant to consider what was different about it. This time, for the most part, the buyers have been farmers, not butchers. They bought to nurture, not to kill.

The merger years

Before the web, I worked in advertising. I survived the Merger Years. Charles and Maurice Saatchi, the art collectors, were among several groups scooping up ad agencies as investments. Not infrequently, incompatible shops were jammed together to see what stuck. My first New York ad job was at one of these misbegotten unions; I started on the very day more than half the staff got canned as a direct result of the merger.

The new owners had performed unholy matrimony, forcing a dewy-eyed little shop in Minneapolis to love and cherish a dull, aging cash cow in New York. They probably imagined that the cold New York joint would warm to the creative touch of its young spouse, while the Minneapolis branch would somehow grow as lucrative as the boring but high-earning Gotham shop. It wasn’t meant to be. Clients ran screaming; staff were kicked out after them.

Behind the iron doors

“Oh, boy, my first New York job!” I said aloud as I approached the iron doors.

I walked into a tragedy. Women wept, carrying boxes. Ashen-faced middle-aged copywriters with bad portfolios—parents of young children—suddenly realized that they were unemployable.

The floor on which I was to work was being frantically redecorated to match the corporate colors of Minneapolis as almost everyone who worked there was laid off within a space of hours. “Pardon Our Appearance, We Are Redecorating” proclaimed a happy illustrated painter on a large sign. His was the only grin to be seen. Someone eventually drew an executioner’s hood over the happy painter’s head, and replaced his brush with an axe. Okay, that was me.

Over the next few years, the Saatchis brought in one brilliant outside creative director after another to try to make the merger work. I learned from all of them. The place was great for me in that way. It was also a fine source of drinking buddies. Almost nobody could handle the daily surrealism sober.

I worked at other places over the years. The great ones were small and created their own cultures. The not-so-great ones had almost always been good until they got too big.

Web for sale

Years later, I was a web designer doing independent content on the side. Some of my friends were also doing independent content. Some of them sold their sites to corporate buyers.

I was glad to see creative people get a paycheck, but suspicious because of what I had seen of mergers in my previous career. I feared that the buyers might not understand what they had bought, and might try to make it something it was not. And that indeed is what happened, every time.

Stay cool

In one instance, a married couple and their friend built up one of the first great educational sites for web developers. Everybody who knew the acronym HTML read this site in the mid- to late 1990s. It was informative, opinionated, and leading-edge. The writers were front-line web developers. They weren’t just ahead of the curve, they were helping to shape it. And they weren’t just technology writers, they were personalities. Huge personalities.

They also knew how to keep readers coming back, and and how to turn readers into a community. One way they did both these things was by honoring a different website every weekday. Hundreds of thousands of web professionals tuned in Monday through Friday to find out what site was being put forward as cool, and to argue passionately about whether it deserved such kudos.

It all changed the moment a traditional publisher bought the site, for what, by later standards, was surely a mere chest of shells and beads.

Out went the big personalities. (Literally. The founders were so frustrated, they soon quit.) Front-end web development articles focused on sponsoring companies’ technologies instead of JavaScript, CSS, and HTML, and were written with anonymous professionalism instead of character. The site’s point of view disappeared, and with it, so did most people’s interest in reading it. The daily cool site became a random shot over the bow instead of demonstrating a philosophy about emerging web content. At times one suspected the daily site was picked because of some back-room deal or misbegotten partnership arrangement.

What the publishers got for their investment, after destroying everything else about it, was residual search engine juice. Maybe that was enough for them.

Fortunately, the new buyers want more.

Born to run

When a famous old-school stock photography concern bought iStockphoto, some of us feared that it spelled the end for that independent photo community. Not so. iStockphoto is still iStockphoto, only now it has money. Likewise, Yahoo! bought flickr as flickr—not as a list of users to exploit or a URL to slap ads on. It bought del.icio.us as del.icio.us; all the purchase did (besides generate paychecks) was integrate the social bookmarking tool into other Yahoo! properties (like flickr). Similarly, Dodgeball is still Dodgeball despite its purchase by Google.

One could list these buyouts all day, but it would soon grow tedious. The point is, buyers now buy to own, not to run (and ruin).

Are today’s buyers smarter? Or are they just too busy to meddle? What do you think?

[tags]web2.0, buyouts, mergers, saatchi[/tags]

25 thoughts on “Web 2.0 Buyouts: Butchers vs. Farmers

  1. Hi Jeffrey!

    I think the butchers are just gunshy. And, frankly, we all know the dollar value of “residual search engine juice” much better than we did before; more folks know how to pencil out the dollar value of a million well-qualified eyeballs. And, while lucrative, a million well-qualified eyeballs isn’t the Lost City of Gold folks used to think it was; I suppose a million well-qualified typing fingers is better.

    Since I’ve only been lurking your blog for a week or two (via Dan Mall’s Semantic Flash article, which opened my eyes to the fact that there’s a semantic-design shop in Philly, ZOMG!) I don’t know whether you have “Up the Agency” on your shelf. Running ‘”Peter Mayle” site:zeldman.com’ on Google has no results, so maybe not?

  2. Is it that they’re smarter, or more humble? From the sounds of things (I’m too young to actually remember early web buyouts), it seems that there was a lot more superiority in the buyers of back then. After all, they were the ones buying the company. Surely that means they are better?

    But nowadays, like you said, when a company is bought over, there are less drastic changes. The buyers are humble enough to realise that the site/product has managed to get this popular using its own style, so perhaps their ideas for changes aren’t necessarily perfect?

    Considering some of the big clients you deal with through Happy Cog, have you noticed anything like that? Do clients tend to accept your ideas more now, than they would have when you first started? (Back then, did they argue, and insist on doing things the waythey wanted to more?)

  3. It sounds to me like the buyers are learning from their own mistakes, as well as the mistakes of others. If it didn’t work seven years ago, it’s not going to work now, so don’t try and force the square peg into the round hole.

    Perhaps the buyers realize that they’re buying a site or an application because it’s already profitable (or showing profitable potential), and money is to be made by supplying the resources it needs to flourish. They’re realizing the sites don’t need to be changed, restructured, or experimented with – they need room and resources to grow.

    And even if a site is only marginally profitable – if it’s reach is wide enough, it doesn’t need to focus on generating dollars. The reach in and of itself is valuable. I wonder how many conversions the “My Yahoo!” chicklet on the bottom of every Flickr page is responsible for.

  4. It is an interesting turn of tides on the web business for sure. I am not a big fan of mergers either- odds can tell you that a typical company merge is, in 9 out of 10 cases, the kiss of death for the company being bought (save for the shareholders who only care to cash out ASAP).

    Although I still cringe every time I get a “X web company buys Y web company” news (as an user of many of those companies’ services), us oldschool Flickr and del.icio.us fans certainly appreciate how Yahoo has kept itself in the background doing minimal changes, instead of butchering these two fine web services as many of us feared at first. However I don’t see this approach to merging surfacing in other, non-web industries – at least, not yet. Would be an interesting change to see though.

  5. It would be too risky for this buyers to change (and ruin) the nature of this web (2.0?) applications: I think that the one big difference, among others, now is that the community born around this wonderful web based services has got a self-consciousness and a power to have influence (about choices that involve them and involve the way theu use this applications and share informations). Buyers might have a revolution knocking on their doors (and then users going away) if they touch – say – del.icio.us.

  6. Spike asked:

    Is ALA being sold?

    No.

    Michael asked:

    Do clients tend to accept your ideas more now, than they would have when you first started?

    Yes. But that’s partly because we’ve learned to listen better. It’s also because we can keep bringing things back to the user. (It’s not about what the client likes, it’s about what the user needs.) Then, too, we’ve become more experienced at picking clients who are responsive to our point of view—and avoiding relationships with potential antagonists.

  7. I’m interested in what you think of as “too big” (“The not-so-great ones had almost always been good until they got too big”). I helped start a design shop last summer, and we’re growing quickly. But we don’t want to be huge, we want to be great. So I’m curious to hear about you or others consider a size that starts to impact the quality of an organization.

  8. I’m interested in what you think of as “too big” …

    I don’t think there’s a stock answer. What’s too big for me might be just right for you. Companies don’t know they’re too big until they’re … too big. (Some don’t know even then.)

  9. Yes. But that’s partly because we’ve learned to listen better. It’s also because we can keep bringing things back to the user. (It’s not about what the client likes, it’s about what the user needs.)

    Hmm… That sounds like a good way to deal with some problems. How do you show that you know what the user wants though? Do they tend to trust you, or do you actively question a lot about their users, or conduct some tests?

    And on a different point, do you think there is a stage when a company can become so big that it’s actually an improvement in this sort of thing? The smaller buyers would probably be more interested in short-term profits/results, wheras, the larger companies (Like Google and Yahoo), don’t need that. They have the money and resources to take their time with a buyout (Making changes slowly and subtly), and ensure that in the long-term, they will get their money’s worth.

    I’m thinking of YouTube in particular here. When Google bought that over, they weren’t doing it to make their money back within a month, or a year etc. That’s because they could afford the massive investment without too much discomfort. (Google aren’t going anywhere soon, so they know they can afford it.)

    A smaller company however, would have to invest a very large amount of its money when buying over another company, perhaps to the point where bankruptcy and debt become major issues if things take a turn for the worse. That may cause the buyers to look for the quickest route to a profit? (And do so by doing all the wrong things you’ve mentioned already)

  10. How do you show that you know what the user wants though? Do they tend to trust you, or do you actively question a lot about their users, or conduct some tests?

    We study existing user research, talk to users, and conduct tests.

    And on a different point, do you think there is a stage when a company can become so big that it’s actually an improvement in this sort of thing? … Larger companies (Like Google and Yahoo), don’t need [to worry about short-term profits]

    I agree: a company with fat cash reserves can be more relaxed about sites it acquires, and thus less likely to screw up them up.

  11. We study existing user research, talk to users, and conduct tests.

    So you wouldn’t focus too much on what the client thinks their users are like? You’d go beyond that, to actually discover the real truth. A good idea.

    And thanks for the replies, there’s always an interesting conversation here.

  12. Why are larger companies not meddling more with their acquired companies? Many realize that that they know less than the companies they’ve acquired- they’re now studying and reading the ‘Cliff Notes’. Maybe management has learned their lessons from the first bubble. The question is, do they have the knowledge to figure out the next steps?

    The ‘famous old-school stock photography’ company is going to have to learn a lot more from istockphoto to be a viable company in the next 10 years. The merger of an acquisition into the corporate entity might be more of a slow cooked roast this time around.

  13. “Are today’s buyers smarter? Or are they just too busy to meddle? What do you think?”

    maybe its just buying out a competitive products and keep a product in incubation status..

  14. No folks, they are buying communities now. Not sites, not ideas, nor even profitable e-commerce. Nope, they buy up the people using the site. And they then redirect these people to other potentially more profitable ventures whilst keeping the original community wholly in tact. Now that’s clever.

  15. So you wouldn’t focus too much on what the client thinks their users are like? You’d go beyond that, to actually discover the real truth.

    I certainly don’t want to stick words on Zeldman’s mouth, but…

    I think it is wise to always question the “data” clients present (especially in re: to their customers). Obviously it is better to handle this with tact. If a firm devotes time to procuring clients who also don’t take their data at face value then the relationship is easier, it’s more of a team than a “prove you know more than they do” sort of thing; you rarely know more than they do about their customers.

    The goal of the team is to both discover more truths about the customer and provide said customer with better product/service/widets/whatever.

    Both your firm and the client have to believe in the data. And it is better to have some checks and balances in this regard instead of a “the client is always right” attitude. And (with a wink and a nod) to thine own self be true.

    No one yet has mentioned the possibility that those negotiating and consulting on the current round of buying may have struck some Great-Flamin-Crash-of-2001 gold and therefor know a little more than they did seven years ago. Just another bit of meat/veg for the stew.

  16. If I remember correctly, most buyouts back then were by companies that were traditional companies. Television, paperback publishers, etc. Now days, it seems like larger internet companies are doing the buying. Yahoo, Google, etc. I know Yahoo survived the buyouts, and crash, so maybe they learned from the mistakes of the old days…

    old days…less than 15 years ago…now I feel old.

  17. Unfortunately, I wouldn’t include Flickr in the un-corrupted list any longer.

  18. And they then redirect these people to other potentially more profitable ventures whilst keeping the original community wholly in tact. Now that’s clever.

    Yep. Find a big community using a great tool or service.
    Then cross-sell to your other sites instead of wringing all the money you can directly out of your new acquisition.

    The former says “Great the new owners respect our community. Let’s see what else they have to offer.” The latter says “The bastards! I’m jumping ship so I get what I want.”

  19. Michael Martin: How do you show that you know what the user wants though? Do they tend to trust you, or do you actively question a lot about their users, or conduct some tests?
    Jeffrey Zeldman: We study existing user research, talk to users, and conduct tests.

    I would add that even before the research and tests, simply introducing the user into the conversation is a huge help. It’s easy for developer and customer to get into a struggle over their ideas of what the site needs, but when both parties are reminded to focus on the end user, it provides common purpose and aids compromise by giving us a reason to dampen our own egos.

    Even if the developers and the customer don’t agree on what the user wants (and we might not agree even after studying existing research and conducting tests), we do agree that the user is the ultimate target of the site.

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  21. In all business it is the same, you learn from your misstakes or from the one others did.
    But if you are the first one going a new way, buying, selling, assembling you have the chance to sell your failures.

    I think the Buyers allways are the same type of benefitcontrolled sharks as they allways were.

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