I just started a new job and I haven't been able to jump on some very interesting news this week. In particular, the detail around the acquisition of iLike by Myspace was fascinating for me. Especially, since my new employer RealNetworks has its own music division (Rhasody). TechFlash did a solid job of reporting on the news here.
The news was interesting because it really points to the fundamental issues with building a business on someone else's platform. I wrote a blog post entitled Build A Business On Your Own Soil last October that discussed this very point.
I really like the iLike service. The name that tune service that they have has been responsible for any personal late nights and I am most certainly more aware of when my favorite artists are in town.
But, $20 million for this service? We've seen this story before but perhaps not with such a low exit price. I don't know the revenues at iLike but the traffic was still holding up especially given social platforms promoting third party application developers less and less. Timing is a big part of this. I was equally worried about PhotoBucket's exit at the time. They sold for $300 million to MySpace in early 2008. This is about the same price as the similar service to iLike -- Last.fm which sold to CBS in mid-2007.
I think a couple of things happened with iLike that are analytically challenging: a) the market sucks and its hard to raise cash, drive advertising revenues ,etc b) more capital for iLike meant more dilution at a down round, its hard to get excited as a founder when this happens and c) the timing is great for buyers do to a and b. Plus, the package post deal is most likely very attractive.
But, even if the market was fine, lets play out the conversation when you've built your company on the back of someone else. The conversation goes like this -- we are either going to build this ourselves or turn you off. Lets agree on a sane price for both parties. This is the bigger story. For all of those new Twitter companies out there, don't be surprised that Twitter will do similar moves in the future. They are working on premium accounts and geographical targeting. Hey, maybe they'll start looking like Yammer in the enterprise market?
Entrepreneurs listen. Own your own dirt. Be careful when you build on someone’s platform