Why some mobile M&As value the developer more than the app
A few weeks ago, when San Francisco-based game developer PlayFirst purchased mobile ad firm Big Head Mode, it wasn't reported as a normal merger or acquisition. Instead, VentureBeat described it as an "acqui-hire." TechCrunch did the same thing when it broke news about Adobe's decision to absorb app developer Thumb Labs last year. The term acqui-hire has popped up in app deals involving Facebook (NASDAQ:FB), Google (NASDAQ:GOOG), Twitter and many other big names.
A growing trend to monitor
For many indie developers, the difference between a traditional M&A and an acqui-hire may seem of little interest, given that the odds of being involved in such a deal must feel similar to winning the lottery. But those who follow the mobile space closely say the growing number of acqui-hires--where a firm is bought up not necessarily to get the app but more for the developer behind it--could have a big impact on the competitive landscape for apps and provide an indication of what skills will most likely make developers successful.
For example, if you've created a mobile app and have a competitor who gets acqui-hired by Facebook, it not only means Facebook may be interested in integrating that app into its social network, but also that something about the vision, business savvy and development talent of its creator is valuable enough that other developers could learn from their approach to the market. And if you're a developer of consumer apps who dabbles in the enterprise app space to earn more revenue, acqui-hires could suggest what kind of mobile development work large companies can't do on their own.
"In general, the interactive media and the entertainment space is ripe for an acqui-hire approach," says Joel Capperella, vice-president of marketing at Philadelphia-based staffing agency Yoh, which has been following hiring trends in the mobile gaming space.
"The disruption in the industry in the form of streaming, mobile device adoption in the gaming space and product distribution is driving demand for specific skill sets, such as mobile operating system development, for instance," Capperella added.
What is an acqui-hire, exactly?
The problem is that no company announces they're making an acqui-hire. It's a made-up term used among the financial and media industry that's applied in all sorts of situations. John Coyle, a law professor at the University of North Carolina, was the co-author last year of what's believed to be one of the first in-depth academic studies of the acqui-hire phenomenon. He says that since most of these transactions are private deals, there's often no way of knowing how exactly they've been structured or what incentives are included for the creators of an app to stick around with their new owner.
"An acqui-hire happens because the asset in these deals is the people," he says. "The hard asset"--such as the app itself--"isn't all that valuable necessarily."
An acqui-hire approach also gives established companies the ability to swiftly fill talent demands with individuals who not only possess the right skill sets, but also intimately understand the industry, Capperella adds.
There are enough of these deals happening that some developers may dream of being acqui-hired as a sort of career move and use their app as a sort of calling card. But they shouldn't count on it, warns Andrew Maltin, co-founder of MEDL Mobile, an app developer based in Fountain Valley, Calif. MEDL Mobile also runs an incubation program, but Maltin wouldn't advise any of the participants to aim to be acqui-hired.
"I don't think that is the best strategy and most likely you shouldn't go into a project in an attempt to be acquired through this type of transaction. If that is your strategy, you may be better off applying for a job at the company you think will be acquiring you," he says. "It must be something you really want to do. They will typically discard your technology so you must evaluate based on the job you are being offered."
Getting acqui-hired: boon or burden?
As jealous as some developers might be of those whose apps get bought just so they can work for a giant tech firm, Capperella suggests it's not always easy to make the relationship work.
"It is important to look for transparency around exactly what the proposed path forward will be," he says. "For example, it is important to understand how the acquired team will fit into the operating plan of the acquiring company. Will the R&D process be included in the acquisition, or is there an expectation that these new talented resources will have to adopt existing R&D processes and infrastructure?"
Being acqui-hired may also mean developers have to make some other sacrifices, Maltin adds.
"The biggest I see is that you lose your 'baby,'" he says. "This may be something that you are truly passionate about and have worked long and hard hours to build. And it will be discarded. Also, you will lose the freedom of being an entrepreneur and most likely begin working in a more corporate environment than you would be accustomed to as an app developer."
Coyle says the culture in Silicon Valley--and the increasingly high valuations of the big players--means the acqui-hire trend is likely to continue for some time.
"It will all depend on the extent to which companies engaging in this have the means to do so. If the stock prices are high and they have the cash, this is one way they'll get talent," he says, adding that for the talent, it may not always be all it's cracked up to be. "The dream should not be to be acqui-hired. The best exit strategy is to have your own IPO, and then to retire."
|5 apps makers that got acqui-hired into the big leagues|
Strobe: A San Francisco-based mobile app development startup focused on HTML5 apps, Strobe was bought by Facebook to further its mobile strategy.
Summly: The British-based team, led by 17-year-old wunderkind Nick D'Aloisio, built a mobile app that shrinks articles into snack-sized snippets and was snapped up by Yahoo not long after Marissa Mayer took the helm.
Particle: A company that is known for building lightweight web and marketing apps using HTML5, was bought by Apple late last year.
Cabana: a platform for making highly visual mobile apps, Cabana was bought by Twitter, possible to work on better ways to link the micro-blogging service to Facebook accounts.
Mobile Technologies: Based in Pittsburgh, this is another one bought two months ago by Facebook supposedly based on work creating Jibbigo, a speech recognition and translation app.