December 17, 2005
@ 05:15 PM

A friend of mine called me yesterday to ask for my opinions on the fact that Meebo just got a few million dollars in funding. For those not in the know, Meebo is an AJAX version of Trillian. And what is Trillian? It's an instant messaging client that supports AIM, ICQ, MSN, Yahoo Messenger, and IRC.

In his post How Much Did Meebo Get? Om Malik asks

Here is the rub: Since the company basically aggregates all four major IM networks in a browser, all the four major IM owners - AMYG are out of the acquisition game. One of them buys the company, the others shut down access to their respective networks. The very quality that makes Meebo attractive to end-users will make it difficult for them to be acquired. But there is one option: eBay. When all fails, you know who to call. Skype did. Interactive Corp is another long shot, but they are bargain hunters not premium payers.

Regarding acquisitions, there are three reasons why one of the major players would buy a company; users, technology and people. Unless the start up is in a brand new market that the major player isn't playing in, buying a company for its users is usually not the case. This is because big players like Google, Yahoo! and Microsoft usually either have orders of magnitude more users than the average 'popular' startup or could get just as many or more users when they ship a rival service. The more common reason for a big player like Microsoft or Yahoo! buying a company is for exclusive technology/IP and for the development team. Yahoo! buying or Flickr isn't about getting access to the 250,000 - 300,000 users of these services given that they have less users than the least popular services on Yahoo!'s network. Instead it's about getting people like Joshua Schachter, Caterina Fake and Stewart Butterfield building the next generation of Yahoo!'s products. Don Dodge covers this in slightly more detail in his post Microsoft will acquire my company.

Let's talk about Meebo specifically. The user base is too small to be a factor so the interesting things are the technology and the people. First we should look at the technology. An AJAX instant messaging client isn't novel and companies like Microsoft have been providing one for years. A framework built on reverse engineering IM protocols is cool but not useful. As Om Malik points out, the major players tolerate activities like companies like Meebo & Trillian because it is counterproductive for [example] AOL suing a tiny company like Trillian for misusing its network. On the other hand, they wouldn't tolerate it from a major player like Microsoft primarily because that becomes a significant amount of traffic on their network and licensing access becomes a valid revenue generating scenario. Thus, the technology is probably not worth a great deal to one of the big players. That leaves the people,  according to the Meebo team page there are three people; a server dev, a DHTML/AJAX dev and a business guy (likely to be useless overhead in an acquisition). The question then is how many million dollars would Google, Yahoo! or Microsoft think is worth for the skills of both [most likely excellent] developers? Then you have to factor in the markup because the company got VC funding...

You can probably tell that I agree with Om Malik that it is unlikely that this company would be of interest to any of the four major IM players.

If you are building a Web startup with the intention of flipping it to one of the majors, only three things matter; technology/IP, users and
the quality of your technical team. Repeatedly ask yourself: would Microsoft want our users? would Google want our technology? would Yahoo! want our people?

It's as simple as that.


Categories: Technology
Tracked by:
"Interesting Finds" (Jason Haley) [Trackback] [Pingback]
"Selling your start-up to GYMA" (Don Dodge on The Next Big Thing) [Trackback]
"Flipping your start-up the smart way" (Greg Yardley's Internet Blog) [Trackback]
"The Power of Venture Myth" (EarlyStageVC) [Trackback]
"Keys For Flipping A Start-up" (Somewhat Frank) [Trackback]
"Hang in there, Riya" ( [Trackback]
"Building to Flip" (Startup Fever) [Trackback]
"Built to flip" (Startup Blog) [Trackback]
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Saturday, 17 December 2005 21:08:58 (GMT Standard Time, UTC+00:00)
Sequoia is a smart VC, they probably understand well that this company cannot be flipped. So they were pitched something which is not in the current Meebo product.

Their plan likely relies on leaching off Yahoo/AOL/Google userbase, and diverting those users to a new set of services/products developed by Meebo.

There are two huge risks here however:

1. Those products do not yet exist. Just because they can demonstrate a good growth extending somebody else's service does not mean they can build their own.

2. If the drain of users becomes noticable for Yahoo/AOL, shutting down meebo is the easiest thing: unlike Trillian which connects directly from individual computers, meebo proxies all connections through their servers, thus connecting to major IM networks from less than 20 unique IPs.
Blocking them will not even require changing IM protocols, they can just block a list of 20 IPs- I am sure AIM has done this already in the cases of abuse.

So I think this is one of the most risky investment of web 2.0.
As a counterexample, I could point to
nobody has heard of it, they are almost as bigger than delicious and meebo combined, and they have not raised any venture funding. This is much more "real" on my opinion.

Sunday, 18 December 2005 14:00:56 (GMT Standard Time, UTC+00:00)
google doesn't want technology, anything anyone can do they can do better and don't even try to sell them on eyeballs/users/traffic.
Sonny Flusbert
Sunday, 18 December 2005 14:54:59 (GMT Standard Time, UTC+00:00)
It is interesting to note that VCs invest in startups for the same reasons that the major companies acquire startups; 1)Great people, 2)innovative technology, 3)growing userbase, 4)a hot new market with huge growth potential. These are pretty much in rank order of importance.

Truly great engineering talent is hard to find. They are worth their weight in gold. Using a basketball analogy, Michael Jordan was only 1/5th of the Chicago Bulls starting lineup, but he was 100% of the reason they won.

One superstar engineer/visionary like Ray Ozzie is worth 100 really great engineers. And, one really great engineer is worth another 100 good engineers. This is the normal order of things, yet few CEOs understand this. The truth is you need all levels of talent to build out a team, but without the superstar it will be tough to win.

I agree that Meebo is not a good candidate for acquisition by the big guys, but perhaps for different reasons. The fact that they took venture capital raises the price expectations, perhaps beyond what they are worth.

It is not uncommon for big companies to acquire small companies with talented engineers and then redeploy them onto other strategic projects in the company. In other words, they are acquiring the people and the product is secondary.

VCs do this too. Of course they want their initial investment to be successful, but if it isn't they could move the team into a different opportunity and hit the jackpot. It is all about the people.

Don Dodge
Sunday, 18 December 2005 15:28:02 (GMT Standard Time, UTC+00:00)
But don't forget that the status quo of rival incompatible networks is insane.

You don't have rival sets of phone networks that don't let you call people on other networks. You don't (didn't?) have rival fax-machine networks so you couldn't fax someone who's machine is made by a different manufacturer. The artificial incompatibility of IM networks has to be hurting the market as a whole.

Maybe someone's taking a bet on interoperability happening?
Sunday, 18 December 2005 15:34:18 (GMT Standard Time, UTC+00:00)
> Maybe someone's taking a bet on interoperability happening?

You have it backwards. Investing in Meebo is a bet against IM interoperability. If IM interoperability happened then there would be no need for companies like Trillian and Meebo to exist. If I could use AOL Instant Messenger, Yahoo! Messenger or MSN Messenger to talk to users of any IM client, why would I use apps like Trillian or Meebo?

Sunday, 18 December 2005 16:01:26 (GMT Standard Time, UTC+00:00)
I agree that Google, Yahoo, or Microsoft are not primarily interested in acquiring users, but having a solid and growing user base is a necessary prerequisite. It proves the site/concept (technology) has viral qualities, that the startup (people) has been successful at crafting and fostering such qualities. The hope by any acquirer is that the qualities of the site that allowed it to go viral from a user base of 0 will send it through the moon once a firehose of traffic is pointed at it.

The startup's gotta have the user to prove it has the people/IP.
Monday, 19 December 2005 02:18:09 (GMT Standard Time, UTC+00:00)
I am blown away that they got this kind of money for something so simple. Meebo seems so 1999, I vaguely recall a service like this a long time ago when making an IM was the hot thing to do, but now it's a commodity. Google is using an open network (Jabber), Yahoo and MS agreed to share networks, it's only a matter of time until everyone breaks free from the proprietary reigns of IM. Meebo must have some unique idea to expand on... I would hope anyways.
Monday, 19 December 2005 04:47:29 (GMT Standard Time, UTC+00:00)
You mentioned it but didin't include it in your list of 3 things that matter for flipping: valuation.
Monday, 19 December 2005 20:52:00 (GMT Standard Time, UTC+00:00)
Could another thing that matters for flipping be Disruption? I wonder how many companies are bought not for what they company has in assets (mind assets, ip assets or other) but for what it is - in an effort to control the technology or concepts that derive from a specific site.
Wednesday, 21 December 2005 21:48:12 (GMT Standard Time, UTC+00:00)
While I usually agree with you, I'm disappointed that you have the typical software developer's attitude towards business development. I've been a business development professional for more than 15 years, and your statement, "and a business guy (likely to be useless overhead in an acquisition)" is way off.

I've been the catalyst for the sale of two small software companies (one of them went for $36 million) so I'm speaking from experience.

Most developers don't want to leave the office or talk on the phone, so it's the business development professional that is out and about, drumming up partnerships and creating buzz in the right circles. Lots of great products languish in obscurity because the development team doesn't have the connections, experience or the desire to go to trade shows and sit through endless meetings. Several years I logged 100,000 miles for business -- it's not easy or fun. I took some of our developers on a trip and they came back with a renewed respect for what I do.

There are very few developers that can do what you do, Dare.

It's a team effort, and each job is crucial.
Monday, 26 February 2007 20:35:50 (GMT Standard Time, UTC+00:00)
interesting thoughts and as for your conclusion: yes, it's that simple!
Tuesday, 13 March 2007 10:56:32 (GMT Standard Time, UTC+00:00)
Heyyy Emz Yhew On Here???
If Yhew Are...Are Yhew Okay????
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