The burning question, as Internet giants make a ritual of dining on user-generated startups, is about whether this bubbly climate can continue, and what, exactly, makes a good candidate for acquisition.
So what gives? What makes YouTube and Skype worth billions, and why do small startups attract the big player attention as well? Is this another bubble? If so, how is it different from the one that burst just over half a decade ago?
Jon Silvers, director of marketing for Atlassian, a proprietary wiki company and JotSpot competitor, says it most certainly is a bubble, but that’s not necessarily a bad thing.
“It’s a bubble insofar as there’s more hype than reality. It’s different than in the late 90’s, because the technology then was often vaporware, whereas the stuff being developed today works,” said Silvers. The obstacle, he says, will be creating simple user interfaces that mesh well with other technology standards.
In Google’s hands, JotSpot will be transformed into a far-reaching, publicly accessible Web-based wiki, aimed at small and medium-sized businesses.
This transition, according to another JotsPot competitor, Ross Mayfield of SocialText, will leave many of JotSpot’s larger enterprise customers, who prefer to keep their company wiki behind the firewall, in “a spot.” As soon as the JotSpot deal hit the wire, SocialText and Atlassian offered a free migration to their services.
“When Google acquires a company, it freezes all innovation for about six months,” said Mayfield in a phone interview. “We’ve been migrating users from their appliance to ours, to help them ‘get out of a spot.'”
But what’s the motivation to buy a high profile company or to buy a smaller, lesser-known company? For the YouTubes out there, where mammoths are willing to fork out hundreds of millions to billions of dollars, experts agree that some acquisitions are part of a grander mind game.
Cliff Kurtzman, CEO of ADASTRO Incorporated and Executive Director of MyCityRocks, a “social engagement” startup seeking to connect local grassroots communities with businesses and organizations through local concerts, said Google bought YouTube “for psychological reasons.”
“In most cases,” said Kurtzman, Google’s in a position where it can act flamboyantly.” But the real Web 2.0 targets won’t be the billion dollar memetic runaways. The real targets will be the smaller companies with great concepts, the tools to implement them out of the box. That’s attractive because companies like Google don’t have to build anything in-house.
Silvers agrees with Kurtzman in that Google’s motives involve a certain amount of keeping up with the Yahoos. “I think Google, et al., are competing for mindshare as much as anything. The YouTube acquisition is like Yahoo’s acquisition of Broadcast.com.”
He pointed out that Microsoft and Yahoo both already have wikis in their arsenal. “[Google] got JotSpot for a steal,” he said. “Those guys are really bright and energetic. The built a great product.”
Plus, smaller companies can afford to take the risk on their concepts, perhaps more so than larger ones, who have brands and images to think about.
“In this industry,” said Kutzman, “it only takes six months to a year to get a site going.” But, he says, the larger players should focus on the small ones. “If they fail, they’re coming out ahead anyway. “Those big acquisitions should be few and far between.”
Instead, he says, the Googles of the world should continue picking up strong companies like Applied Semantics and Keyhole, smaller companies that later became smash successes like AdSense and Google Earth.
“There’s a lot of pressure, particularly on Yahoo,” said Kurtzman. “I wouldn’t be surprised to see Yahoo make some big plays. They have a bad history, like with their acquisition of Geocities, so I can understand them being cautious.”
In the end, the most successful startups will add value to Web 2.0 by meaningfully improving the way people and businesses communicate. “We are in a cycle of activity where the emphasis is starting to shift from those who create Web 2.0 networking environments to those who demonstrate how to use those environments to actually enrich people’s lives.”
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