There's over $2 billion in this article and that's crazy, or is it?
Alright, alright, we'll be the first to admit that the title, like the proverbial cake, is a lie – there's actually infinitely less than even a billion of worth here, but at least we ain't beating around the bush. Regardless, if you absolutely must have revenge, we implore that you at least 'listen', whilst fixing the kindling for the pyre:
Mobile apps are selling for billions and that seems crazy.
Exactly how crazy, you may wonder, and that's a fair question given the largely quantifiable nature of the posts you're used to around here – you know, of the that-device-is-this-many-inches-thick and that-many-inches-tall type. Right? Quantifiable.
Unfortunately, the topic at hand is not as easily exhausted, and we do not know just how crazy, yet – if at all. What we do know is that it lands right there, in the ballpark between 'savvy' and 'completely nuts'. In hindsight, much can be said in the way of baffling acquisitions-turned-horror-story, and time, once again, will be the only judge of the latest seemingly-ludicrous buyouts. Fortunately, every now and then there's somebody, somewhere, who seems to defy his disbelieving audience and pull through where no one else believed possible. This distinction being made, let us examine the past year or so.
Crazy or Savvy?
Facebook announced it'll acquire Instagram for a sensational $1bn (they actually only got $735m by the time the deal was closed, compliments of Facebook's crashing stock). At the time, Instagram was a company with some 30 million users, zero revenue, no known strategy to monetize its services and already facing competition. As of today, Instagram is yet to find a legitimate one. So, crazy or savvy? We call savvy. The undeniable networking effect that's been in play since Instagram got integrated with Facebook and ballooned to over 130 million total users, and with rumors that we're about to see video ads become part of the app's latest service, Facebook's acquisition does seem to have a lot going for it. Sure, unlike most other apps in the list, it's its parent feeding value into it, not the other way around. Regardless, the space is definitely up for disruption and competition is there. That said, having the world's biggest social network behind you means any potential rival will have to either buckle up in a similar fashion or seriously out-innovate the duo to make a dent. Until then, its smooth sailing ahead.
Yahoo!'s acquisition of Qwiki was a tad pricier at a reported $50 million, whereas the significantly more popular Vine cost Dick Costolo and Co. a more frugal $30 million. So why do we think the duo above made for a savvy investment? Both of these sit at the very busy, but promising, intersection of mobile, video and advertising. Furthermore, the price-to-(prospective) earnings ratio is through the roof, especially compared to Instagram's. It's also probably noteworthy that Facebook seems to be preparing to spearhead the video ads model on its own territory, succeeding in which will equal a beaten path for the above to traverse.
Dropbox purchased the iOS exclusive Mailbox for $100 million, and that's not even the most disturbing part about it? No, the really disturbing part was the fact that the app had been out in the wild for just a month and is free. Yes, despite the hype and the extensive reservation list (Mailbox has been scaling its service by easing in a set amount of new users at their own pace), the start-up doesn't even appear to have monetization within its priorities at all. And even if it does, apart from a subscription method, we don't quite see how the company will make enough dough to deserve its price tag. We call crazy – the company will need a huge amount of subscribers to make up for Dropbox's obscene investment, and all that is at constant peril as much bigger players like Google and Microsoft can step up to the challenge at any point. That's particularly important, as we haven't heard of Mailbox intending to patent gestures, which really is what it will need in order to preserve its competitive advantage. What's more, now Google owned competitor, Sparrow, was acquired for a much more economical 'under $25 million', reportedly, and that's with the app having at least some form of a revenue model – the app goes for $2.99 (it used to cost $9.99 back in the days).
Pulse? A cheeky $90 million, reportedly, is what it cost LinkedIn to get its hands on the news agreggator, and our verdict is precluded by Pulse's rapid success – the app had over 20 million users at the end of 2012, and claimed it was making $300,000 a month via sponsored content while simply testing the surface. We call savvy.
Yahoo! purchased Summly for a reported $20 million for the app and the talent behind it and Google quickly followed suite by acquiring Seattle-based Wavii, yet another news reader for a reported $30 million. But both Summly and Wavii got shut down almost immediately after being purchased, so what's the deal? Well, what Google and Yahoo! did is simply acquire the talent behind the startups, and in the case of Wavii – the patents it held, within which is a granted application on Open Information Extraction on the Web, a paradigm shift said to be the future of search. Sounds interesting? Check the video below, and you'll better understand why a mere $20-30 million (for Google and Yahoo!, that is) is a savvy investment that feeds disproportionately more value back to the parent.
Yes, sure - none of this is set in stone. But we felt some may be missing a key point with these acquisitions. A noteworthy consideration when viewing these buyouts is the fact that the talent behind these already successful start-ups is also retained by the buyer, and from this flows our next point. Namely, these apps do not necessarily need to break even on their own – they need simply feed back enough value to the mother-ship in order to qualify as a successful investment.
1. theminolaboy (Posts: 124; Member since: 18 May 2013)
Jessie J. said "It's not about the money, money, money.." but this article says it all, it's all about the money, after all.
2. wendygarett (unregistered)
Funny, why would pay billions for the apps and sell to us for free? Are they the charity company?
4. protozeloz (Posts: 5321; Member since: 16 Sep 2010)
Not at all, with free services companies are able to get a hold of your information, the more popular services a company has the more information they can pull from you, they can use that information to obtain money mostly via ads
I'll give you an example
When you look in Google for how to wash a cat you provided information about you (you may owe a cat) now a company insterested I. Selling cat shampoo is willing to pay Google to promote that to you
When you upload a picture to twitter with a pizza and talk about how much you love the vegan pizza Facebook can sell this information to a pizza company interested In selling new products
And so on with everyone else
6. Reluctant_Human (Posts: 804; Member since: 28 Jun 2012)
Completely agree. The actual revenue that the apps bring in is often negligible to the potential revenue of the data it has collected and continues to collect.
8. protozeloz (Posts: 5321; Member since: 16 Sep 2010)
A service become popular the lower the user thinks it needs to pay, an example is a freemium game like LOL where people find themselves buying $10 for a skin in order to look cooler when playing
And lol I used twitter on my post when I meant instagram XD
3. Gaurav008 (Posts: 265; Member since: 20 Jul 2012)
Off topic: I always read Chris P. as " Chris :P ". O_O
9. AsisHaas (Posts: 42; Member since: 14 Jul 2013)
I wanna make one social network to get attention.
11. Leo_MC (Posts: 394; Member since: 02 Dec 2011)
I know Vine only because I heard about it on this site; never heard of Qwiki up until today; I don't know anyone who's using Instagram (although I have an account, I have 2 friends that made accounts and only used them for 1 day or 2).
So, I believe most of them are just pumped up by the media and in no way as savvy as you picture them to be...