Web 2.0 Exits – The Middle Tier

December 4th, 2006

I have been thinking about where things are headed with Web 2.0 recently. There is plenty of talk about how so many Web 2.0 companies aren’t real businesses, but are really features designed to be integrated into Google, Yahoo or some other larger property. I am sure this is true. Bubbleshare‘s traffic is perfectly decent and I really like the company’s simplicity and tools, but are they enough to distinguish it as a standalone in a crowded field? If the rumor mill is accurate about its sale, the answer seems to be, if not flat-out “no”, then at least “let’s take the cash over the risk”.

The really interesting point to me is that there has been a small group of really huge exits (YouTube, MySpace, Skype) and a lot of transactions for $30M or less (Flickr, del.icio.us, Jumpcut, etc.). Until this year, I am aware of very few exits in the $50M – $200M range. Startup Review (to I am a contributor) is one of the best resources for these mid-tier exits that I am aware of, though it is not comprehensive by any means.

What does this all mean? The major acquisitions say to me that the biggies felt like they had missed something important and couldn’t catch up without buying the brand that already had the traffic. The small exits tell me there are many companies that really are just featuresets. Especially given the short lifespan of many of these businesses, this is not a criticism: acquisition within a couple years for a few $MMs is a nice result and a great launch platform for the next business.
It is the middle group that is the most interesting. These companies are more than some bits of great code and less than a runaway consumer hit. What made Sony pay a solid chunk for Grouper, or Google do the same (reportedly) for Jotspot? Both of those companies happen to be second at-bats for founders with substantial Web 1.0 successes behind them (Spinner and Excite, respectively). It may be that the acquirors in those cases really wanted the expertise of the management teams. I am sure that is part of it. I also hope that transactions like these representing a maturation of Web 2.0 business models. Yes, AdSense revenue is still a viable and important component of online businesses, but the ones worth a significant price tag have more to offer than just that.

  • Dennis

    Jay, nice post! Your view of the small acquistions as “feature sets” is quite interesting.