Great Companies Get Bought, Products Disappear

There has been some kerfuffle over the past few days about the acquisition of Sparrow by Google. Sparrow is (was) an e-mail client for iOS and the Mac, and while I didn’t use it myself, I’ve heard good things from other people. Google bought the company specifically to get the Sparrow team and put them on GMail. It was an “acquihire” that occurs on a regular basis in the technology industry. A few people are fairly philosophical about it, but there are plenty that are upset in some way. It’s sad, really, to see people react (or over-react) to a company being bought and their product disappearing. Sure, we all go into a software or service purchase with some expectation (or hope) that the “thing” will stick around. But people who’ve been to this rodeo a few times know one thing: every business can either be bought or go under, no matter how successful it may be, how big or small the company is, or how great the product is. In fact, the smaller the company and the more successful the product, the more likely it will be bought by someone bigger.

Definitely Lots of Conversations

Needless to say, the commentariat on the Intertoobs have various opinions and perspectives. One speaks bluntly as to why it happened, and why his own company (Instapaper) hasn’t been bought. The author is up-front: it isn’t that Instapaper isn’t for sale. It is for sale for the right price and the right conditions. So far those have not been met, although unsurprisingly, there have been discussions.

Another blogger, the founder of Tarsnap, basically says in no uncertain terms that an acquihire isn’t in the cards. Their position is that any sale will be to sell the company for the service and the business, not just because the company wants their individual talent. Here’s the problem with that stance: there  isn’t always a way to really know if a company is buying another company for their technology and business model, or for their staff. Acquihires aren’t generally lower in price than a regular acquisition. In many cases, they can start out looking like a full-on acquisition, but the purchaser really didn’t expect to keep the original company’s product or service around forever. Alternatively, the purchaser may have had every intention of continuing the product or service, only to find that conditions have changed and it is no longer viable.

While I’m sure that the folks at Tarsnap are quite bright, there is no way for them to really know the motives of another company. Google has bought plenty of companies over the years with noises about how the technology or service would help Google, only to see it shut down months or years later when the real motives become clear: they just wanted the people.

Jilted Customers

Then there is the jilted customer, the individual that thought that, by paying for something rather than expecting it for free, they were ensuring the survival of the company. The author points out that there are essentially 2 models: ad-supported so the product is “free” in that you don’t pay money to buy/use it, but you, the user, become the revenue stream by seeing (and maybe clicking) ads; for-purchase so that the builders of software get money from you, and don’t have to rely on ads to live long enough to get acquired. That author laments that they chose the “I’ll pay for it” to try to avoid the need (or desire) for their vendor to be bought.

This is a truly naive assumption. Everyone and everything can be bought, no matter how big or small. Paying money for a product or service is no guarantee of anything. Consider the author’s example of being willing to pay for Dropbox. That act alone does nothing to guarantee Dropbox’s continued existence, either standalone or as part of something else. Consider that Google and Microsoft both started cloud storage services that are substantially cheaper than Dropbox. Simple competition could kill Dropbox, and paying a premium to keep them around isn’t necessarily the smart thing to do economically. It also isn’t a guarantee that they can survive against Google, Microsoft or anyone else that comes along.

Naive Assumptions

So our jilted customer, making a naive assumption that paying meant helping independent survival, didn’t help their cause. Actually, their actions helped Sparrow become a target. Why? Because Sparrow got popular enough that Google thought it useful to buy them. Not for their technology, but for their people. Had Sparrow been far less popular, it might still be an independent. But it may also have been in such dire financial condition that it wouldn’t have survived, and it would have disappeared anyway.

The author of the piece also assumes that their individual motive, paying for product, was fulfilling the goal of the Sparrow founders and backers. They assumed that the people at Sparrow, and those that provided funding, would have been content to be an independent entity. That, too, is naive. This exit could have been Sparrow’s plan all along: build something cool, have a good time doing it, and then sell to someone to gain some stability and access to the resources only a larger company can provide.

Believe it or not, not all small independent companies want to remain independent, particularly if they are going to be stuck at “small” with limited growth prospects past a certain point. The team at Sparrow may have decided that, realistically, they simply weren’t going to grow beyond some modest size, and that the size they could achieve wasn’t enough to fulfill their financial goals. Let’s face it, it’s hard to compete against something that is already included in the operating system (in this case, an e-mail client). A service like Sparrow is very likely going to remain a niche sort of product, appealing largely to power users. That isn’t exactly a huge market of customers. It may have been enough to make an “okay” living, but if the Sparrow team and backers had bigger aspirations financially, then an exit like this may have been in the plan from day 1. We’ll never know for sure.

So What Do We Do?

What happens next is that everyone moves on, and Sparrow users find something to replace Sparrow. Perhaps some people will realize that, for better, or worse, this is how the world works. American Motors customers became Chrysler customers. Chrysler is now part of FIAT. Owners of DEC VAX machines started to call a Compaq phone number for support, and then were approached by an HP sales rep about upgrades and replacements. IBM ThinkPad customers had to call Lenovo for their next upgrade. Palm customers had to buy something else.

Yes, it is sometimes sad to see a product you like go away, or a company you have dealt with for years become a different company. As much as we would like some things to go on forever, that isn’t always the case. Sure, it is unfortunate that a purportedly great product will no longer have a future. But change is a part of life. Certainly, don’t stop commenting on these sorts of events. But for some, don’t make a purchase because you are making some kind of moral decision, in the hopes of furthering some lofty goal. Pay for a product or service because it is useful, it is something you want, and it has value for you. But always do so recognizing that your purchase may further an unstated goal you are not aware of, and one that runs counter to your hopes of longevity for the product or service itself.

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