Aquihires and Product Shutdowns

A growing trend that I have noticed over the past year are startups quickly shutting their service shutting down after asking users to buy into their vision and investing a lot of time to make the most of the product/ service. This has commonly been through aquihires (When a company buys another almost purely for talent and has no intentions of moving forward with that companies products) or startups just giving up on their idea (sometimes due to circumstances/ funding and others due to the team pivoting the product to a new market or even starting an entirely new product).

This is a controversial subject, in particular in reguards to aquihires. Views are often split between the crowd that congratulates the founders on their efforts and wishes them well with their new role and the crowd that feels that they are selling out on their products users.

2 examples that have come up in the last week are Posterous being acquired by Twitter and Kevin Rose’s company Milk abandoning their first iphone app, Oink.

Posterous is a blogging platform, originally slated as the simplest way to blog online. Simply send them an email and and get your blog started, then either post through email or in an online interface. It is one of the more prominent companies launched through Y Combinator []. For a lot of it’s life it has been in somewhat of a battle with Tumblr [] for users, not that the blogging space is a zero sum game but both operated on revenue models which required immense scale to create a largely profitable and sustainable company. Tumblr had gained the upper through being less of a traditional blogging platform and a bit closer to a social network of blogs and had a lot of users that just shared photos. Posterous has always been about more tradition blogging with a smaller user base. Sensing this trend Posterous launched their own take on the more social/ photo sharing concept called Spaces.

Some may call the eventual Posterous acquisition a smart business move, returning a decent amount to investors and giving the founders a nice pay day. Many people though that have come to depend on the platform for their blogs though see it differently. Twitter will likely be making no effort to extend the life of the platform and the Posterous employees heading to Twitter will be working on other Twitter products.

The Oink case is an interesting one, the parent company Milk is a case of investors throwing money behind an internet celebrity founder with a past success (if you can call ultimately Digg a success). The idea behind Oink was to rank things around you, pretty much anything, whether it can actually be attached to a location like a Coffee at a Cafe or something that doesn’t just exist in one place like a laptop. It was given 4 months after launch until it was shut down, one Hacker News commenter likens it to business ADD. Given Kevin Roses popularity the app quickly shot up in downloads, hitting 150,000 in just over a month. I guess it was likely not meeting expectations in adoption, engagement or product direction. Milk also indicated when they started that they would be experimenting with lots of ideas when they started.

It is more the trend as a whole that worries me rather than any specific example. Time and time again we see companies that are one day selling customers on their products and exciting futures and the next annoying that they have been acquired and the product is shutting down. This time a fair bit of discussion is spawning such as this post drawing an analogy to real estate landlords (discussion: I worry that in the future users will be jaded on investing their time into getting started and making the most of new services. They will remember the last time they uploaded all their photos to that “cool new service”, only to have them shut down either require them to export the photos or potentially lose them and any content that has been generated around them.

This is all related to the interesting post “dont be a free user”. Basically it states that when you pay for a service you have a higher chance that that service will stick around, that the service will be generated real revenue and not be so beholden to the next VC round or the VC board that now controls the company. Sure there is still the chance that these companies will be acquired but there is a far higher chance that the a company will either survive without needing addition funding or to be purchased or that when they are brought their product is actual valuable for the acquirer to continue to run.

Many companies run a model where they try to delay revenue generation for as long as possible to build up a critical mass of users. This works for some companies, Twitter being a notable example. Others though, you feel that they would have been better off working out the revenue model before they reached the point where they could no longer continue without outside assistance.



One Response to “Aquihires and Product Shutdowns”

  1. Gravatar of David David
    22. March 2012 at 20:15

    Ah rob that’s a great post and it’s something I think about more and more, which is why i’ve culled the number of alpha/beta programs I actually get behind as you put in all the data they need and promote it to grow their audience and then they leave you out in the cold. It’s also the case when people are pushing you to join their affiliate program to grow their audience but in the end you become their BDM/Marketing team and get a handful of one off sales.

    It’s a real shame but it’s one of the many reasons i’ve become a slow adaptor for new platforms, which is a shame as often I don’t give products full attention. I think more platforms almost need to guarantee a minimum life span especially when they are charging people to download their apps.

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