The Zero Sum Games

Dare Obasanjo does a good job of gathering together the sad sack stories of a number of startup acquisitions. The rule of thumb he suggests is that rewriting in the acquirer’s technology base destroys the confidence of the startup’s developers, who trigger a cascading loss of faith by users as the founders abandon the company. He cites Fred Wilson’s frank assessment of his Union Square Ventures’ delicious, FeedBurner, and TACODA’s fates as support.

Coming as this does from the point of view of the acquired, both posts don’t take into account the motives of the acquirer – in these cases Yahoo, Google, and AOL. Yahoo bought delicious at a signal point in the Web 2.0 bubble, when the startup’s street cred with developers was significantly enhanced by the purchase. At the time, Yahoo executives and even members of the delicious investor pool openly talked of the lack of business model or in fact concern that there was no such animal.

This was in fact a momentum buy. If there was something to the first rumblings of social media, then delicious would eventually provide a useful clue or at the very least a leg up on continuing to attract other early thought leaders such as the far more successful Flickr acquisition some 9 months earlier. And then there’s the other big reason for many of these types of acquisitions: taking intellectual property off the table and out of the hands of competitors who might be able to react more quickly with a better match of technology platform or people fit.

But what Obasanjo and Wilson may be onto is the possibility that so much of what we’re seeing right now is governed by the dynamic of a zero sum game. delicious may be losing its user base because of a mismatch of code base and the ability to innovate through a transition, or it may be obsoleted by disruptors including Facebook, FriendFeed, and Twitter. Facebook users get a bigger bang for their bookmark buck by sharing their links via a toolbar (ironically pioneered by delicious user Jon Udell), or by sucking their delicious feed into FriendFeed where it becomes submerged in the aggregation of similar signals including Tweets and Google Reader shares.

Fred Wilson sees no growth in Feedburner’s publisher business, but Google immediately gets the benefit of swallowing the startup’s feed splicing services, an early take on what FriendFeed has done with aggregation, a viral competitor to Yahoo’s pipe service, and most importantly, an historical archive of RSS behavioral targeting data from most if not all of the high value blogosphere and mainstream media.

Add in Google’s M&A’s of JotSpot and Jaiku and you may be convinced that Google has a real problem here. It didn’t take a rocket scientist to infer that JotSpot technology would never be integrated successfully, even though the Google Apps team swore up and down that it would work at a press event some 10 months after the deal. But which is more important for Google – staffing up their Apps team with JotSpot co-founder Joe Kraus as project leader or delivering a competitive offering to a Microsoft Mesh Office that is still months from political traction?

And finally, Jaiku – who needs another Twitter when Google’s strategy is to integrate social media fundamentals into its existing Gmail ecosystem? It seems more likely that Jaiku will see itself reborn at the intersection between Gmail, Gchat, and Google Reader, putting pressure on Twitter to align itself with Microsoft to survive. In the Zero Sum Games, watching the torch pass from startup to cloudkeeper is an exercise in making sure the flame doesn’t go out.