When Fake Money is Greater Than Real Money
When Ryan Carson announced that he was putting DropSend up for sale I was very interested to see how it would work out. Here you had a service that had a decent user base that was willing to pay a monthly fee to use. In comparison to other Web 2.0 applications that attempt to live off of Adsense revenue, DropSend showed real potential to be a key component for any company looking to enter the file-sharing space. Two months later and DropSend hasn’t found a buyer yet.
In an interesting post last month, Ryan tells the story of a failed acquisition bid. If you are interested in business at all I suggest you give it a read. As you can see DropSend is in the black so it makes sense for it to draw some interest. The failed acquisition involved a competitor who wanted to use the service as a marketing ploy, but didn’t feel that the $1M asking price was worth it. Ryan doesn’t mention whether there were any negotiations for a lower price, but I am intrigued as to why a service that makes money can’t find a buyer and sites that have no revenue or are deep in the red get scooped up all the time.
Lots of services get bought because of their user base, but how many different ways can you monetize a user base that the original creators couldn’t think of themselves? Measure Map got bought before it was even released with no revenue model in place. There are other examples sprinkled throughout the web and hopefully you get the gist of what I am saying.
Maybe the asking price is too high, but this can be negotiated so what is the real problem here? Do companies only care about users and hype now while ignoring core business principles? I don’t have the answer so I’m simply left wondering.
The colors at DropSend aren’t pastel enough (;
By franticindustries on January 4, 2007 1:54 pm
I think the characteristics, especially size, of the acquiring entity have a lot to do with it. Measure Map was scooped up by Google, which doesn’t care if a business made or lost $1 million last year. They’re both insignificant. So the question is - Why can’t DropSend attract bigger companies? My guess (from what I’ve read) is that they don’t have much unique technology that the big guns don’t already have. Their profitability will help them in negotiations with smaller companies, and I think they’ll find a suitor eventually.
By notsofast100 on January 4, 2007 3:09 pm
It’s not a matter of DropSend attracting bigger companies. The point Scrivs makes is the lack of good business principles in the potential second dot com bubble. If the ROI of DropSend is acceptable to a company it does make good business sense to acquire it (given they have the capital and only then does the size of a company come in).
I don’t think Google does care if a business made or lost a $1 million in the prior as that might be an indication that this business is not going to give us any return. DropSend has not only been profitable but is showing an increase in profit and that’s where I agree with the confusion of it not getting acquired yet.
By Ben on January 4, 2007 3:56 pm
I don’t understand why they want to sell DropSend anyway - if you read Ryan’s posts about the subject it sounds as if the site more or less runs itself and turns over a tidy profit with very little effort. I know they want to concentrate on other things, but if I owned something like DropSend I’d just leave it running and slowly build up a stockpile of cash using the profits or invest it into another business.
In my opinion the reason they can’t find a buyer is that the market is already dominated by one or two other big companies, one of which was in negiations to buy DropSend. Why would an external company want to spend a lot of money purchasing another business which doesn’t do anything terribly original or innovative and has a limited potential for growth?
By Paul on January 4, 2007 3:57 pm
It boils down to the motives of the company making the acquisition.
If it’s acquiring a key technology (usually when the majors acquire a start up), they do a napkin valuation and value the technology and it’s place in the company’s plan, rather than financial stats. Which was the case when Microsoft acquired Hotmail.
If it’s for an existing customer base, they’d calculate the lifetime value of each customer, apply a discount to that and make an offer.
If it’s to increase mindshare (”marketing”), it’d depend on how conservative or aggressive the board is and the offer will either be perceived to be extraordinary or underwhelming.
In the case of the YouSendIt board, it sounds more like a matter of effecting a ‘perception shift’ more than anything else.
By andrew wee on January 4, 2007 8:53 pm
If the sale drama has been generating enough buzz, Ryan has no incentive to sell the company (as long as that buzz is translating into additional paid signups).
The whole idea, situation, and continued attention has been a great guerrilla marketing ploy.
By Zach Katkin on January 4, 2007 11:00 pm
[...] Looking at the list 37signals is the only one that stands out as a subscription-based company. They are making real money over fake money and you can count all of their employees with your fingers. The only investment that I am aware of was done by Jeff Bezos and that was more of a partnership than a traditional VC stuck up your ass type of deal. [...]
By If You Were 37Signals Would You Sell? » Wisdump on January 8, 2007 1:00 pm