
Why the Economics of The Aardvark Acquisition Make Sense - alexandros
http://redmonk.com/sogrady/2010/02/12/aardvark-google/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+tecosystems+%28tecosystems%29&utm_content=Google+Reader
======
bravura
“It’s interesting that the founders left Google, spent 2.5 years building
something, then get acquired by their former company for $50 million. What is
going wrong at Google that is costing them this kind of ‘innovation premium’?”
\- David Lifson, Google Acquires Aardvark For $50 million

Perhaps it's simply because Google doesn't give $50 million dollar bonuses,
and never will?

~~~
sogrady
Ha! They say that you have to leave your job to be compensated fairly, but
that's the most extreme example I can think of ;)

------
wedesoft
The article seems to assume that the company is worth it. According to
TechCrunch they have more than 90000 users and process 3000 queries per day.
Their FAQ says that they have 20 employees.

I can see that there is some value in knowing where and when people are asking
a question related to a product. And I guess this kind of service could help
Google to expand in the third world where most people only use mobiles to
access the internet

But $50 million still is a lot of money for 20 employees, 90000 users, and
about a Gigabyte of data.

~~~
sogrady
Surely the value of the data can't be measured by its size, can it? The
content must have some reading on its value, no? The $140 million Picasso
canvas that woman tore a couple of weeks back is worth more than a 60 inch
square of cloth and paint, right?

To be honest, I have no idea whether the data itself is worth it. But I'm
betting Google does, and that very specific answers to very specific questions
have substantial value for them, both from an algorithmic input perspective as
well as on a pure content basis.

$50M worth? Probably not. But throw in the people, the user community (and
remember, that 90K figure was as of October of last year), and the mechanism
of getting people to answer other people's questions and I can see the math
working.

My concern wouldn't be the price. I'd be more worried that Google will
mismanage its acquired asset, as they have with other acquisitions.

~~~
wedesoft
The fact that somebody paid $140 million for a Picasso makes it expensive but
not necessarily valuable ;)

Nokia's CES2010 keynote video is quite interesting if you think about mobiles.
Apparently they have implemented mobile applications for local businesses in
India for ordering and advertising products. I still think the acquisition is
about Google on mobiles.

~~~
sogrady
If someone's going to pay that, I'd say that's a fair proxy of its value.

But point taken on the mobile front; I think there's definitely a case to be
made there. Will try and track down the Nokia keynote.

------
ntoshev
Nice promise in the title, but the article doesn't really try to estimate
anything. Almost no content.

~~~
sogrady
Disclosure: I wrote it.

That said, looking at the economics doesn't require, in my view, actual
numbers. Because mostly when we look at the economics of private companies we
don't have the actual numbers, or the ones that we have are very imperfect.

In this case, to estimate would have been nothing but pure speculation. With
so many variables unknown, it didn't seem to make sense.

That said, if you or anyone else has those numbers and can build a model, I'd
love to see it.

------
johnrob
If the founding team wants a fair price, they need the option to sell to a
non-Google company. I don't think Google would be happy selling its internal
projects to Microsoft.

~~~
sogrady
Precisely, which is the risk Google assumes. That said, at scale, the premium
paid to buy them on an open market likely compares favorably to the expense of
internally managing dozens if not hundreds of smaller projects.

