Three Things to Keep in Mind About Tech Industry Rumors

So there were a lot of odd and interesting Linden Lab-related rumors spinning through the Interwebs yesterday, and since I'm not reporting about the company while consulting for Avatar Reality, my only contribution was this immensely silly Inception macro. Now that the buzz has largely subsided, here's three general rules to keep in mind, next time you come across a rumor about one tech company acquiring another:

• Successful/popular tech startups get buyout offers all the time

Indeed, acquisition is often a startup's explicit goal, instead of an IPO, which is more difficult and risky. Acquisition is the lifeblood of Silicon Valley, and pretty much any tech company which reliably generates revenue or substantial traffic is going to get acquisition offers from the tech giants (Google, Microsoft, Yahoo!, etc.) Indeed, it would actually be more surprising if a successful company did not regularly entertain offers, at least on an informal, flirtatious level. Which brings us to the next point:

• There are offers, and then there are offers

There's many kinds of acquisition offers, ranging from a formal one with a dollar value and a contract vetted by lawyers, to a very casual statement of interest. Consider the recent acquisition of TechCrunch by AOL: According to Michael Arrington, it first happened during a backstage chat with AOL's CEO at a conference, and didn't really become a substantial offer until months later.

• There are offers, and then there are acquisitions

Finally, even after a formal offer is put in place, there's a number of fairly high hurdles for it to actually become an acquisition. Maybe the shareholders/investors don't like the asking price. Maybe they want to use that offer to drum up competing offers. Maybe the company making the offer gets kvetchy, after doing due diligence on the company's financial reports. Etc. etc. It's often during this process that an offer, though it did exist at some point, implodes.

All that to one side, it doesn't hurt to acknowledge that there may indeed be a kernel of truth to the rumor of the week. But even if that were the case, keep the rough guidelines above in mind.

Comments

[Adeon Writer]

And above all, don't Google random names you find in comments.

[Ignatius Onomatopoeia]

Since I slammed you in one comment, I'll praise you here: NWN was the most skeptical of all the reports of this mischief by Tizzers :)

Well played on her part and well covered by you.

[Codesmith]

Blue Mars is a more likely candidate for the Redmond Monster.

[Botgirl Questi]

This rumor had a very high fun factor and inspired two days of funny tweets, plurks and blog posts. It also reminds us not to put all our virtual eggs in a basket we don't own. It's a good time to register one's avatar identity on other worlds. Not only OpenSim platforms like InWorldz and Reaction Grid, but also Twinity, IMVU and even....Blue Mars. The sky isn't falling, but ya never know!

[IntLibber Brautigan]

Oh, I wouldn't mind at all if SL got bought by MS. We would finally have office tools inworld besides faux-"powerpoint presentations". Notecard editor would get spellcheck and "clippy". SPREADSHEETS!!!! That right there justifies it.

[Wizard Gynoid]

Well Iggy. i think i was the most skeptical of all. /me pats myself on the back. an interesting story might have to do with the question of why this person who calls himself Tizzers Foxchase goes to SLCC when he is permanently banned from SL. and why he continues to have such an interest in social engineering (f*cking with) SL users.

[brinda allen]

Get em Wizzy! heh heh

[IntLibber Brautigan]

He does it all for you, Wizard.

[Rober1236 Jua]

Well the interesting term is successful companies, precisely how that is defined? Linden Labs has had a truly terrible and depressing 2010. It looks to me more like a life line than an acquisition.

[Gwyneth Llewelyn]

Well explained, Hammie, that's pretty much what it is. I mean, everybody knows how eBay's founder, Pierre Omidyar, became one of Linden Lab's business angels for a while, right?

Venture Capital companies put their money into start-ups because they want to get their money back when they sell their share. They're just in the company for that — wait 5-10 years, get at least 10 times what they invested back from the sale. It's far more easier and safer to do that in privately-owned companies because you can handle all offers in secret and can do rather good "leak control" that way. LL still has 2 VC companies as shareholders; until 2006, they managed to raise US$11 million in funding. LL has turned out profits of something like US$30-60 millions every year since then (yes, Rober1236, including 2010 — "truly terrible and depressing" for us residents and for the media reporting on what residents think and feel, but not in terms of good old solid business). So it's time for them to sell their shares, make a huge amount of money which they well deserve for believing in Philip, and move on.

If LL is not entertaining offers, I'm absolutely sure that at least the two VC companies owning shares in SL are. A VC company that isn't trying to sell their shares in the companies they funded doesn't exist; it doesn't make any sense.

Now if Microsoft is or not actually part of the list of offers made to LL is open to rumour and speculation, but I can very well imagine this bit of the rumour to be true. After all, Microsoft is not exactly a newcomer to Second Life and OpenSim. They had an official virtual presence in SL. They held conferences and product launches (a few Microsoft groups still hang around to do that). They have moved to OpenSim — which, being written Mono/.NET, is far more Microsoft-friendly than LL's own codebase — partnered with ReactionGrid and developed a special viewer which allows people to authenticate with Live IDs into an OpenSim grid. So it's not as if Microsoft is absolutely clueless about SL/OpenSim; they know about the company and the technology. They're active OpenSim developers, even if not with the amount of exposure that IBM and Intel have. So, sure, it would make sense to acquire at least a slice of Linden Lab, get the Second Life brand as part of their strategy, promote SL aggressively through Microsoft's vast marketing network, push SL ads to their adCenter platform, and try to raise the value of LL — to make it even more profitable.