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After days of chatter, MySpace made its acquisition of social music discovery startup iLike official today. The company, which is best known for its popular Facebook music app, will see its social discovery technology applied in new areas such as gaming, according to MySpace CEO Owen van Natta. To that end, iLike was acquired by MySpace Inc., not MySpace's digital music joint venture.
According to the acquisition announcement, the current iLike experience that users have come to love will be "unaffected by
the acquisition" and iLike will continue to be headquarted in Seattle.
Financial terms of the deal were not disclosed but rumor has it that MySpace was able to acquire iLike for a song and a dance. Some peg the deal at a mere $20m, less than half the value investors placed on the company in 2006. Over $16m was pumped into iLike by notable names including famed venture capitalist Vinod Khosla, former MTV CEO Bob Pittman and ticketing giant Ticketmaster.
Assuming that the rumors surrounding the dollar amount of the acquisition are accurate, iLike serves as one of the best examples of a startup whose popularity didn't translate to value upon exit, as others have noted. Despite iLike's impressive user base and reported profitability, the fact that so much of its popularity was derived from its Facebook app left the company in a vulnerable and precarious situation. If Facebook develops its own music service, as some believe it will, there's no telling what would happen to iLike.
Although it appears that MySpace's purchase of iLike really represents an acquisition of technology and talent, it's worth noting that MySpace CEO Owen van Natta is the former COO of Facebook. By some accounts, he left the company after a falling out with Facebook CEO Mark Zuckerberg. But that's not the only reason his ability to acquire iLike may have been a coup d’état.
According to TechCrunch's Michael Arrington, Facebook had bid for iLike but tensions between the companies prevented a deal from taking place. Given that Facebook paid a rumored $50m in cash and stock for a company (FriendFeed) that it probably didn't need, there must be some disappointment amongst Facebook management and investors that the operator of Facebook's top music app is now owned by rival MySpace. As Arrington notes, this puts Facebook in a tough -- and potentially lose-lose -- situation.
I think there are two key takeaways from this acquisition:
- Strategy and developer relations are extremely important for platform operators. Had Facebook played its cards right, it could have acquired iLike. Instead, questions over its treatment of developers that get too big appear to have created insurmountable barriers to an iLike-Facebook deal.
- App-based businesses may have a tough time getting love from acquirers. Even though iLike was reportedly on solid financial footing and represented an appealing target for anyone looking to establish a high-profile presence on Facebook, there was no premium paid here. In fact, we saw just the opposite. Is it possible that the risks associated with being too dependent on platforms operated by third parties will more likely than not result in an anti-premium?
When it comes to consumer internet M&A, iLike-MySpace may turn out to be the most interesting deal of the year. I think it will be well worth watching how this plays out.
Photo credit: blakeburris via Flickr.