Crazy things have happened all week, including an invitation by Kim Jong Un to President Donald Trump for possible talks over denuclearization, to the bomb cyclone that hit the Northeastern US. There’s also the whole storm brewing over in Washington, which is still very much an on going issue.
But there are more pressing issues to be had.
McAfee Loves Bears
McAfee, the computer securities firm that spun out of Intel after a lackluster merger years prior, recently acquired Tunnelbear, the Toronto based VPN services provider. This is reported to be McAfee’s 2nd acquisition since becoming an independent entity for the second time in its history.
What’s interesting is that McAfee already has its own VPN service, dubbed “Safe Connect”. So, it’s easy to see this as a play to better establish its position in the surprisingly competitive VPN market. But, as VentureBeat reports, that’s not the whole story.
In fact, this is more a story of a giant buying a brand.
McAfee isn’t known for being a household name in the computing world. In fact, it’s rather infamous, along with its direct competitor in the cyber security business — Norton. Tunnelbear, on the otherhand, has built quite a reputation for itself, especially for its seemingly perfect customer service, ease of use, and a cute mascot to top everything off. McAfee seems to think that this is the secret sauce they’ve been missing, and this acquisition is a play to bolster their brand portfolio to help kickstart a play for consumers’ hearts.
Tunnelbear has a lot to gain from this transaction, too. It’s been pushing for the corporate market recently, with mixed success, its brand image a seeming hurdle in corporate sales if anything. Being a part of McAfee’s portfolio would definitely bolster its reputation in the corporate market almost immediately, which should help jump start sales in that market.
More than anything, this is a brand story. It’s a story of a consumer brand looking to break into the corporate market, and a corporate brand looking to break into the consumer market. This purchase by McAfee is a great example, based on my analysis, of how an M&A could and should play out. It’s worth studying, despite its simplicity.
Airbnb’s Headhunting Game
Airbnb recently scouted a big name in the tech space, former Amazon Prime boss Greg Greenly. He’s purportedly slated to head Airbnb’s Homes unit, with a particular focus on their premium services. This should fit right in with Greg Greenly’s previous experience spearheading Amazon’s efforts to proliferate their Prime business.
There’s two questions I have concerning this, though. First, Amazon and Airbnb are fundamentally different in their approaches to corporate growth. Amazon, for the longest time, has been focused on driving growth in user base and revenues, and not so on profits. In fact, a big reason Amazon was able to win over the hearts of consumers was through its consumer friendly policies that directly contradicted its bottom line. Airbnb, on the otherhand, is looking more poised to focus in on its bottom line, and less so on other metrics, which can hinder profitability. It might, actually, be more in line with, what seems like, the ultimate goal for the startup — staying private.
The second question is whether Greg’s experience getting Amazon Prime to market is similar enough to his new job description at Airbnb. Even though Prime was, essentially, a premium Amazon subscription service, it was, ultimately, a value play for the company — it offered far more than its $99 price tag would go on other platforms. That’s not the case with Airbnb. With more and more people, worldwide, using the platform to list their properties for longer and longer periods of time, the platform is quickly seeing its prices rival some hotel rooms in certain areas, and its premium listings are leading the charge. How Greg’s experience can help drive growth for this new business strategy remains to be seen — will he bring in new value propositions that will help offset the high prices these listings command? Or will something else come of his hire, entirely?
It could just be that Airbnb’s premium listings will end up acting as loss leaders for the company, helping lift the brand image, bringing more premium properties to its portfolio. It may also help by increasing traffic to its site, increasing overall booking numbers for its (foreseeably) more profitable “experiences”. Or, they may turn out to be the new cash cow for the company. Who knows. But, in hiring Greg, they’re signaling that they’re looking to improve metrics other than profitability. Perhaps it’s looking for a new round of financing while their at it.
Snap Snap the Downsize Man
Snap is downsizing, yet again, but this time, it’s their engineers getting the boot. About 120 of them, in fact. That’s substantial, especially since their previous downsizing efforts saw just 2 dozen employees being cut from their ranks. Moreover, they were from their content division last time around. This time, it’s the engineers — the engine that keeps the company going.
It’s even more worrisome if you consider that companies like Facebook and Google, even Twitter, didn’t downsize their workforce quite as quickly post IPO. Snap seems to be an anomaly among social media companies. But, it does seem like a recurring trend for post IPO companies in recent years.
Fitbit, Blue Apron, Etsy — these are just some of the companies that laid off their core workforce post IPO. If you look at it in terms of time frame, then, Snap isn’t an anomaly — it’s part of the rule. And that’s rather concerning.
It’s rather unfortunate that I don’t have the time nor the expertise to write a full blown article on this matter, because it’s a rather interesting topic. Perhaps I’ll write one in the future. But, for now, here are my theories on the matter.
First, startups, and the overall VC market, is experiencing a bubble. In a previous piece, I mentioned how startup rounds were becoming larger and larger. I also mentioned they’re becoming more and more concentrated in later and later rounds. Couple that with the seemingly growing number of startups who are finding it difficult to monetize and stay profitable, and the reluctance of many founders to take their companies public, and you get the perfect conditions for massive late stage financing rounds that push up valuations. Because no startup will take financing unless it pushes up their valuations.
Trouble is, the valuations don’t reflect fair market value of these businesses.
That’s what seems to be going on with these companies. They set their key metrics early on such that it would be easy to raise VC funding, but failed to consider how to turn those KPIs into a real business. Snap built its platform and its hardware accessories around an idea that was fundamentally incompatible with traditional monetization methods. Etsy fundamentally overestimated their potential market size. Blue Apron overestimated consumer demand. Fitbit ostensibly can’t build a smartwatch. Now that the companies have gone public, public scrutiny exposed many issues with their businesses. The layoffs are a bandaid solution to lengthen runway estimates — not a fundamental solution.
At least, that’s my theory.
My second theory is far less dramatic — startups are adapting new tech to streamline their processes, making certain employees obsolete. This is plausible, because technologies progress at an ever accelerating pace, but not probable, because these companies are supposed to be at the forefront of technology, meaning all their output is something that hasn’t been done before in human history.
I hope Snap proves me wrong. I think I said this before, in previous entries as well. And, I really mean it. Snap is, to my 13 year-old niece, the entire world. It’s the platform to talk to her friends. Heck, she even talks to me over it — when I use it every once in a blue moon. But, every news that comes up about the company, it seems they’re taking 1 step forward, then 3 steps back. Hopefully, their next move is one that takes them at least back to square one.