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Can Tumblr Survive Yahoo's Buyout? A Look at Four Failed Startup Acquisitions

May 31, 2013
URL: http://www.entrepreneur.com/article/226868

Yahoo's recent $1.1 billion acquisition of Tumblr continues to have tongues wagging, as everyone seems to have an opinion about the deal.

Some balk at Yahoo buying a company with little revenue and others are wary of Tumblr being acquired by a media company with a track record of failed acquisitions -- Flickr, GeoCities and Delicious are all a shadow of what they were before their buyouts.

And this isn't just a Yahoo curse. Often, startups actually fold, as large corporations are unable to meld the startup into their strategy. Before you start daydreaming about landing under the umbrella of an enormous corporation, keep in mind these acquisition fails.

Related: Tumblr's David Karp on Why NYC Beats Silicon Valley

Excite
If you grew up in the '90s, you remember Excite. Developed by Stanford graduate students, the web portal was one of the most recognizable brands around. In 1999, @Home Network, a high-speed internet company, ended up buying Excite for $6.7 billion.

A scant two years later, the dot-com bubble had burst and the team filed for bankruptcy protection. Ask Jeeves picked up the pieces for Excite in another acquisition in 2004, but its current platform is not nearly what it was in the heyday. We all loved Excite, but investing large sums of money into a peaking platform is a risky endeavor.

Lycos
One of the first digital giants, search engine Lycos' unsuccessful buyout is more the fault of timing than anything else. Spanish internet company Terra Networks bought Lycos during the web boom for $12.5 billion in October of 2000.

As the dot-com bubble burst, things went downhill. Lycos was resold for $95 million to a Korean communications company in August of 2004 and again later to an India-based marketing company called Ybrant Digital for a mere $36 million.

Down but not out, Lycos has reformed and refocused its energy toward mobile and casual gaming. Young treps take note: Adjusting your business model, even after an unsuccessful buyout, could ensure the continued survival of your venture.

Related: Founders Fund's Geoff Lewis on Getting Acquired, on Your Terms

MySpace
Rupert Murdoch’s News Corporation acquired MySpace in July of 2005 for $580 million, and the investment seemed too good to be true. That is until college social media website Facebook expanded their marketing initiatives to include everyone, including high school loving MySpace students, to sign-up.

There has been a new iteration of MySpace. But it still hasn't really caught on, as its revival came too late in the market.

One reason MySpace was a major fail is due to inability to pivot and the clunky technology the site was built on. To remain on the forefront of users' minds, you must continue to reinvent and stay on the cusp of technology.

Related: 4 Tips for Creating an Exit Strategy for Your Startup

GeoCities
The quintessential '90s community, GeoCities enabled new internet users to homestead a simple website about a specific subject. Sites were organized according to geographic location and growth was explosive -- it was the third most visited site in the world.

Thinking the site would provide a substantial amount of users, Yahoo acquired it in 1999 for $3.57 billion. They were wrong. In 2009, Yahoo announced it would be closing the doors on GeoCities in the U.S, as the acquisition was deemed not a profitable venture. Today, it only operates in Japan.

Bottom line: Popularity doesn't always guarantee long-term success.

I don’t believe we are close to another dot-com bubble, and I don't think Yahoo is going to sell Tumblr off for pennies. Micro-blogging may or may not have peaked, but the climate of nimble startups means that someone is probably already vying for Tumblr’s spot. Keeping Tumblr cool, customizable and user-driven will be important for the acquisition's success.

What would you consider before being acquired by another company? Let us know with a comment.