Let This Be a Lesson to You
The brain trusts at Facebook, Twitter, Yelp, Foursquare, and the countless more Web 2.0 darlings probably missed yesterday's news about layoffs at Linden Lab.
Linden Lab, the company that burst onto the scene with its Second Life virtual community, was once the buzz-worthy company that today's hotties have become. It was ahead of its time with graphical avatar-based realms and virtual currency.
In a sign that Linden dollars are no match to real dinero, the company is laying off 30% of its staff.
"Profits follow utility," fellow Fool Tim Beyers wrote three years ago, suggesting that a then peaking Second Life needed a larger partner to take it to the next level. "Right now, Second Life doesn't offer enough utility to transform it from a neat time-waster into a cash-producing e-monster."
Second Life lives on, but it seems that all of the social gaming these days is taking place inside Facebook. Surely it must have received some savory buyout proposals in its prime. Why did it let the opportunity get away?
Pride often gets in the way of acquisition targets. Facebook scoffed at buyout offers from Viacom (NYSE: VIA), Microsoft (Nasdaq: MSFT), and Yahoo! (Nasdaq: YHOO), and it's likely worth substantially more today. Google (Nasdaq: GOOG) was reportedly in talks to acquire Yelp in a $500 million deal that never panned out, and the jury's out as to whether Yelp is worth more or less than that today. Foursquare was a rumored Yahoo! target two months ago.
We don't know who the chumps are because botched negotiations are rarely discussed publicly. It's also hard to place a value on dot-com startups, regardless of what your venture capitalist buddy is telling you.
However, we do know that greed is alive and well among public companies that have come to regret their headshaking ways.
Remember Microsoft's $31 a share buyout bid
for Yahoo!? Shares of Yahoo! are trading for less than half of that 2008 exit price. Remember Electronic Arts
(Nasdaq: ERTS) offering $26 a stub
for Take-Two Interactive
(Nasdaq: TTWO) later that year? The Grand Theft Auto company closed in the single digits yesterday.Circuit City turned down acquisitive offers of $8 a share in 2003 and $17 a share two years later. It also didn't jump at Blockbuster
's (NYSE: BBI) initial advances in 2008. A few months later, it was liquidating
Naturally the darlings believe that they will be the exceptions to the rule. Facebook -- for now -- appears to be exactly that.
However, these blazing speedsters need to learn from the companies that held out for too much, when an exit strategy would have been lucrative and a potential pairing with a seasoned company model-widening.
Bravado rocks in moderation, but greed -- more often than not -- leads to an early grave.