Good acquirers

In terms of innovation commercialisation, one thing that Scott Stern and I emphasised is that there were benefits to both established firms and start-ups from acquisition deals and, thus, established firms might benefit if they had a reputation for being a good acquirer. So I read with interest this Slate article about the behaviour of the newly established firm, Pet Holdings. Pet Holdings is responsible for various viral websites including FailBlog and LOLcats.

When I told Huh that I wanted to write about him, he feigned reluctance—what if a prominent article describing his success spawned a competitor? But then he explained that it would actually be very difficult for a new competitor to take on Pet Holdings because it sat on a huge competitive advantage: a meme portal. By now his sites are big enough that when Huh spots something buzzy, Pet Holdings can quickly replicate the idea and then make it popular through links from Cheezburger, Fail, and his other blogs. Pet Holdings is not shy about copying successful memes outright. Last year the company was in discussions to buy, which has been compiling funny translations for years. When negotiations didn’t work out (Huh didn’t explain why), Pet Holdings started a competing site, and now it’s almost as popular as the original. Huh says that he prefers to buy sites than to copy them, especially when established sites have a devoted audience that can proselytize an idea. There are, though, few legal implications to copying good memes—because such sites traffic in user-generated content that’s amorphously defined (does lolrus infringe on lolcat?), it’s difficult to trademark memes.

You know something tells me that negotiating with Pet Holdings in the shadow of its now proven ability to replicate what you have is not much of a negotiation. The problem is that someday someone is going to come up with an unexpected viral site that allows them to duplicate the whole set of things Pet Holdings has. If they don’t want to do a deal with Pet Holdings then there is some vulnerability there.