Prologue:
Three years ago when Web 2.0 began proliferating, Israeli startups used eSnips as the poster child for their case that a successful social network could be founded in Israel. Based on the criteria in those days, eSnips was in fact delivering: It was able to convince top tier VCs to buy into an advertising-based business model, it leveraged user-generated content (the main activity is sharing personal media), used free storage as a hook, traffic was rising steadily, and it became a press darling domestically and internationally. As we say in Israel, “It was all honey”.
Now fast forward to Q4 2008. A shell of its previous self, eSnips is now a startup train wreck: Founders divorced and dismissed, threatened by litigation courtesy of a record label and, with no possibility for further funding, the company was unloaded for approximately $750,000 to the Logia Group.
In the past three months I have spoken to a number of sources close to the company and have managed to reconstruct the circumstances that brought the company from its zenith, to its nadir.
The fall of eSnips is a story of heartache that is intertwined, unfortunately, with the destruction of a marriage. All startup co-founders feel like married couples from time to time, but when they actually are married it can add to the level of stress and the complexity of running the business.  As I relate the events that led to the company’s current situation below, I’ll do my best to stick to the business issues at hand. But the line between what is business and what is personal can sometimes get messy, especially with startups.
Episode I: Heartbreak Hotel
One of the worst kept, but most respected secrets in the Israeli startup scene was the marriage that fell apart between eSnip’s CEO Yael Elish and her CTO husband Alon. When Yael left the company, the local press didn’t publicize the real story. We also covered the drama, noting the explanation given for her departure was “personal reasons”.
The trouble at eSnips began around October 2007 when Yael began to spend more and more time out of the office. Employees perceived this as having to do with activities related to a second round of financing. By December it became evident that this had more to do with a deterioration in the couple’s relationship. (I have tried to contact her for comment and will update the post if she responds).
The meltdown had the greatest impact on Alon, who as one source close to the company put it “was clearly unable to work after the mid-December announcement [with media coverage alluding to the personal crisis] and some days came in, others not.” An awkward situation ensued and confusion among employees grew in regards to the company’s future. This had a clear and immediate effect on the company’s day-to-day operation. As the same source put it “All work just stopped.” Technologically no one picked up the slack and no new development took place. eSnips entered a maintenance “steady state”.
Between October and December the company re-ignited its fundraising activities to correspond with the release of its “Social DNA” feature. I happened to have attended the release party and clearly remember a very odd vibe on the part of the employees. In retrospect, I can best describe it as the collective anticipation of watching a house of cards about to fall upon itself.
As word began leaking out, VCs interested in participating in the Series B funding backed off as it became clear that Yael would be walking away. In mid-December 5 to 7 employees were let go and Yael notified the remaining employees that she was leaving eSnips. The company then embarked on an unsuccessful hunt for an external CEO, interviewing candidates from both the US and Israel.
In mid-January 2008 another group of employees were let go, leaving eSnips with a couple of engineers and a content manager in place. It was around February that Dr. Nahum Sharfman, the company’s Chairman (formerly one of the founders of Shopping.com), stepped in as CEO, cutting loose both Yael and Alon (who were still full time employees). The goal was now to cut losses and sell the company.
Episode II: Disco Inferno
In a fascinating—and until now unknown—twist in the eSnips story, the personal drama may have eclipsed a major business threat. Record label EMI may in fact have played a considerable role in the company’s demise.
While eSnips was taking measures to police content uploaded by users, certain copyrighted material ended up online. In mid-October 2007 EMI called the company on it. This could not have come as a real surprise because eSnips knew for well over a year that users were sharing a great amount of copyrighted music with each other through the service. It was right around this time that it began cracking down on the behavior by using Audible Magic’s music fingerprinting technology. As a consequence, doing so eventually had a negative impact on the site’s traffic. EMI though remained steadfast in vocalizing its discontent.
This is where things get a bit murky… I was unable to ascertain whether EMI actually sued or was just aggressively threatening the company. I was however able to learn that somewhere in the area of a quarter to a third of the final purchase price of the company was paid to EMI. This to me indicates that EMI’s role in eSnip’s implosion was not a minor one.
Episode III: A New Hope
It took nearly nine months for the investors to unload eSnips to the Logia Group which took it over on November 1. According to the individuals I spoke with, the purchase price did not exceed $750K. Now subtract a quarter to one third piped to EMI to settle its beef with the company. This leaves the investors recouping around $500K of the $5.5M poured into eSnips.
The Logia Group’s purchase of eSnips came out of left field as it is a collection of companies that mostly have to do with mobile content (see image below). If for no other stakeholder, the purchase could at least spell some new hope for eSnip’s users. ComScore estimates the site still attracts 5.7 million unique visitors a month worldwide (as of November, 2008), down from a peak of 9.1 million last March.
I spoke to Itai Aaronsohn who will head the new eSnips about what Logia has in store for it. He communicated to me that eSnip’s basic functionality will not change. It will remain a free service with media sharing as its foundation, but will see new mobile and content layers added—both of which are Logia’s expertise.
In the short term users should expect an enrichment in the video and music departments, as well as the addition of casual games. Premium content and possibly original production will be added down the line. Users should also expect the addition of a mobile experience where access to personal media will be provided from handsets.
Epilogue:
Clearly, all was far from honey at eSnips.
There were fundamental flaws in the role that UGC, copyrighted material and advertising revenue held in the company’s overall strategy.
Then of course there was the personal drama. Some investors are principally against investing in husband-and-wife teams. eSnips sure strengthens the case. However, one can always use contrary examples such as Caterina Fake and Stewart Butterfield of Flickr, Ben and Mena Trott of SixApart, or Ruth Parasol and Russ DeLeon of PartyGaming. It doesn’t always have to go awry.
One thing cannot be argued though… Many of eSnips’ users are loyal and have stuck around through the company’s rollercoaster ride. For a great while they received the short end of the stick with no new features and little attention. Logia promises this will change, and that is as much of a silver lining as one could hope for in an otherwise sad story.
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an interestng story told really well - nice one.
What a great article!
Roi, is this your first post? All I can say is wow! This is great tech journalism.
Excellent stuff.
Thank you! I’ve been writing here for a while… You can find my posts here: http://www.techcrunch.com/author/roi/
R.
thank you for your great post =)
Create or join a crunchie’s chat group at http://groups.im/
If it’s under Logia then all I can say is RIP. Too bad
Surely you mean if its under the Gaza Strip its RIP?
Ooof that sucks… I’ve had the pleasure to meet Yael when the company launched in 2006.
All the best to her and the eSnips team.
_Never_ go to work for a mom and pop shop. It almost never works out well. At best, you expose yourself to someone else’s family drama. More likely, you’ll find out that the company is the family’s personal piggy bank, and unless you are a blood relative, you’ll probably get stiffed.
very true, when i started working in such a company i didn’t pay attention to this issue, but today i see it very clearly - if you are not part of the family - you are second rate employee
nice site nice design good template keep it up buddy nice news about esnips please also post a comment at http://lenajasminee.blogspot.com if you like it
I was sure from the title you were going to place it in the dead pool. It’s a great service and I hope it works out under the Logia Group’s control.
Well written article. Yes, this is my rule #6 for business: NEVER go into business with your “significant other”. It doesn’t mix well, and usually it takes a toll on both the relationship and the company.
The writer of this post could become a great paparazzi! but honestly a lot of text for little take away…
agreed.
eSnips a social network? Are you joking?
I’m sure their press releases touted such features, but here in the real world they were always just a crappy YouSendIt and zshare dropbox clone.
>>One thing cannot be argued though… Many of eSnips’ users are loyal and have stuck around through the company’s rollercoaster ride.<<
There is no reason to. The “storage” hook by Microsoft live was good enough for me to move my stuff out of esnips. I’ll tolerate the MSN banner over the Ads junk of esnips (when I’m using IE).
They still get 9M uniques a month? How is this unsuccessful? That’s a boatload of traffic that a new home should be able to monetize and grow. Still time for a silver lining.
DRAAAAaaaaaaama!!
nah.. that was a very cool article.. i especially like the title ” episode I ” and ” episode II” etc…
its kind of like star wars.. but you know.. not as nerdy…
How is this different than other start-ups that fail because of bad chemistry between the co-founders? As an employee, I could care less if the founders are married, what I care about is that they get along and focus on moving the company forward.
Roi
Great article. I thought it was idiotic at the beginning but once I started reading it was interesting. Maybe you can teach Erick something.
Now to my point. Why the hell would I use eSnips that gives 5GB if I can get 25GB free with the Windows Live services (and 5GB with Live Mesh)?
Yeah I know that’s cheap advertising to a Microsoft service but really now, is there any reason for anyone aside from Google-lovers not to use Windows Live and Live Mesh over that?
Lastly, happy 2009 and may peace finally come to Israel soon, God Willing.
I agree, Erick could do with some writing tips.
What about the role of the VCs in this? Why did they let it get to that point? Also VCs should have warned the company of the EMI situation - that is where an experienced board is important.
Hearthache in the Title?
Great story and very well written…
Can’t say I’m surprised it all went west - eSnips progenitor product Net Snippets was sloppily programmed and never properly maintained, and was eventually discontinued leaving its users high & dry. I didn’t expect much more from eSnips.
I don’t know why techcrunch cover so much esnips and forget all other ?
All i’m gonna say is “bargain of the century” for $750K how the hell it got sold for the that cheap is incredible………
Yeah great, i guess it is the deal of the millenium too, CEO was valuing the business over $20,000,000 sometime in 2008 and now they worth $750,000 ? i guess the rest is black non taxable, less risky in volatile Isreal money
Marko
great article. i like esnips cause it lets me share my music with the world, unlike zshare where only some people can see it. i hope everything works out.
I disagree with the divorce being a major part of the problem. I am sure it was uncomfortable for all involved, but its not much different then the CEO and CTO having a brutal falling out.
If the divorce had happened at an early stage - it would have killed the company - but with 10M users out there unaware of any cracks in the marriage, that was just not the reason.
I am glad you pointed out shopping.com. I am of the firm belief that it is Israel’s #1 internet success story.
Nahum created a site that was innovative, yet attractive to the average user. The company navigated through a dense field of competitors to win. Shopping.com provided real value to its users and a solid business model to its investors. And 10 years later it still does.
And, shopping.com experienced severe troubles during the bubble days and survived. I would have to speculate that the loss of 100+ employees is worse then the CTO and CEO splitting up.
And the most amazing thing about shopping.com’s success was that it was in a field that Israel knew (and still knows) little about.
Why am I writing so much? I have no connection to either eSnips or shopping.com, but I am the CEO of TripCart.com, a travel planning startup based in Israel.
And I am one of the few internet start-ups in Israel that has adopted the shopping.com mindset. We do not aim to build another widget or application that only a small subset of the population would use. Or that would not have a viable business model. But to build a site that will simply help 100M+ people plan their trips. Not eyeballs, people actually doing something.
For a taste:
http://www.tripcart.com/usa-re.....Tours.aspx