So StumbleUpon, a social bookmarking site that lets users browse and discover new websites by clicking a button, was a subsidiary of eBay for just less than two years. The acquisition made the startup’s founders extremely wealthy, given that they raised just $1.5 million in venture capital, and sold for $75 million.
You’d think that the founders (Garrett Camp, Geoff Smith and Justin LeFrance) would be quite content to go into semi-hibernation at eBay and contemplate their vacation homes for years to come. But like so many already-wealthy entrepreneurs, some fire kept driving at them to keep themselves challenged. It may be the deep rooted insecurity that leads most entrepreneurs to try to build companies in the first place – getting bought doesn’t necessarily give them the self confidence they thought it would. Or it may be a simpler explanation – the certain knowledge that StumbleUpon hasn’t yet become whatever it is eventually destined to be.
So when the opportunity came for the founders to buy the company back from eBay and start over, they took it. The struggling eBay had been looking to sell off StumbleUpon for months, even hiring investment bank Deutsche Bank to help them get back their $75 million, but there were no takers. That left the door open for the founders to buy it back themselves.
What’s next for StumbleUpon? Presumably Ebay got some cash in the deal from the injection of capital from the founders, Sherpalo Ventures, Accel Partners, and August Capital. Some of that new cash must also be used to capitalize the newly independent company. StumbleUpon has a revenue model that forces ads on users every few pages they view at a flat rate of $0.05 per ad, and since they have 100% click-throughs on the forced feeding of these ads, there is presumably some very real revenue flowing to the company. StumbleUpon doesn’t cost much to run. Remember that they only raised $1.5 million before the original sale, so keeping the lights on shouldn’t be a problem, even if growth continues to stagnate (in fact, Comscore shows StumbleUpon with the same number of unique monthly visitors today, 1.5 million, that they had two years ago).
Growth will almost certainly kick in again now that the team has a renewed incentive to better the product and compete. StumbleUpon had terrific growth prior to the eBay sale (see chart); my guess is they’ll get healthy again soon.
What I love about the spin off is that the company is now able to allocate resources properly, without having to deal with the bureaucracy of a huge public company parent to slow things down and drain off people and cash. There have been other examples of sales followed by buybacks in the past. My favorite is Webshots, which was sold to Excite for $82.5 million in 1999, bought back by the founders for $2.5 million in 2001, and then resold to CNET for $71 million in 2004 (CNET later sold it to American Greetings for $45 million in 2007). Listen to the first few minutes of this podcast with Narendra Rocherolle, one of the founders, for that story.
It would have been different if eBay had integrated StumbleUpon into its core business somewhere along the way, or synergies between the products allowed StumbleUpon to shine in a way that it never could as an independent company (like YouTube has at Google). But none of that happened. So by far the best thing was for the company to once again fight it out as a small, nimble startup. Resources have been allocated efficiently, and the startup ecosystem is healthier for it.
When SU just came out I used it a lot… It was pretty “cool” to kill some free time and whatever but got old after a while.
I think this is what happened with eBay as well.
http://www.wannadevelop.com
you need a lot of random time on your hands to be a long term user of SU.
That isn’t really true. I use SU a lot, but dont do it in a strech. I just randomely click the Stumble button during my surfing session when I feel like reading something interesting.
And that could be probably the reason for its decline. If I find something good, I need a way to save it for self and share it with others. Is Stumble Upon a good way to do it?
I’ve stopped using it now but I used to find SU a very effective way to advertise…I could target users by interest and age and getting a few thousand extra visitors was pretty cheap.
The other thing SU advertising did was force me to reduce the load time of my homepage(which was my campaign’s landing page)…as the attention span of SU users is so having snappy load times was a must.
Nick
Twitter has dramatically changed the way links are shared online. Couple that with real time activity streams ala Friendfeed/Facebook and it becomes questionable whether people need to Stumble across the web anymore.
Didn’t know about the Webshots story, nice one.
Agreed Robin, those guys won the lottery twice!
Jon
http://WoodMarvels.com – Create Unique Memories
Testing Twitter @
Couldn’t be Ebay paid almost 80 million for SU. OMG and I thought some ebay buyers are stupid.
How do actually integrate SU into eBay’s business?
how about a feature that lets users stumble around ebay being shown auction pages based on their interests…for shoppers who want to buy something but don’t know what they want (aka people with too much time and money on their hands
I don’t think there are that many “suckers” around anymore.
stumbleupon is really nice better than digg for sure. as topics remains alive for ever..
great post. I agree what win for them. Expect to see more spin outs from others like Yahoo.
Nice “Angle” Mike
Does anyone actually get held accountable for blowing $75m of shareholder value?
Yes, for instance, the people who decided work at ebay and have their pensions flung onto a roulette wheel (as I imagine YOU would describe it) are accountable because they decided to work there. If they didn’t trust upper management, they shouldn’t have worked there to begin with. People are responsible for their own actions.
Efficient for who? Not for eBay. They wasted $75 million and likely sold the company back for less. Maybe they still own shares and they will see a return down the line.
I used stumbleupon and it was not very interesting at all. The founders should just enjoy their money, but i admire they still want to take that risk and get stumbleupon back. I don’t think stumbleupon is going to take off at all. It just has so many random websites that pretend to link together. I just don’t want to look at 10,000 “similar” website when I only need to view 2-3. The business model is little off i think. Maybe that is why ebay is selling it. I think that is a good idea.
I agree, with the API’s flowing out of facebook and twitter who needs SU to tumble over.
but whos to say tumble cannot regroup and force SU into a strong pipe themselves.
an alternative would just be to offer is as a web service…
Good read Mike. The StumbleUpon guys sound pretty sharp.
I was a huge fan of StumbleUpon before I got really busy, but I still think its a good way to find new and interesting sites. I have no effing idea why eBay would have bought it for that much – at least with the Skype purchase, there were theoretical, if stupid, synergy possibilities.
thats true but the piping tech know how has always been there, is SU couldn’t do this with Ebay then I guess SU will have to open the pipes themselves.
could get interesting
I signed up with Stumble Upon. It seemed interesting for sure. I kind of lost using it again. Digg – I am not too sold on it either. Saving your bookmarks – I dont think its too big a use case frankly, but I think I am in a minority :p
Stumbleupon’s concept of discovering websites is a old fashioned way. Things have changed dramatically since it was sold to EBay. Now, it’s all about CrowdSourcing everywhere, and I guess the best source to find the best websites is Twitter. One of my favorite websites http://www.boilingpage.com is actually tapping in to Twitter and shows the hottest pages on the web. So, if you want to discover the real hottest pages on the web, I guess http://www.boilingpage.com will help better than StumbleUpon.
Someone’s gotta find the link first, parse it, decide it’s interesting and post it to twitter though. SU can help with this. They don’t have to beat Twitter, they just have to be profitable. Might make a nice little money-spinner, and presumably the founders know the finances.
Great post – very insightful. (With the recent ‘guest’ writer junk/crap on techcrunch – i was ready to give up on the site.)
Ever read the business book “Focus”? This could be a case study for its thesis.
How much will founders pay to buy back SU ?
1.5 Mill$ ? 150K$ ?
Stumbleupon really made internet users stumble, but made founders darn rich $$$$$$$$$$$$$$
I still find stumbleupon useful and will click the toolbar a few times every couple weeks. It’s like having a much larger social network constantly finding, recommending and reviewing things.
Twitter has similar potential, although I am still waiting to hear about a service that can filter for relevance and interest as well as SU.
IMHO,
Twitter : Stumble
Breaking News : Peer-Reviewed Journals
SU traffic sucks so bad. Probably the most unproductive traffic that i’ve ever paid. Good luck to “re-founders”.