When you think M&A, think one thing: In the hands of the right parent, any acquired company can harm its larger competitor. Obviously, it’s also true that in the hands of the wrong parent, a market leader can lose to a second place competitor.
CondeNet just bought Reddit, the price is not being disclosed (for our estimate, click here). Boston-based Reddit launched in 2005 and has gotten a lot less ink in the press than its twin (or cousin maybe) Digg. Digg runs ads and thanks in large part to Kevin Rose’s PR savvy and superstar status has grown to lead the market. News Corp. was said rumored to want to acquire Digg, but Rose et al. insisted on a $150M price tag.
For sure, CondeNet did not pay anything close to $150M for Reddit, they probably did not even pay 1/10th of that. Of course, Reddit has no ads but unlike many M&A deals when the buyer is a technology company (think Google buying YouTube) does not buy a company for technology but rather buys traffic and the audience, in this case, it is highly likely that CondeNet paid for the technology and know-how to navigate online.
According to the free but skewed Alexa: Digg is the 87th largest website in the world (Alexa skews for tech types, an audience that Digg has cornered), while Reddit comes in at #942. The real gap between the two is probably less than those numbers suggest.
Companies like CondeNet have a wealth of great content, much of it offline, some of it online. This is was one reason why we launched MetaMojo.com, to (pardon the pun) dig up content from magazines that does not appear in the first results page (or anywhere near the first page) of the major search engines.
But even the content from magazines that is online is not always indexed by major search engines. Reddit - and the brains behind it - allow CondeNet to think of radically new ways to compete in the space.
This could have far greater repercussions for Digg than the purchase becoming a comparable/footnate in Digg’s eventual sale.
In the hands of the right parent, any acquired company can harm its larger competitor. Obviously, it’s also true that in the hands of the wrong parent, a market leader can lose to a second place competitor.
For our estimate, click here.
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