When a major IT company pays a reported $30 million—roughly 90 percent of it in cash—for an iOS app with no monetization strategy and a million downloads since launch, is that a sign that the tech industry as a whole is riding a massive, overinflated bubble?
That’s the amount of filthy lucre that Yahoo paid for 17-year-old Nick D’Aloisio’s Summly app, according to AllThingsD. The app offers “algorithmically generated summaries” (in its Website’s words) from hundreds of news sources across the Web, presented in an easy-to-read format; users can cherry-pick their topics and news sources of choice, save summaries for offline viewing, and share content with others.
“At the age of 15, Nick D’Aloisio created the Summly app at his home in London,” read a note on Summly’s Website. “It started with an insight—that we live in a world of constant information and need new ways to simplify how we find the stories that are important to us, at a glance.” The problem, it continued, is that most articles and Websites are formatted “for browsing with mouse clicks” and challenging to scan on a smartphone or tablet—something that Summly solves “by delivering snapshots of stories.”
What defines a bubble? Over the past couple years, a few apps have been snatched up for enormous sums—think Facebook’s $1 billion acquisition of Instagram in 2012, or Google buying Sparrow for a reported $25 million. And the money train hasn’t stopped there: in a pattern that recalls the late-90s market frothiness for anyone over the age of 28, a handful of tech companies have either launched much-hyped IPOs or witnessed their share price skyrocket into the stratosphere.
It’s tempting to view all that acquisition and IPO activity and think, “bubble.” But a true tech bubble occurs only when irrationality takes over, and otherwise-sane investors start pouring fortunes into, say, Websites that specialize in pet accessories. While much of the current activity appears bubbly, many of the companies shelling out the billions also boast solid fundamentals: nobody is going to confuse Google, Apple, or Amazon with Pets.com. Even Facebook, which saw its stock price tumble from its IPO heights, still makes money thanks to a viable corporate strategy.
And if those companies want to drop a relatively small percentage of their overall revenues on an app that makes an iPhone user’s photos look like cheesy ‘80s Polaroids, more power to them—even if those investments never pan out, they inherit the engineers and innovators who created the software.
Even in that context, Yahoo shelling out a (reported) $30 million for a news aggregator—in a market full of them—seems like an expensive proposition. Summly claims its partnership with SRI International has resulted in an app that leverages “Artificial Intelligence and Natural Language Processing,” but it’s certainly not unique in researching and exploring those fields: Apple, Google, and other entities are spending untold amounts of money and brainpower on similar research, often with a mobile product in mind. And while D’Aloisio can certainly be applauded for his youth, there are lots of very young and very smart people in tech.
So why did Yahoo make the deal? Maybe its executives hope that, by acquiring a startup, they can give the impression that their company belongs in the same wheeling-and-dealing league as Google and Facebook. And if that’s the case, there are certainly similar deals in the works. But Yahoo should hope that sort of cash outlay will actually pay dividends.