Facebook Shouldn’t Be Allowed to Buy Tbh | Hacker News Reader

Facebook Shouldn’t Be Allowed to Buy Tbh

stratechery.com

315 pointskawera107 comments

> “When we met with Facebook, we realized that we shared many of the same core values about connecting people through positive interactions. Most of all, we were compelled by the ways they could help us realize our vision and bring it to more people.”

At this point I read gushy messages like this as "We made this app specifically to be purchased by Facebook". From that perspective they were never a competitor to Facebook so in this specific case no big deal that Facebook bought them out

Yes this is PR speak. These companies have 2 possible exits:

1. Get big enough to build and scale an ad network and other services

2. Get bought by an existing scaled network

Option 2 is far easier which is why startups/VCs optimize for it. FB benefits by letting them do all the experimentation and then acquiring when they have proven traction, effectively gaining control of the new users for less money than competing outright, while the founders get a nice payday and move on.

What gets really interesting is when the same VCs behind FB are the ones kicking off these new experiments, a nice little money machine once you're in the loop.

I hope this doesn't sound too snarky, but ...

If option 2 will become illegal in the future, would that mean that startups would have to optimize to turn into real companies? You know, that kind of company that need to be profitable on their own? And perhaps, but only perhaps, with a sustainable income?

Why should it be illegal? Are you saying companies should never be bought by another? Mergers and acqusitions are a massive driver of the market so what do you expect to take up the slack?

Profit isn't the only measure of value. Startups by definition are experiments in business models and scaling quickly. Maybe they build something that fails to sell but are still worth something to the acquirer. Remember there are 1000x more startups that fail completely and generate no value at all.

If you want regulation then it should be for the acquirers from getting too big, usually called anti-trust laws, but I dont see what's wrong with people putting some money together to try and make something to sell.

> Mergers and acqusitions are a massive driver of the market

Pardon if I missed something in economics 101, but a large amount of mergers and acqusitions lead to market distortion, which drives the market into the opposite direction of what is good for customers. Cartel law tries to limit the damage, but more often than not prevents monopolies at the cost of tolerating oligopolies.

> Remember there are 1000x more startups that fail completely and generate no value at all

Maybe that number would be lower if startups optimized for stable income rather than acqusitions? Because then, a startup that is "merely" able to earn a living for a few people is considered a success path, rather than a failure path to avoid early on.

No, because as a startup founder and now investor, I would work day and night to find another "loophole" for easy money. There are hundreds of thousands of people who think like this

Sustainable income? If you're getting a check for $10 million, do you care?

>Sustainable income? If you're getting a check for $10 million, do you care?

Depends on the kind of values you have.

You can't build a policy on "Maybe people will just be nice?".

Aggregate economic decisions are not based on values, they are based on systematic incentives.

If society operated on altruistic values, it would have never invented government.

>If society operated on altruistic values, it would have never invented government.

This assumes there are no coordination, planning and other services that the government offers.

At best, society would never had invented the police.

I would create an unsustainable business in return for $10 million. Does that make me a bad person?

If you designed the business knowing that it would collapse at some point in the future, and knowingly sold it to someone that would be left holding the bag, I think that would make you a very unethical person. If you did this, real people would be hurt by your decisions, and you would have continued to execute your plan knowing this. Maybe you just haven't thought through the consequences, but I wouldn't want to be friends with someone that acted that way.

Edit: Since it appears that I wasn't clear enough, I'm saying that misrepresenting the value of a business to employees, customers, and investors is unethical. If everyone involved knows the venture is doomed to fail and you can still retire off the profits, I don't see a problem with that.

What? All companies will collapse, building a business means fighting against that to create value. Why do you assume the buyer is clueless? They have just as much responsibility and would only purchase if they see value in the deal.

It's one thing to misrepresent, but that's fraud so that scenario is taken care of. Not sure why there's so much moral judgement going on here or who gets hurt when a company is sold, giving its workers money and opportunity rather than going bankrupt.

You're taking my comment out of context. GP said they would create an unsustainable business for $10 million, which kind of implies that they knew from the beginning that whoever bought the business would lose their investment. Buyer beware doesn't absolve the seller in a strictly moral evaluation. I was merely responding to the GP's hypothetical, not making a comment about the VC market in general. Also, GP never said fraud was off the table. :)

It doesn't imply anything. If the seller is not fraudulent then it is absolutely up to the buyer to judge the value and thus the price they pay. If they're paying $10M for a business with all the data upfront, then they are assuming they can recoup that cost.

I can sell a company that has a business model that will expire in a few years because of new tech or laws or some other reason - if a buyer still buys the company from me then what's the problem? Who gets hurt since that's what you said would happen?

There's nothing invalid or unethical about this strategy nor do I care if the acquiring company just executes badly and ends up wasting the money.

We're way off topic, but we're not disagreeing here. If there was no misrepresentation involved then there's nothing unethical. I've edited my reply to specify. As to who gets hurt (assuming information asymmetry): the users who depend on the service, the buyer that loses their investment, and the employees that put a significant portion of their lives into trying to breathe life into an operation where the founder was only interested in creating the short-term appearance of value in order to flip it.

I'm more concerned about the damage to the users who get the short end of the stick after being lured by a service and its promises, than about the buyer.

It sucks even more when they provide an API, and with little forward notice, discontinue the service entirely. Google is notorious for that as well.

That's a meaningless hypothetical situation. There's no way to know when or if a business you sell will collapse in the future. Unless you actively conceal material information from the buyer (like hidden debts), which crosses the line from unethical behavior to criminal fraud.

Are you friends with a lot of people who have sold startups for $10 million?

If while you were building it, you advertised to your users as some kind of user-centered "passion" project (complete with PR BS targeting them to lure them), only to screw them after they have depended on your service by selling it to some large company that will fuck it/close it, then,

yes.

No. It is called an exit-strategy.

Mark Cuban became a billionaire by selling a domain name to Yahoo.

Now he is a reality TV star.

To be fair, he used some of that stardom to get Shark Tank to drop the automatic 5% equity grant just for appearing on the show, including retroactively to previous entrepreneurs.

https://www.inc.com/will-yakowicz/mark-cuban-forces-shark-ta...

That's orthogonal.

You can have an exit-strategy, or become a billionaire, or a reality tv star, and achieve it by acting bad.

Selfish for sure. Soneone is going to pay that 10 million. And I bet your service does not provide equivalent worth to the community. Heck, probably net negative even without the money.

If you have to ask, the answer is probably yes.

The point is that, as a society, we should care. And that means putting in the right checks and balances that at the individual level we still care.

Small kids do not need, nor should they have, smartphones.

A bit off topic but true. You don't deserve down votes in my book.

An obvious third exit option is proven and popular: be bought and ousted by uncommonly optimistic investors or competitors, so that scaling, profitability etc. become their problem (even if founders linger at their former company as employees with negligible stock).

How is that different from option 2?

The company still stays as a separate entity.

Call it option 3. The exit for the board is either sale or bankruptcy.

No disrespect to Tech Accelerators but I thought getting bought by Facebook and Google are very much preached when you are at these accelerators.

There are indeed many founders who specifically build companies just to cash out through acquisition, but from my experience there are way more founders who don't come from this point of view.

What really happens is these founders are focused on the product and don't really think much about the business model. This is understandable and actually much better than MBA types who spend months planning for stuff without even building, but the problem is there isn't really a good business model for these types of companies.

The only viable option is ads, and even this has been monopolized by big techcos so it's not easy.

Most founders don't even get to worrying about this point because their companies never take off. But the ones that do, come to a point where they need to make a decision whether to sell out or to find a viable business model.

Like I said, finding a viable business model is increasingly becoming difficult for consumer apps that rely on ads, so these companies tend to cash out.

From outside it may look like a bunch of "tech bros" hoping to strike it big with minimal effort but that's mostly not the case if you look inside. If you're curious, look up what this TBH company went through before having this "overnight success".

> The only viable option is ads

I know I must get with the times or whatever, but man this is sad. Essentially every consumer social app creator is just working for the ad industry, or for free.

But that's just the price they pay for working in an overcrowded market segment. The upside they have is that their work is (compared to a lot of other programming jobs) fun and hip.

If you want to make money with what you're doing you need to be either really good/marketing-savvy/popular or pick something that most people consider 'boring'.

The 'boring' things (i.e. the enterprise market) is also 'harder' most of the time because they require a broader range of skills and greater perseverance. You can validate and get growth in a freemium model, but then the hard work to get real sales process begins.

>The 'boring' things (i.e. the enterprise market) is also 'harder' most of the time because they require a broader range of skills and greater perseverance.

Please tell that to my boss/company owner. He sees news articles about how such-and-such social startup created an app in X days and wonders why we can't do the same just as quickly.

Sure, if you want me to write a Twitter clone I can do that in an afternoon. If you want me to write an app for a very specific enterprise sector filled with regulations, while making sure it integrates with our existing desktop software (that was originally written without internet connectivity in mind at all), that'll take an order of magnitude more days.

this IS sad, and it's something i've wrote about repeatedly since the advent of the iPhone and the app store, which was really the hotbed for these kinds of apps. the kind that may be based on some fun or cool idea that the founder had, but with absolutely no way to monetize so they get started by giving everything away. some of these ideas are indeed cool and gain traction, but still no way to monetize so ultimately, once you hit critical mass of users, the only way to monetize without driving away your early users is to do it in a way that doesn't cost the users money, thus ads.

i think there should be a lot more innovation in viable business models rather than concept of the product itself, but that doesn't seem to be a popular sentiment.

On the upside, all those BS services and media will go to hell when the ad industry goes belly up.

When I read statements like this what I actually see is the following:

"When we met with Facebook, we were impressed with the huge pile of cash that they offered us. Most of all, it was very green and crisp, and smelled like cash it supposed to smell, so we were compelled by the ways this cash could help us realize our vision of getting rich."

I read it more like "Facebook made it clear they could duplicate our app in a weekend, then extended a take it or leave it cash offer".

I bet they're technically capable of duplicating, maybe even by you on your own, same goes for Snapchat. Yet they don't, because just like a lot of the social apps that are succesful, it's not the technical innovation that makes it valuable, but the network of people that support it, and I think just as important, eventually being able to monetize it (Remember Vine?)

Also the already stored data makes it quite the treasure. Even if every user instantly stops using it, it'll still be very valuable due to the existing data (if they keep it).

Too stray off-topic though somewhat on a self-created tangent: There's an app called Flitsmeister in the Metherlands (and abroad but several countries banned it) that keeps on growing. I wonder when they will be bought out. Not necessarily for the active social network behind it, but rather for the data that is already there. I believe such a vast amount of historic data is hugely valuable on it's own. I wonder by who, when and for how much they will be bought out.

You say that like it's a bad thing.

It's a bad thing when you're not being honest.

"...we shared many of the same core values..."

Why not just say, "They made us an offer we couldn't resist. ( ͡° ͜ʖ ͡°)"

You don't deserve the downvotes.

The amount of people deluding themselves that exit strategies optimized for being bought by a giant are moral, is disheartening.

Most VC companies don't see tech startups as 'unicorns in waiting'. They see them as '5 years growth hacking and 3 more rounds until a 10x acquisition'. At this point in time for the majority of founders the only reasonable exit strategy in tech is selling to an existing company. Putting 'getting to IPO' in your pitch deck won't work. If you're serious about building something successful then aligning with a potential buyer really early and pushing your company to be something they'll both notice and want to buy makes a lot of sense.

If that's true, than I think Silicon Valley as we know it (knew it) is dead.

Who are the modern day unicorns?

> than I think Silicon Valley as we know it (knew it) is dead

Didn't you hear? It died with DrKoop.com, eToys, Pets.com, Webvan, et al.

Silicon Valley has been a constant target for that premise for four decades. It's nothing more than people wishing for ill upon something because they dislike it, entirely separating what's actually likely to happen from what they want to have happen.

Here's what is actually going to happen.

Silicon Valley is overflowing with capital, experience, talent and a high tolerance for risk. There is no hint that any of those things is in meaningful decline today. Over the coming 20 years, new tech giants will be created there. Then someone will be saying the exact same thing you just said, just as 16 and 25 and 37 years ago.

If the landscape of VC's has changed so drastically that the only way to get a piece of the capital is by planning your exit strategy (to a tech giant) before you've done anything meaningful, then I do think Silicon Valley has changed for the worse (no, I did not literally mean it's dead).

Where did the unicorns go? All I see are the same ones that were here five years ago.

the only way to get a piece of the capital is by planning your exit strategy

VCs have always needed founders to have an exit in mind, but 20 years ago it just wasn't vocalised. There was never a time when VCs would put money in to a business that didn't have a clear way for them to get their money+profit out again. The dot.com bubble made everyone believe an IPO was the obvious way to cash out. When that bubble popped most founders started to see the exit as acquisition. That's all.

To be honest, the startup scene has changed a great deal over the past few years. When I did my first startup you could raise a seed round with nothing more than an idea; I got in to an accelerator before we'd even spoken to a potential customer let alone made an actual sale. Now you're unlikely to get very far with investors until you've proved the idea and got some significant traction. The level of risk people are willing to accept is really low. It's a shame, but it's quite understandable.

It's not dead while the ad industry money still flows in. We need to rein in them if there's to be any hope for things getting better.

If you rein in the ad industry, you're just going to be stuck with a bunch of ICOs. Kinda bleak, really.

Right, Tbh is bought only because FB is trying to retain those < 20 years old right now. However, I raise my eyebrows when I think about "never a competitor". So why buy Tbh anyway? Sorry to be rude if at all... I am betting Tbh will eventually go out of business if FB doesn't acquire Tbh. Snapchat can build similar product too, like FB and Instagram built Story to compete with Snapchat's.

FB thinks about apps like tv channels. If you look at the top 10 free apps all of them are owned by either Facebook, google or Snapchat (they own Bitmoji).

TBH was the only app in the top 10 not owned by one of these 3 so the acquired it.

TBH could be a feature of either Facebook or Instagram in the same way that most of the history channels content could be just shows on other tv channels.

These things exist or will continue to exist as separate entities because it’s more profitable that way.

If you see a site like Facebook haemorrhaging users from a specific demographic, target that demographic successfully with anything vaguely social and I'd bet cash money Facebook will scoop you up within a couple years. I don't know if this Tbh site actually did that on purpose, but I wouldn't be surprised in any way if they did.

Hedging against that small chance they get really big. Why risk another snapchat if these guys getting traction can be bought off cheaply now.

As tbh fades in popularity, they will roll this into FB (and Instagram and WhatsApp and......) as a feature and hook these users that are less FB addicted into their ecosystem.

Also, Facebook is an advertising company. They now can push a lot more teen and tween brands to advertise bigger campaigns.

> So why buy Tbh anyway?

It doesn't have to be a potential competitor to pre-emptively buy, it just has to have access to the teenager demographic.

> We made this app specifically to be purchased by Facebook

This will encourage more niche social networks for the purpose of being bought and Facebook's acquisitions will be costly, both financially and operationally. I don't think acquiring competitors is an effective long term strategy

Cisco has acquired 200 companies since its foundation. It's not their only strategy, but it does keep the company half competitive.

It seems to have worked out pretty well for Microsoft.

More like "Ooh we had no idea but when FB approached us it suddenly became clear we had soooo many shared values, it just made sense that FB would buy us."

Ya, this app doesn't seem like it has much legs. But then again, I said the same about Instagram and Snapchat when they first launched.

> All social networks should be required to enable social graph portability — the ability to export your lists of friends from one network to another. Again Instagram is the perfect example: the one-time photo-filtering app launched its network off the back of Twitter by enabling the wholesale import of your Twitter social graph.

This reminds me how importing your email contacts was major component for Facebook—or any social network at that time, for that matter—to grow its network. It made sense then since all your communication (weather with friends or family) happened over email; email was your social graph. It's scary how Facebook now holds the key to every (close) connection you might have with Facebook, WhatsApp, and Instagram.

I think people forget or weren't around when Facebook was aggressively importing not just email, but anything with a contact list (like AOL IM), then would spam the entire list. They got away with stuff that wouldn't fly today.

Messenger still pulls crap like that.

>They got away with stuff that wouldn't fly today

Linkedin manages to be even worse than facebook in that regard, even today

Linkedin is the worst, in my experience. I was repeatedly shocked to find people in my suggested contacts list that should never have been there.

The facebook app is gathering all contacts on your phone for many years, they didn't wait for whatsapp.

Not on iOS they weren’t.

> All social networks should be required to enable social graph portability

Not just that, they should be required to export all public data/posts in a neural interchange format, so that othwer apps/companies can buitl on nthier data.

This is one part of GDPR: https://ico.org.uk/for-organisations/data-protection-reform/...

No. This only give me access to my data. I'm looking for the ability to re-publish all public data on a site.

So, with this ability i could e.g. build a twitter clone and populate it with data from twitter.

Facebook already has a pretty easy to use API that gives you access to the major user facing data. So I don't see what the problem is.

I wasn't aware of that.

So I could write a website that grabs all facebook's users' public updates and put it on my site? (I suspect the answer to this is No)

tbh is obviously a trendy app with a short shelf life. Based on the descriptions, I don't think it should last much longer than the 'Yo' app.

There is definitely something wrong about Facebook using its position of power to buy up crappy companies for millions without suffering any ramifications whatsoever.

It's definitely costing shareholders something but the sheer power and inertia of Facebook means that the loss is imperceptible in the grand scheme of things. Facebook really can print money out of thin air it seems.

I actually think that if Facebook did not buy Instagram or WhatsApp; both of them would have died out. Even Kevin Systrom alluded to this when he was asked if he regretted selling Instagram to Facebook. Just wait and see what will happen with Snap... Assuming Facebook doesn't buy it.

It looks like Zuckerberg never makes bad deals but I think that it's just the inertia of Facebook that makes it impossible for a deal to go bad.

Whenever I read about a Facebook acquisition, I roll my eyes because it tends to be very random... And yet it seems to always work out.

Even the software tools and frameworks that Facebook pushes out are instant runaway successes. Even Google doesn't compete on that field despite having much more experience in this area... And as a developer, I think that Google tools and frameworks are better too.

> Whenever I read about a Facebook acquisition, I roll my eyes because it tends to be very random... And yet it seems to always work out.

It seems to be random but it is not. Facebook stealthily uses data from mobiles to determine popular apps [0].

[0] https://outline.com/WnGGRk

I still use 'Yo'. For one very specific thing: telling my gf, who lives directly over the road, that I'm leaving the house and that I'll meet her out front. Nevertheless, there it is.

When the 20000000 other available options won't do, Yo is irreplaceable!

A hopeless romantic...

The parse.com acquisition didn't go so well.

Unless killing it off was exactly the goal. That came out more conspiracy theory than I intended, but the point is "success" is hard to measure without knowing a lot more.

WhatsApp would be around but the product would likely have had to adopt a business model by now. They were charging some people but i don’t think it was much.

Maybe Facebook just executes better than Google? Having talked to people who work at both about the languages and tools they need, it seems like Facebook is a much better environment to be a developer in.

For anyone else who wondered, Tbh is apparently some kind of mashup of YikYak and SurveyMonkey which lets you send warm fuzzies anonymously to your friends.

When explained like that, it sounds brilliant.

How is this a competitive market if the big five buy all competition before they become a threat? And then they release articles saying that small companies don't matter. The small companies are the only ones who add something to the market.

it's clearly about the competition between startups to get bought!

...but yeah this neither particularly fair, competitive nor free in the market sense, is it?

We should definitely work towards improving the current laws against anti-competitive behaviour.

This article raises a very fair point of M&As happen in such a way to bypass Antitrust intervention and how FB has been constantly succeeding in not letting the next FB come up. Seems Mark has learnt a lot from what Yahoo! failed doing.

Does anyone know of a situation where a company was not allowed to be sold to another company and then it went bankrupt in a few months/years? I think they would have a right to feel wronged in that case.

I myself see value of Antitrust interventions, but I also believe in not intervening in the market unless it is absolutely necessary. Since I haven't heard about Tbh to this moment, I don't think that this is the case.

There were attempts at airline mergers just before 911. US Airways and United were going to merge but the deal didn't get approved.

Both ended up filing bankruptcy some point later, and since then the airlines have largely merged from a very diverse field into American, Delta, SW and United.

The other example is in investment banking - previously the retail and investment banks weren't allowed to merge and many of them got into trouble. Today, after the financial crisis, the industries have consolidated around 4 or 5 major large and broad banks.

Worldcom / Sprint merger was blocked by regulators and Worldcom went bankrupt a couple years later.

Another good one was Blockbuster / Hollywood video which was blocked in 2005, and it didn't end well for either side.

Though the point made in the article is by then, when the app has lots of attention, it’s too late (using the office of fair trading and Instagram as an example)

Facebook's next target: Craigslist. There's a new "Local Products" section.

Is cragslist usable where you live? Last 5 times I've gone there looking it's 98% dealers in every category, especially the non-dealer ones.

If I want to buy from a used ______ shop, I wouldn't be on Craigslist.

And in certain categories, your legitimate ad (anything Apple in particular) will get insta-flagged because it's competition. And then you'll get a call from the likely flagger, who's a dealer trying to score a cheap deal and resell. They post the same ad 5-10 times a day, so there's no hope in weeding them out.

Craigslist evidently doesn't really care, so I have to wonder if thefacebook (tfb) can do a better job. All the startup reselling apps are filled with soiled couches and old gym bags. They're like going to a yard sale after all the good stuff is gone. This is in the US southeast, so I'm sure it's different on the coasts.

Regarding tfb buying tbh... the antitrust laws are in dire need of reinterpretation from the Supreme Court whether it's in this case or something substantial it doesn't matter.

Ah. Finally Craigslists strategy of leaving money on the table may hurt them.

This'll really suck.

Wait until Facebook gets into rental real estate.

Interesting point:

>prohibiting the permissionless sharing of personal information in fact entrenches Facebook’s position. Take, for example, Europe’s vaunted GDPR law: as I explained in the Daily Update, data portability that, for privacy reasons, excludes the social graph (because your friends didn’t give you permission to share their information with other services) makes it that much harder for competition to arise.

Everyone fails to recall the Startup had been struggling for almost 7yrs. The buyout was a big Hail Mary move for their long-suffering

Are 5 million users really that much these days for a free app? Especially with the enormous amount of people who own a smart phone.

Considering Tbh's constrained target age group and geography -- North American teenagers -- it sounds like a decent amount.

The more interesting question is how many users is 5MM "users". It could be anything between 5K and 5MM.

Yes, it's a lot. If you can create an app and get 5 million users on it that people are using frequently, then you can sell it for around $20/user-$30/user. This is around the standard number for social network apps and somewhat lower for games and apps without a network effect.

How is that number generally justified? Marketing opportunity, data collection? It seems like a lot per user.

I don't think the acquisition price is base on the number of users but the potential users in the future and the value of each user. Considering the growth mentioned in the article and the young user age, it's not that surprising.

Shoutouts to Snap

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