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The Four Crowdsourcing Mergers & Acquisitions of 2012

5 November 2012

pacman-illustration

I know some people don’t like calling it an industry, but let’s just use the term to coin the companies that use a crowdsourcing- based business-model. There are a lot of such companies, the first ones have been created in the early 2000’s, and platforms are still appearing today. Even though it seems tough to make money with crowdsourcing today, there is a variety possible strategies to generate revenue: taking a commission on transactions (like 99designs), developing and selling goods (like Quirky), invoicing on a project basis (like Zooppa)… for investors, there’s also the option on an IPO (like Blur Group) or an aquisition by another firm. It turns out that the latter has happened 4 times this year, with established actors purchasing stakes in smaller crowdsourcing firms. Let me describe these three cases, in three parts, and ignite a discussion about what’s next!

February 2012: InnoCentive Acquires OmniCompete

I blogged about it in February this year: open innovation pioneer InnoCentive announced the aquisition of OmniCompete, another innovation-contest platform. To my knowledge, it was the first acquisition of one contest-platform by another. Basically, OmniCompete was exactly like InnoCentive, a contest-platform for technological innovation. Their competitions seemed to target companies rather than individuals, and that might have been a reason for this acquisition. In the blog post that announced this strategic move, InnoCentive’s and OmniCompete’s CEOs explain the rationale for this merger. According to Dwayne Spradlin, CEO of InnoCentive, OmniCompete had been “aggressively expanding their name and presence in Grand Challenges and building their business in the United States and Europe“.

Simon Schneider’s answer to the question is a little more insightful. He clearly stated how complementary both companies are: “we’re very good at front-end services: custom consulting, design, marketing and branding, but we need to reach more Solvers,” he explained. “This is where InnoCentive excels“. InnoCentive, on its side, said that it planned to add OmniComplete’s experience in big-ticket competitions to InnoCentive’s so-called Grand Challenges, contests with larger payouts.

This acquisition is the next step in bringing a world class capability into our product portfolio (Dwayne Spradlin, CEO of InnoCentive)

InnoCentive’s customers will have access to enhanced services in order to, eventually, run bigger challenges of the platform, thus spending more money! In a maturing industry of innovation intermediaries, Spradlin even foresees further acquisitions: “a number of organizations could fill out critical areas in […] the delivery of open innovation.  We are always looking for opportunities“. More to come?

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March 2012: Fotolia Acquires Wilogo

In March 2012, the stock photo site Fotolia purchased the crowdsourcing website Wilogo. The amount of the transaction hasn’t been disclosed, but we know that “the all-cash deal involves the acquisition of the team, the website and services, and will see Wilogo remaining independent,” said Techcrunch at the time. Fotolia, backed by $75 million of TA Associates in 2009, has over 3 million users, is available worldwide in 12 languages, and “has a run rate of over $100 million dollars in revenue per year,” describes Techcrunch. Wilogo is much smaller, making “a couple of million in revenue per year,” these being generated “mainly in Europe.” Techcrunch notes that this acquisition will allow Fotolia to offer a broader set of online services, as well as develop Wilogo internationally.

Through Fotolia, Wilogo will be able to better address the U.S. market (Techcrunch)

The French website ecommercemag.fr gives another interesting insight into the reason of this acquisition, quoting Fotolia co-founder and CEO Oleg Tscheltzoff.  “Numerous clients wants to use Fotolia’s images for the creation of their logos and designs, but the licences associated to the images don’t allow this” he notes. “The acquisition allows us to address this need, providing clients a novel design service, directly on our website.” Fotolia also owns other websites, including Flixtime (a site that turns photos into videos), Photoxpress (a subscription photo service), AudioMicro (a music and sound effects stock website) or ImageCollect (a website gathering celebrity photos), and the acquisition of Wilogo contributes to the diversification strategy of becoming the one-stop shopping venue for creative content of all forms.

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April 2012: Havas Acquires Stakes in Victors & Spoils

The biggest and most spectacular deal was probably the acquisition by Havas of majority stakes in Victors & Spoils, the “first ad agency based on crowdsourcing principles,” which worked for brands such as Converse, Discovery Channel, Dish Network, or Harley-Davidson, for whom they created a video spot. The amount of the deal has not been disclosed, but the New York Times thinks it was likely to be around one times the annual revenue of the agency, estimated at more than $10 million. Havas acquired a majority stake in Victors & Spoils from the Tango Group, a private investment company, while John Winsor and the two other founders of Victors & Spoils, Claudia Batten and Evan Fry, continued to own a minority stake in the agency. “This move is part of Havas’ acquisition strategy to target agencies that set themselves apart,” the press release announcing the acquisition said.

Like the previous example, Havas said to have ambitious growth plans for Victors & Spoils, with “plans to open offices in London, Paris, and potentially Hong Kong,according to the New York Times. At the time of the acquisition, the contributor network was of roughly 6,000 creatives, mostly from the United States. Another ambition tied to the acquisition was to grow this network to a global community of 15,000 people, as well as to include Havas employees into the crowd: David Jones, chief executive of Havas said he wanted to “create a 15,000-person Havas crowd, using and leveraging” the 15,000 employees of Havas agencies “for ideas and innovation.” Another possibility is to move into new product development, similarly to Quirky opr GeniusCrowd:

Victors and Spoils could expand into other disciplines; for instance, it could “crowdsource new product development” (David Jones, chief executive of Havas)

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April 2012: 99designs Acquires 12designer

Last but not least: the acquisition of the Berlin-based 12designer by Accel Partners-backed 99designs, in August 2012. And again, the terms of the deal weren’t disclosed. “The acquisition is an important step forward in our mission to deliver the best platform for graphic design services in the world,” the 99designs blog said. Both websites operated on a very similar, contest-based model, but there was a key difference: the scope. “99designs connects businesses and designers in more than 160 countries through a truly global English-language platform,” 99designs CEO Patrick Llewellyn said, “while 12designer is focused on providing services to European clients and designers in German, Spanish, French, Italian and English.

Hence, the acquisition, which was the first by 99designs, allowed the Australian pioneer in creative crowdsourcing to buy itself into the European market. The Daily Crowdsource observes that Germany and the other European countries represented around 15% of the 155,000 graphic design contests held by 99designs, and that “acquiring 12designer will allow them to better meet the needs of European customers.” The former 12designer CEO Eva Missling was named 99designs new general manager in Europe, her task will be to optimize 99designs services for the European market, accelerate the growth over Germany and all over Europe, and to build a 99designs team in Berlin.

We believe that 12designer’s deep regional design contest marketplace expertise and multi-lingual capabilities will prove instrumental in accelerating our delivery of truly localized world-class design services (Patrick Llewellyn, CEO of 99designs)

In September 2012, 99designs announced the launch of a German language website, 99designs.de, directly based on the previous 12designer platform. For 99designs, Germany was the logical place to start the process, notes Silicon Allee, with the country being the firm’s largest non-English language market and fifth-biggest overall (as well as one of the fastest growing). For additional insights from the 99designs CEO, read this interview on Fortune.

The learnings… and what’s next?

The crowdsourcing industry is maturing, and 2012 was definitely a pivot year. The four acquisitions listed above have the same logic – offering a better service to clients – but different reasons: InnoCentive wanted to add value-added services to its challenge offer, Fotolia wanted a complementary service to fill its creative content proposition online, Havas wanted to benefit from the expertise, the technology and the network of an innovative actor, and 99designs wanted a local counterpart to boost its growth plans.

It is very cost- and time-intensive to build a crowdsourcing business: you have got to establish a sticky client network, a motivated community, a competent team, and a functional website. All of this increase the value of a crowdsourcing business, and make it interesting to invest in. A time passes, I think it becomes very difficult to enter this business, the first mover advantage being huge in crowdsourcing.Hence, rather than seeing a lot of newcomers, my gutfeel tells me that this isn’t the last acquisition of crowdsourcing actors… I hope that the future will give us more interesting takeovers to blog about!

Illustration photography "What's Next?"

Maybe something will move on another front of the crowdsourcing landscape: the marketplaces for work. Blur Group, which is a platform for companies to find service providers, is already listed on London’s Stock Exchange, and has ambitious growth plans. Similar platforms include oDesk, Mechanical Turk, or Crowdsource, and these handle a massive amount of transactions. As the market for crowdsourced work progresses, we might see takevovers on that side.

What do you think? What’s next?

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