Show them the money

Show them the money: Steve Rubel asks a relevant question about the acquisition of Weblogs Inc. by AOL, a question, the answer to which could display how 1999 2.0* is different than 1999 1.0.

Steve’s question (and answer):

Will Jason Calacanis’ stable of bloggers get their fair share of the money too? I sure hope so. They are the company’s greatest assets. Jason is surely the visionary but without them, there is no company.

One may recall these same questions were asked (and are still be fought out in court) during 1999 1.0 as well. Whether it be about AOL “volunteers” or regarding About.com “guides”. Other acquisitions of “communities” led to philosophical, if not legal, handwringing as well. I can remember two especially well: Andover.net’s acquisition of Slashdot and Amazon’s acquisition of IMDB.

In other words, it’s a relevant question that has been asked for a long time: Can something that is created by a “community” of creators be purchased and sold without compensation going directly to those who create the, excuse me for the following word, content? (I could chase some rabbits here about all media concerns worth purchasing being collaborative, but I’m going to restrain myself.)

Frankly, Steve’s question — and the issue it raises — can be applied to any business: If a company is sold, let’s say a PR firm, the employees have the opportunity to walk out the door. If the employees do not feel they participate in the “upside” of the transaction, they are free to come and go as they please. Therefore, the world of mergers and acquisitions has developed means to encourage the most important asset of the acquired company to stay around. When one hears “earn out” attached to the acquistion of a company (as are the rumors regarding Weblogs Inc.), for example, one can translate that to mean the acquirer has the concerns Steve raises.

In the Weblogs Inc case, however, it appears to me there are lots of opportunities for win-wins (a 1999 1.0 term) all around the table. As the contributing bloggers share in the revenue (the old About.com business model), it would appear they will benefit directly from the increased traffic and advertising potential AOL can bring to the table.

I feel certain they will be incentivized (another 1999 1.0 term) to hang around and will certainly recognize the opportunity for advancement afforded in the new corporate structure. That, or they’ll be embarasssed to say they work for AOL and will leave. Or, they can point with pride that they work for Time Inc. and stick around. Or, they can, etc.

Bottomline: For the record, I predict 1999 2.0 entrepreneurs who succeed (especially those who want to succeed more than once) will figure out ways for all involved to succeed.

*I use the terms “1999 1.0” and “1999 2.0” to refer to certain similarities in the “business cycle clichés” appearing in 2005 that harken back to an earlier era. In no way do I want to imply that all 2005 ideas will crash and burn, as many of those 1999 ideas were rather brilliant and successful. However, those 1999 2.0 ideas that are merely about fad-chasing, VC-focused business plans will likely “bust.”

  • Anita Campbell

    Rex, this is an interesting point.

    If Weblogsinc had each blogger sign a well-worded contract up front, then it probably is pretty clear from a legal standpoint that they are “entitled” to nothing in the acquisition.

    Some might feel there is a moral obligation owed to the “community” but that’s a different matter from their legal rights — that is, if the blog network thought this through ahead of time and had a good contract, which I suspect is the case.

    If the contract was structured properly, then all the bloggers should have gone into it knowing that they were paid mercenaries. And if they are good at what they do, then AOL is going to want to keep them on.

    That brings up another concern from the acquiror’s standpoint: maintaining the value of what they just purchased. If AOL is smart, then they are prepared to go in and immediately offer some kind of retention bonus to the bloggers in order to give them incentive to stay on — especially for the most heavily trafficked blogs in the network. Sometimes a deal is structured so that it is the seller who is motivated to offer retention bonuses during a transition period in order to earn those “earnouts”.

    I’ve done a lot of M&A work in my past. Retention bonuses are fairly common, especially when dealing with employees or contractors who bring unique, hard-to-replace attributes to the table. Managing the immediate aftermath of an acquisition like this is an art, but one for which there is plenty of precedent.

    Best,
    Anita