Tucows bought Kiko for good reasons

Tucows, the long time shareware site, bought Kiko, the web 2.0 calendar company for $258,100 on an eBay auction.  Tucows is also a domain name registrar and back office solutions provider for things like CRM and hosted email services. Kiko calendar will be integrated with their hosted email service.

In my earlier post about Kiko I said "Calendars are a feature, not a company. Not only are calendars just a feature, but they have only been successful when integrated with your email/communication system. I don't know of a single calendar product that is successful on a stand alone basis."

The Kiko purchase made sense for Tucows because they already had an email service but lacked a shared calendar. Perfect fit.

Elliot Noss of Tucows outlines their thought process for buying Kiko rather than building it themselves. It is a standard "time to market" and "reduced risk" argument and it makes a lot of sense for Tucows. In addition, the build versus buy cost equation  actually favored buying.

The interesting part of the analysis for me was his explanation of how different buyers would value the same company very differently depending on a few key factors.

1. If the founders / engineers were part of the Kiko package the price would have probably been 10 times the eventual $258K price. A different set of buyers would have been interested and paid a lot more if the founders were part of the package. However, Tucows would not have been interested at 10x the price.
2. The Kiko user base and name would be worth more to some buyers. Tucows didn't need the user base or the brand name. The lack of a large user base eliminated another set of buyers. Again, a big user base would have driven the price up to a point where it would not have made sense for Tucows.
3. Tucows figured it would take them 2 to 3 man years to build similar functionality, which is about what it took the Kiko guys to do it. Tucows fully burdened cost of engineering and management for 2 to 3  man years would have been more than $258K.

I would add that Kiko as a stand alone calendar company wasn't even worth $258K. But, integrated with an email service it was indeed worth the price.

The lesson for entrepreneurs here is to remember that your company has very different values to different sets of buyers. They all have very valid reasons for their valuation. Don't try to convince the wrong buyer to pay up for your company. Spend the time finding the right buyer where their is a good match in expectations, needs, and strategy. Then the price will make sense for all involved.

Comments

[Greg Linden]

Good post, Don. Nice analysis.

[kotis]

The really interesting story here is using ebay to sell a company. I understand that sets the price, but no opportunity for due diligence? And I presume putting out there as sounds like a 'public offer' so how do they avoid SEC requirements? A single qualified buyer?

[RisingSunofNihon]

When I first heard the price that Kiko went for, I thought the buyer was making a huge mistake. Like you said, a calendar is a feature, not a company! But after reading your post here, I see that Tucows and Kiko really will be a good fit, and can understand Tucows' willingness to spend 258k. Great blog!