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Summly’s $30M Deal: Good for the Kid, But Not Yahoo

It's hard to tell why YHOO's so eagerly paying big


What might a modern-day version of The Graduate movie might be like? Instead of McGuire’s iconic line, “Plastics,” his one-word advice to the young Benjamin would definitely be “Mobile.”

Well, it seems 17-year-old Nick D’Aloisio — who just sold a company to Yahoo! (NASDAQ:YHOO) — got the message.

Two years ago, D’Aloisio launched a mobile startup, which led to the creation of the Summly app, which essentially condenses articles to about 400 characters. Along the way, he was able to raise $1.5 million, with investors including Zynga (NASDAQ:ZNGA) CEO Mark Pincus, Airbnb’s CEO Brian Chesky, Ashton Kutcher, Wendy Murdoch, Hong Kong billionaire Li Ka-shing and even Yoko Ono.

D’Aloisio then was able to turn around and sell Summly to Yahoo for $30 million, with most of that rumoredly in cash.

However, while it’s obvious why D’Aloisio pulled the trigger, Yahoo’s screaming interest isn’t so clear.

For me, it’s not a matter of Nick’s age; I think that’s irrelevant. Teen entrepreneurs have created some of the world’s iconic companies, including Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT).

No, the puzzling part of the deal is that Nick’s app didn’t have much sizzle, getting fewer than a million downloads. More baffling, Yahoo! plans to shut down the app!

It looks like Summly had some interesting algorithms that sorts through huge amounts of news items. For Yahoo’s Marissa Mayer — a former executive at Google (NASDAQ:GOOG) — this probably was a big selling point. Though, it appears the core technology came in concert with SRI International.

Perhaps the deal is more about getting top talent? This might make more sense, considering the difficulty in finding programmers who understand the intricacies of mobile development.

However, Yahoo! is only getting three engineers from Summly, including Nick, who might not spend much time coding. Yahoo! apparently wants to use him has some type of spokesperson, an uber mobile guru … for all of 18 months.

Nick should fit in well with the hyped Silicon Valley culture. In short order, he showed that striking it rich is often about networking, not necessarily building great technology.

The problem is that Yahoo! shelled out $30 million for what looks like mostly PR.

This should be an ominous sign for investors — perhaps that Mayer learned the wrong lessons at Google. While the company had many dud acquisitions, it still successfully honed in on some great technologies and massive user bases, a la YouTube, AdMob, Keyhole (for Google Maps) and Android.

Summly comes nowhere near this list.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.”Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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