Remember: I am an individual who is a technology reporter. These are my opinions and should not reflect those of my company Technically Media, nor its technology news site Technically Philly.
Online auction giant eBay bought for $2.4 billion King of Prussia-based e-commerce powerhouse GSI Commerce in March, and I spoke briefly about the deal on WHYY.
As NewsWorks reported, there was immediate concern about the loss of local jobs through contraction and restructuring. In my conversation, I pushed on the notion that there is important value for the region’s perception as a technology hub to have significant exits to point to.
This acquisition, I suggested, can be seen as a good thing.
In doing so, I raised the ire of Old City coworking space Independents Hall co-founder Alex Hillman, who told me he felt strongly that growing companies in Philadelphia was a lot more important than selling out to bigger players elsewhere.
This post is going to argue that we’re both right.
WHAT ARE WE TALKING ABOUT?
Philadelphia hasn’t been much known as a business powerhouse for, oh, I don’t know, maybe a century.
In the second half of the 20th century particularly, with consolidation across a variety of professional and service industries, Center City Philadelphia has become known as mostly the place of middle managers and regional vice presidents, with some prominent exceptions like Comcast, Sunoco, Aramark, Urban Outfitters, (Cigna, for now) among others. Regionally, Wawa is gearing up for something big, and SAP and Bentley Systems are players of important note, but we have a lot more stories about regional executives, like those we’ve seen in the competitive wireless market here.
That means a smaller pyramid of high-paying, white collar jobs, which often comes with other jobs and, yes, the draw of still others who want or need to be in the orbit of major decision makers.
While business woes are nothing new for Philadelphia — a cultural Goliath turned whimpering regional outpost — this city’s high yield, professional IT community has postured itself as a real way to grow jobs, improve perception and bring cache back to the Cradle of Liberty. Something other cities have seen, too.
But, as some like Hillman might rightly suggest, it’s tough to do that when anyone big enough to really impact the region keeps signing the biggest offer sheet, keeping the only Philadelphia beds with CEOs in them inside the Four Seasons.
First, a few examples of companies whose top decision makers aren’t here anymore due to recent sale.
- GSI Commerce, while suburban based, boring and relatively unknown outside of investor circles, it was sold for just shy of two and a half billion-with-a-capital-B and will continue to help shape how consumers shop online.
- Boomi, the Berwyn business-software developer, merged last fall with online computer retailer Dell to form Dell Boomi, keeping offices here and official headquarters in Texas. Jobs may grow here for now, and while that’s valuable, regional offices have little cache and, arguably, less firm a hold on employment roots here.
- myYearbook, the New Hope-housed social network sold for $100 million last month to Quepasa Corp., a Florida-based social site targeted at Mexico and South America and took with it this region’s only truly successful social site with traction and profit.
- Avid Radiopharmaceuticals, the University City Science Center-based early-stage pharmaceutical manufacturer that is working on fighting Alzheimer’s, sold last fall to Indianapolis-based drug shop Eli Lilly for nearly $800 million. For a couple years there, Avid was the go-to defense for Philadelphia having a rich startup life sciences community that could go toe-to-toe to eds and meds foe Boston, a city that, in its own way is questioning how influential it can/could have be/en. Now the staff answers to someone in Indiana.
- Rohm and Haas, the legendary, original chemical technology company was bought by Delaware rival Dow for more than $15 billion in 2008, while a somewhat older example, it’s hard to point to a clearer case of an innovation company making investors (and shareholders) happy at the expense of, well, winning, which would benefit Philadelphia quite a bit more, I’d argue.
- University City-based PhindMe being bought by suburban Motivas and Old City VoIP startup Alteva selling for a meager $17 million to a regional telephone company are somewhat smaller examples of this.
- There is no shortage of examples that are not necessarily in IT but are such cultural touchstones in Philadelphia that they also suggest this sale and bail cycle that has kept any giant from growing here. See Larry Magid going corporate with the Electric Factory in 1998 (though he’s back battling) or, of course, remember that after building a big bold corporate office in the Navy Yard, Tastykake was bought by Georgia’s Flower Foods.
OK, by now, you probably get the point. But here’s a different one.
WHY ACQUISITIONS CAN BE GOOD FOR THE REGION
When that WHYY reporter asked me to assess whether GSI Commerce being bought by eBay would be bad for the region, I answered the only way I could.
I am a technology reporter, focusing mostly on city policy and early stage, consumer-facing startups. My answer didn’t come from deep knowledge of GSI or eBay’s intentions regarding staff here. My answer was driven by the need for the business community, particularly technology-driven leaders the world over, to have on their lips the news that a Philadelphia area company exited for a few billion dollars.
It was an exciting, cloud-based deal in Philadelphia, a place that, as Inquirer business columnist Mike Armstrong put it in one of the most important columns in Philadelphia news over the past few years, “is home to many big, old companies, but few big, bold companies.”
That is why, yes, entrepreneurs growing their businesses and selling for great profit and whatever other reasons we might offer can be a good thing. Every city — every country — needs a varied ecosystem in any business community, and that certainly includes technology companies selling prominently to other technology companies, even rivals from other cities.
TAKE THE HILL: WHY ACQUISITIONS LIMIT PHILADELPHIA
But here’s why Hillman is also right.
Because for every point the region might get for a high profile acquisition, Philadelphia must get something like a million of them for snubbing convention and pushing to greater heights. As that Armstrong column referenced earlier suggests, though, Comcast is just about the only example of that happening here — as its acquisition of NBC Universal is making it one of the largest media companies in the world.
While I want 10,000 business sharks to bloom here — who chase money to create jobs in Philadelphia — Hillman also sees the need for the community-driven entrepreneur. Companies that identify their sense of place as a contributing factor to their success. These stories in tech are as essential to a region’s attraction and retention of talent as acquisitions and, yes, even likely more so.
We’ve seen this model of hip, young startups who are distinctly not from the Bay Area and are doing so proudly and successfully. Paired with a tech scene and a big, talent-hungry Fortune 500 company spewing out talent, perception can fuel wonder. Some startups in this case that quickly come to mind for me:
- Groupon in Chicago — the father of a million daily deal startups is the giant of the Second City’s startup community
- Gowalla in Austin — the location-based social network ended up losing out to FourSquare but in the height of the battle between the two, the tiny Texas town with the interactive design conference to top them all was rocking with one of the hottest companies in the country.
- SCVNGR in Boston — Sure, the mobile-based scavenger hunt platform was incubated in Philadelphia, but it’s home is in New England.
- Cheezburger in Seattle — the well-trafficked online comedy site has in audience what it lacks in seriousness and is that national voice (whatever that voice is) from a city with considerably less publishing notoriety than Philadelphia, once a leader in such things.
- GoDaddy in Scottsdale — the domain registrar and hosting company is almost 15 years old but remains Arizona’s IT face and fit with the Sun Belt scene, makes a case for being something.
In most of these cases, the tech scene has the freelancers, entrepreneurs and startups, along with the buzzy growth machine and a stable giant or two (think Dell near Austin and Microsoft in Seattle). That’s a nice package, but it seems Philadelphia is missing a piece of the puzzle, and that’s what Hillman seems to want most and feel acquisitions hurt that.
Will some of those examples be bought out? Almost certainly. But perhaps this is my final unfinished thought.
If Philadelphia proper and its environs succeed at anything in a big way in technology, it’s in the boring and stable world of life sciences. (I want to add education to fit the ‘eds and meds’ tripe, but after watching Wharton-bred Coursekit flee northward at the first opportunity, it’s clear that no one is listening)
And in the boring world of life sciences, buzz rarely extends beyond those narrow industries.
That’s fine, as an economic driver and jobs creator. But I’m also interested in Philadelphia raising its profile nationally and beyond to help attract and retain more entrepreneurs who might duplicate that work and, dare I suggest, build consumer facing products that could push the cycle forward of changing how Philadelphia as a place of business is seen.
Strictly building businesses won’t do that because Philadelphia IT is best at what most people care least about: slowly, carefully constructing a company.
So, yes, build powerful businesses, grow and make corporate headquarters inside the 135-square miles of Philadelphia. Care about community and place, do cool, innovative and even important things with technology and innovation. That is what we’re most lacking in Philadelphia’s technology community to date: those better known, consumer-facing products of buzz and growth and scale.
But understand that those take very different types of entrepreneurs and they are rarer than the ones who are going to execute the best deal possible for investors and themselves. And don’t ignore that we also need a bit of the marketing that acquisitions help provide.
I do wish GSI Commerce would have done the acquiring, rather than being acquired, but I won’t consider it a failure. Because this region needs as much activity in as many different ways as we can get.