Why Apple purchased LaLa and how Steve Jobs makes an offer “you can’t refuse”

Mon, Jan 21, 2013

Apple History, News

Aubry Johnson, who was previously a lead designer at Color, recently put up a blogpost (since removed) describing the buyout process as applied to Apple’s purchase of LaLa and later Color. Remember than many members of the original LaLa team went on to found Color. Thank god for Google Cache, right?

First off, Johnson describes the impetus behind Apple’s interest in LaLa.

In 2009 when you Googled a song, the first result was a Lala result. Not an iTunes result, not the artist’s MySpace or website… a Lala result. Every click that led to Lala wasn’t leading to iTunes for a potential music purchase. Even worse for Apple, Lala was often a better deal. When Lala partnered with Google (for Google’s Music Beta) there was a clear and present danger to Eddy Cue and his iTunes empire. [Bill] Nguyen had pure gold and started a bidding war for the control of the company.

Following that, both Nokia and Google offered to buy out LaLa, albeit with offers that Nguyen and presumably others at LaLa found embarrassingly low. Consequently, Nguyen pulled some strings and was able to secure a sit down meeting with the higher ups at Apple, including Steve Jobs. And in classic negotiation strategy, he played one side against the other.

He explained that he had offers from the largest mobile OS competitors and that they wanted to acquire his music startup. Cue knew if Google obtained Lala the ownership of the service coupled with search dominance could be disruptive to their stronghold. Bill was notorious at getting great deals with the music elite, usually through Lala’s investor, Warner Brothers Music.

And so, in November of 2009 Nguyen found himself in Steve Jobs’s kitchen in Palo Alto. Also at the meeting, amongst other executives, were Eddy Cue and Tim Cook.

Calm as ever, Jobs, eating a beet salad, spearheaded the talks and cooly said: “I’m going to give you a number, Bill, and if you like it, let’s do it and just be done with this whole thing. Okay?”

Jobs passed a piece of paper to Nguyen and Bill nodded. The deal was done. Apple successfully acquired Lala for roughly $80M (purchase price) with an additional $80M in retention bonuses for the remaining employees valuing the entire deal around $160M.

And just like that, the deal was done. No fuss, no muss.

At the time, it was believed that Apple purchased LaLa to implement a streaming service onto iTunes. Indeed, some analysts believed Apple was working on a digital storage locker of sorts where all of a user’s previously purchased iTunes Media would be streamable to iOS devices from the cloud, for a fee of course. But with Johnson’s account here, it appears that Apple’s interest in LaLa was primarily a defensive maneuver against Google.

What’s also interesting is that many LaLa employees did not choose to stay at Apple and instead followed Nyugen to Color where, shall we say, success was always out of reach. This past October, Apple acquired Color in what was reportedly a talent grab for Color’s engineers.

The ultimate irony in this story is that quite a few notable members of the Lala-to-Apple team followed Bill through the door and onward to his next venture. They left millions in options at a the $196.48 exercise price they had from the 2009 sale/retention bonuses. Some of those same engineers returned to Apple in the highly covered rumor that 20+ engineers went to Apple for $7M.

Apple obtained the same employees for pennies on the dollar. This time with even more experience and startup life under their belt. Paying twice was genius.

via Aubrey Johnson


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