Barking up the wrong tree?

 

Introduction

 

This blog (I won't call it the 'last' because I've already caught myself out with this) is one of a series and puts forward a reinterpretation of the Blipfoto Ltd story with particular regard to the tie-up with Polaroid. This has come about through discovering and new facts about the tie-up and by looking more closely at Polaroid's modus operandi as a licensing platform. These are laid out in more detail here.

 

My thanks once again to Ian Stevenson at Salient Point who has helped discover and interpret the new findings. I think it is fair to say that we both think this is the best interpretation of events we are likely to come up with based on the tangible evidence available, careful interpretation and that knowledge we have of the character of the players involved.

 

It is still an incomplete picture but it seems to have a stronger inner coherence than previous one's I have attempted to paint.

 

A Reinterpretation

 

I have developed an analysis  spelt out in more detail in this blog, 'The Blipfoto and Polaroid Licensing Agreement', that suggests that the Polaroid/Blipfoto tie-up cannot be seen as an aggressive takeover by 'corporate America' or a 'sell out' by Blipfoto Ltd even though it was often seen as this by Blipfoto users.

 

The 'tie-up' as I've called it was rather a licensing agreement that gave Blipfoto a licence to use the Polaroid brand and gave Polaroid a share allocation in Blipfoto Ltd, an observer on the board, and possibly a right to royalties from the acquisition of new Blipfoto Ltd customers.

 

Without further information we don't really know what demographic Polaroid Blipfoto was going after except that the US market was key but in the broadest terms there seems to be a poor fit between the Blipfoto user demographic and ethos (aka 'the community') and that which was being targeted by many Polaroid products.

 

However, maybe that lack of fit didn't really matter. When we discount the licensing agreement as a 'takeover' by Polaroid it is much more likely that the Blipfoto rebranding was more about increasing the recognisability of the Blipfoto proposition to users across all age groups and was supposed to be the key that opened the US market and possibly other markets.

 

I've previously thought that Polaroid saw Blipfoto as a strategic partner or 'acquisition' (which it wasn't) but the facts that we now know don't support this view.  It seems that Polaroid was willing to sell licenses without seeking  product or marketing synergies between the different and diverse Polaroid licensees - maybe it was a more ad hoc process as long as a certain quality threshold was met. That's the view of some observers although they would argue that even the quality thresholds were weak.

 

(For much more detail here on the development and range of Polaroid's licensing activities and the way brand licensing works see the my blog, The Polaroid and Blipfoto Licensing Agreement).

 

It came as something to a revelation to me when I realised that the contemporary Polaroid is no corporate giant. My back-of-the-fag-packet calculation values it at around $108m - a corporate minnow - and it has a workforce of 'a few dozen staffers in a humdrum Minnetonka office building, its headquarters, and in Boston and New York City'.

 

So the Polaroid that emerged from the 2009 liquidation was a small operation, with tens of staff, a bankruptcy trust and a corporate shell that has been completely hollowed out. All it had was a brand that had to be reinvented and begin to attract some revenue. The story of Polaroid's tansformation is briefly documented in a Gordon Brothers' case study of the company they acquired with Hilco Global in 2009.

 

Gordon Brothers Group shifted Polaroid from a distribution model to a "license/royalty" business model and began aggressively securing global licensing agreements. Gordon Brothers Group initiated a raft of organizational enhancements to align with this new business model approach, including retaining the majority of Polaroid’s Minnesota-based licensing team and appointing the Executive Vice President & Director of Marketing from the acquired entity as CEO of Polaroid.

 

But if Polaroid's strategy was based on an ad hoc way of creating revenue from licensing deals and royalties why agree to take untradeable shares in lieu of cash, as happened in the Blipfoto Ltd deal?  Maybe this was just another new avenue Polaroid was interested to explore - a kind of weak joint-venture where Polaroid took a backseat observer role. Or maybe Blipfoto could not demonstrate a strong enough flow of potential royalty income to Polaroid to secure a deal without a share transfer.

 

For Polaroid there may have been an attraction in putting little bit of corporate skin in the game to explore what potential there might be in a social media licensing tie-up with potential marketing synergies between Polaroid licensed products and the growing user base of Polaroid Blipfoto. Although as far as I know Polaroid's modus operandi seems to not involve share holdings in licensees. It's strategy is about licensing and not becoming a holding company.

 

Whatever the details of the case the Polaroid agreement with Blipfoto Ltd was a limited commitment, small scale, discreet and exploratory.

 

If the deal carried no opportunity cost for Polaroid - (ie if there wasn't another similar social media platform who was offering to pay cash for licenses) - it was a win-win situation for the company.  If Blipfoto went belly-up (and as long as there wasn't a reputational taint to the affair) Polaroid didn't really lose anything - some corporate time and maybe some lawyer fees. And if Blipfoto Ltd suddenly started to grow and gain capital value or revenues Polaroid was sitting pretty with it's convertible, redeemable preference share-holding, an inside view of how and why the company was succeeding and, possibly, a growing stream of royalty income.

 

I've also tended to see the Blipfoto link to Polaroid as something to do with the Blipfoto founders' affection for the company but thinking about this further and the train of events at Blipfoto it now seems more likely that the licensing agreement was a way of convincing investors to put more money into the company. Or it was driven by investors who wanted Blipfoto Ltd to beef up its marketing effort and visibility by linking to a big and recognisable brand.

 

Whatever the detail of the drivers of the agreement it signaled a certain arrival. 'Here we are', it seemed to say. 'Look at the potential growth our new branding is going to bring in. We're up there with an iconic American brand. It's take-off time'. And perhaps,  'Billion dollar company here we come.' 

 

And that new investment was almost forthcoming - nine hundred thousand pounds' worth was on the table in December 2014 . The share allotment was in place and a share price had been agreed. All that the company now needed was to produce the results and avoid an 'underperformance event' and the new investment would be released.

 

Once we move away from seeing Polaroid as an 'aggressive acquirer' of Blipfoto Ltd the stress I have previously put on 'demographic fit' between Polaroid's other offerings and the Blipfoto Ltd offering also becomes much less important. It wasn't that Polaroid (or its owners) wanted Blipfoto Ltd and its particular model of client capture and those 'magic moments once a day' as I argued in this blog. It was that Blipfoto Ltd wanted a branding agreement with Polaroid. Blipfoto was the suitor not Polaroid.

 

If the initiative for that licensing deal came from Blipfoto Ltd and not Polaroid the picture is very different. The licensing deal was about gaining recognisibility, prominence and credibility for the Blipfoto Ltd product in a rapidly expanding and crowded social media and photographic market place with a particular emphasis on the US market.

 

Polaroid was probably not that fussed if Blipfoto Ltd's activities led to cross selling opportunities to other Polaroid licensees as long as they were getting paid in shares and (possibly) royalties for the use of the license. And Blipftoto Ltd must have made an assessment that the Polaroid brand had a broad relevance and resonance to their target customers and that it would help encourage and translate initial website views into signed up customers.

 

I've also tended to think that either Polaroid identified Blipfoto Ltd as a partner or Blipfoto actively selected Polaroid from a range of potential licensing partners. But maybe Blipfoto Ltd just didn't have that much choice in its quest for a licensing agreement. (What other relevant brand licenses were available in the photographic field?)

 

It may have been that Blipfoto Ltd's investors and Directors were pushing for a branding agreement as a quid pro quo for further investment in the company and instructed the management team to go out and find one that was relevant to the company's expansion plans vis a vis the US market. (In this regard it is noteworthy that Blipfoto Ltd had appointed a Sales and Marketing senior manager in late 2013 to take forward Blipfoto's 'customer acquisition internationally as well as its marketing and PR activity'.)

 

Some consequences of the reinterpretation

 

If we move away from seeing the licensing agreement as some form of 'takeover' by Polaroid and instead see it as a move by Blipfoto Ltd to secure greater visibility in the US market place what consequences flow from this?

 

Firstly, with regard to the preferred bidders it is understandable why Polaroid did not bid for Blipfoto. Owning third-party companies is not Polaroid's way. It sells licenses to its brand.

 

On that basis, it seems exceedingly unlikely that Polaroid would have had any interest in 'taking down' Blipfoto Ltd, even if it could have, as a precursor to a 'takeover'.

 

Secondly, although there was an allusion to cross-selling possibilities in the preferred bidder press release from Hilco Global these cross-selling issues and my related analysis of the lack of fit between the Blipfoto user demographic and the Polaroid product demographic now seem much less important.

 

Fundamentally, the licensing agreement was never driven by the prospect of cross-selling between Polaroid licensees. Rather, it was about Blipfoto using the Polaroid brand to gain market recognition, particularly in the US in exchange for shares and possibly royalties. 

 

This in turn suggests the Blipfoto community is probably less in danger of being supplanted by some new teen/millennial demographic than I thought and will remain an important asset for the new owners. A conclusion which, if proved correct, would be from my point of view a very good thing.

 

Thirdly, if the nature of the licensing agreement - as a strategic marketing operation - had been spelt out n more detail and the idea that Polaroid was somehow 'taking over' Blipfoto Ltd had been scotched by the Board of Blipfoto  perhaps some of the user hostility to it could have been avoided.

 

Of course, there is a balance to be struck here between confidentiality, the detail of the license agreement and keeping the user community informed. But while Blipfoto may not be 'a commune' - it is a private company - the trusting and relatively open relationship between its founders and management team and user community was an important part of the ethos and tradition of the company. Whether user hostility to the deal played through into the disappointing new customer acquisition figures in January and February 2015 is a moot point bit it can't have helped.

 

Reinterpretation and the new owners

 

Where does the above reinterpretation leave us with regard to the new owners?

 

I think one thing that we probably can say is that although both owners come from a corporate sector renowned for liquidating assets (as I've detailed in this blog) they have also been interested in creating value in a longer-term fashion from some of the assets they have acquired, the example of Polaroid and other brands being cases in point.

 

Quite why they bought up the assets of Blipfoto Ltd may become clearer in the future but the personal and corporate linkages between Gordon Brothers, Hilco Global and Polaroid and the licensing agreement with Blipfoto Ltd might suggest that there is both a good working knowledge of, and even a passion for and interest in, tiny Blipfoto. 

 

The licensing agreement with Polaroid had not really had time to prove itself before liquidation and  the new owners must see enough potential for future growth to be willing to take a punt on and steer (in a more-or-less hands on/off fashion) Blipfoto's future.  And they made a personal investment because - at least with regard to one of the owners - money is not a problem and because Blipfoto is simply too small to fit into the huge operations of Hilco Global and Gordon Brothers.  It would be like having a yacht in fleet of supertankers.

 

I think a key issue going forward will be the business model that underlies plans for Blipfoto's future.  What will keep the lights on and what will satisfy the new owners and attract new investment or (possibly) new investors? And what will be the key aim of the new business plan?

 

One of the things that the new owners are very good at doing is looking at the cost base of a company and stripping out what they see as excessive costs and impediments to a return to profitability. But they will also be looking to create a revenue stream and/or to increase the value of the company (possibly with an eye to a future sale - see Note 1).

 

It will be interesting to see what emerges and hopefully Joe and Graham will be fully involved and the Blipfoto community will be kept abreast of developments and find a way of representing its voice in the company's future.

Note 1

See this article in the FT where Julie Meyer of Ariadne Capital Entrepreneurs Fund argues that the European venture capital industry has just 'one play in its playbook' and that is

'to find the best European tech entrepreneur ... and to sell their business to a US technology platform company, 25 of whom buy most of the continent’s venture-backed start-ups.'