As noted in a previous blog post, it is apparent that there is a growing gap between the UK and the US when it comes to tech. The recent sale of Lovefilm to Amazon highlights this gap perfectly. Lovefilm, is a very successful online British movie rental firm with over 1.5 million members. It has just recently been sold to Amazon a deal that has been considered great for UK web firms.
It proves that it is still possible to build successful web businesses and make lots of money; it has been a long time since a buy-out like this took place in the UK. The exact amount paid by Amazon has not been disclosed by either party, but we do know that Lovefilm is valued at £200m. All this is great but there is another side to it; people are raising the question, is it possible for British tech companies to go it alone without the help of an American giant to lead it by the hand? A similiar company over in America called Netfix was bought for 30 times the price as Lovefilm and has a market valuation of£6.3bn.
For sure it is worth considering that Netfix has 10 times the amount of subscribers as Lovefilm and it much further evolved in terms of downloading and streaming. However, Lovefilm has the potential to grow into something much bigger than that. Lovefilm can also be considered cheap if you look at the sale of other European tech firms to US giants. eBay bought Skype for £1.4bn CBS bought Last.fm for £140m AOL bought Bebo for£417m The high prices paid for these startups have proven to be too much. In some cases these firms have simply not made the profits that were expected of them, this might be the reason why Amazon are being cautious.
Some of the UK IT community is calling for UK firms to stick it out and not sell up soon. When a deal is laid out on the table and you have the venture capital companies breathing down your neck it is hard to resist the temptation to sell up. Some say this lack of patience mainly on the part of the venture capital firms is a negative thing for the UK. When a company is bought out, the old owner then goes on to start a new project or become an angel investor. This kind of activity creates a sustainable ecosystem in the UK tech industry. On the other hand it does stop companies from growing to the sort of size as Google, eBay and Facebook. If the companies were allowed to grow and grow it might be the turn of the British to buy-out a Silicon Valley based company. Anyway, here is too British tech finally making some noise.