How Apple Bought Lala to Protect iTunes and Got Talent Through Color

lalacolorlogos

In late 2009, Apple acquired Lala for a deal valued at $160 million ($80 million for the company, another $80 million in stock options and bonuses). Late last year Apple acquired Color. What do they both have in common? Founder Bill Nguyen. What’s even more interesting is how Apple eventually got seasoned former-Lala engineers for a lot less than they would have before—because they later acquired them as part of the $7 million purchase of Color.

Former Color (and possibly Lala, he doesn’t explicitly say in his post) engineer Aubrey Johnson talks about the clever negotiations Nguyen pulled off as Lala was being shopped around.

A little background first. Lala was a streaming music service like Pandora, but there’s an interesting twist—and therefore threat to Apple—that has to do with search rankings. Google invested and partnered with Lala so Lala showed up in Google search results as featured results (over, say, iTunes). That would have been okay if people who clicked the links to listen to music could buy the music from iTunes, but that wasn’t part of the arrangement with Google. People using Lala bought music through Google Music.

Exactly, insert foreboding music.

Eddy Cue and Apple (rightly so) saw this as a big threat to iTunes. And as Lala had offers from Nokia (a reported $11 million) and was talking with Google (who undoubtedly didn’t want to see their investment in Lala walk away), Bill Nguyen was able to get a meeting with Steve Jobs to talk about a deal, and Steve made an offer. According to Johnson, the deal was done then.

But that’s not the end of the story.

A portion (again Johnson doesn’t specify) of the engineers followed Nguyen to his next start up Color. Because those engineers left or didn’t join Apple, Apple didn’t have to pay out the entire $80 million in options and bonuses (generally you have to stay for a certain period of time to earn and keep those perks). Nice savings there.

That’s still not all.

Many of the engineers Apple would have scooped up in the Lala deal eventually joined Apple through the Color acquisition—at a fraction of the price. Apple paid a (comparatively) paltry $7 million for Color. As Aubrey Johnson puts it:

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.

Well played Apple, well played.

Via: Aubrey Johnson & MacRumors