M&A Alert—February 23, 2012
Apple Acquires Chomp
Transaction Size: $50mm
Chomp offers a mobile app search and discovery engine which allows users to easily find apps not just by the title of the apps and limited metadata, but by deeper functional descriptions of the apps. Users type in queries such as “tip calculators” or “puzzle games” or “expense trackers” and Chomp’s algorithm then scans the apps’ descriptions, reviews and capabilities, and also gathers information from blogs, social networking sites and other app stores to generate relevant results. To assist with app discovery, Chomp shows trending and high-ranking apps and allows users to follow friends on Facebook and Twitter to see what apps they review. Last fall, Chomp launched “Chomp Search Ads”, a Google AdWords-style program allowing developers to bid on certain keywords in app searches. Chomp is available on the web and through mobile apps for the iPhone, iPad, and Android phones. Addtionally, Chomp has a partnership with Verizon, which uses Chomp to power discovery in its VCast Android app store. Competitors include AppAdvice, AppsFire, Apptap, Appolicious, Quixey, and many more. Founded in 2009, Chomp is based in San Francisco and has raised $2.57mm in funding. Investors include BlueRun Ventures, Felicis Ventures, Ron Conway, Aydin Senkut, David Lee, Brian Pokorny and Auren Hoffman. At the time of acquisition, Chomp had 20 employees.
Apple is best known for its personal computing products and consumer devices including the Macintosh, iPhone, iPod and iPad, and is recognized for revolutionizing the delivery of digital content through the iTunes Store. Today, Apple counts 500,000 apps and 25 billion app downloads in its iTunes stores (vs 10 billion in the Android market).
Financial terms were not disclosed but Bloomberg reported the transaction value to be $50mm. Recent comparable transactions in the digital content discovery space include Microsoft’s acquisition of VideoSurf in November 2011 (video), CNN’s acquisition of Zite in August 2011 (news), GREE’s acquisition of OpenFeint in April 2011 (social mobile games) and CBS Interactive’s acquisition of Clicker in March 2011 (video).
Apple is buying Chomp to improve the app search and discovery experience on its iTunes app store. With some 500,000 apps on it’s app store, Apple has become a victim of its own success (or Apple’s users and developers have become victims of Apple’s success) and Apple needs to rework the app search and discovery experience. A good way to think of the Chomp acquisition is that Apple bought a Google search engine for apps and will most likely transition away from its current directory based search by harnessing the rich data approach (metadata, external data, social signals, etc.) that powers Chomp. It’s too early to tell, but it will be interesting to see what Apple does with Chomp’s Search Ads product which allows developers to buy search keywords in order to promote their apps. Given some of Apple’s challenges around iAds, could it be looking for yet another way to monetize is user base?
Architect Partners’ Observations
We’ve written numerous times on the challenges associated with digital content discovery across a range of content categories, including games, apps, video, news, etc. (see links in the Transaction Parameters section above). It’s no longer reasonable to expect that consumers can readily find high quality content – low barriers to entry have created volumes of noise competing for consumers’ attention. Content producers (as well as other participants in the ecosystem) are working to improve their discovery prospects by employing deep data and analytics strategies and/or seeking to engage with consumers as early in the search and discovery process as possible. In the case with Chomp, Apple is protecting its ‘ball control’ with app consumers and developers by employing a Google-like data and analytics approach to app search and discovery.