Imeem Confirms Snocap Acquisition

imeem-logo.pngAfter a long search that turned up no other buyers, Shawn Fanning’s startup Snocap is being bought by music social network imeem. We first reported the deal in February. Imeem is officially announcing the deal today. Terms are not being disclosed, but we believe it was less than $5 million—a fire sale price compared to the $10 more than $25 million that was invested in Snocap. Fanning, most famous for founding Napster, may be getting a double payday because his also has another startup, Rupture, which is also rumored to have been snapped up recently. For imeem, this is its second small acquisition, after buying Anywhere.FM in January.

Imeem depends on Snocap’s digital fingerprinting technology for its entire business model. Consumers can upload any songs they like to their imeem profiles and playlists. The Snocap technology matches the music to its database of 7 million songs, which then allows imeem to allocate a portion of its advertising revenues to the music companies who own the copyrights to the songs.

When Snocap first put itself on the block last Fall, imeem founder and CEO Dalton Caldwell was hopeful that another buyer would turn up so that he could continue to license its technology. That didn’t happen, so he had to make an offer himself. If anything, this should underscore the risk startups take when they rely on other startups for the key technology that their business is built on. Caldwell himself is philosophical about this tradeoff:

In general, this is a fundamental and strategic question faced by all startups. I was always given the advice to focus, focus, focus on core problems. On the other hand, it’s important to build enterprise value. What I am saying is there isn’t really a right answer. You just have to make the right call to the best of your abilities at the time. You are also constrained by time and capital.

In this specific case, working with Snocap helped us get our ambitious ad-supported music vision out in a very quick way by using their four years’ work/experience and technology they had already built. The fact they had a working registry with existing deals with content owners (including all four majors) was great — having this existing, licensed technology definitely helped us make the case while we were doing all of our licensing deals.

Looking at this now, I think this was a really great acquisition for us because of how much time, effort, and resources would go into building the Snocap part of the technology stack ourselves. The content ID and registry piece is important to us as a social media network, not only for music but for video. Letting people upload and share music and video keeps people engaged on the site, and gives imeem a larger, richer media library — this pulls in more users, who then upload and share more music and video.

The Snocap registry is a key part of imeem’s APIs, which allow third-party developers to build their own music apps on imeem. Snocap also powers 110,000 artist-centered music stores on MySpace, and imeem will continue to offer and enhance that service.

Caldwell is gaining some key employees with the deal, including Snocap COO Ali Aydar, who was Sean Fanning’s first hire at the original Napster. “We’re now close to 100 employees,” says Caldwell. “Last week, we leased another floor in our building.” In its own way, imeem is now carrying the Napster torch.

Yet industry insiders still question whether imeem can make any money based on its generous deals with the music labels, but its service is resonating with consumers. According to comScore, imeem attracted 19 million unique visitors worldwide in February. The bet here is that perhaps at high enough volume, it can start to break even.