ON INNOVATION CONTINUING OFF-SHORE

TAKING A STEP BACK

Back in June, I wrote a post titled "On Innovation being off-shored from the US, Grokster et al".  The topic had to do with internet innovation occurring outside the US driven more by different legal and ethical frameworks between us and the rest of the world. 

I'd highlighted the just completed IPO of PartyGaming, the internet gaming company, based in Gibraltar,  an off-shore haven from the legal restrictions  on  online gambling in the US, even though 90% of the company's revenues were driven by customers in the US.  The founders of that company avoid stepping foot in the US for fear of legal prosecution.

Now we've just had the acquisition of Skype by eBay, whose founders are also in a gray area in terms of stepping foot in the US.  As Fortune explains (via SiliconBeat blog), in a recent article titled "Catch us if you can", the founders of Skype were also the founders of Kazaa, the infamous peer-to-peer file sharing company, in a previous life:

"In 2000, Niklas Zennström and Janus Friis invented a program called Kazaa. You know Kazaa—the infamous file-sharing program that serves as the global free market for music, video, and porn. Last year "Kazaa" was the top search term on Yahoo, beating out Harry Potter, 50 Cent, even Paris Hilton."

Of course, the Recording industry in the US put Kazaa in it's legal sights, and as a result, the founders of Skype, soon to be members of eBay's Executive team, can't risk coming to the US due to continuing possible legal threats.  It's reported to be one reason why eBay CEO Meg Whitman flew to London to announce the deal, rather than the other way around.

It's interesting that since the much heralded IPO of Google in August last year, four of the most notable, multi-billion dollar Internet IPOs and/or acquired companies have been non-US companies.  They are in chronological order,

1. The PartyGaming IPO in June this year.
2. The Baidu IPO heralded as the "Chinese Google" in early August this year.
3. The acquisition of Chinese Internet ecommerce company Alibaba by Yahoo! on August 11, 2005.
4. The acquisition of Skype by eBay announced on September 13 (my post here).

It's interesting that two of the above companies were acquired by US companies looking to "fast forward" their entries into new areas, geographical or technological. 

And the other two companies could not have flourished in the US at all given legal and ethical issues.

Now four data points do not a trend make, but if you look at Google as the second and not the first data point in the series, you get the very successful IPO of Chinese online gaming company Shanda in May of last year, which currently sports a market cap nudging $2 billion.

In that context, the US represented one out of the five notable Internet transactions, which is a bit different than the first and last Internet cycle between 1995 and 2000. 

We're not in Kansas anymore.