In this edition of Localogy’s Local Beats, we examine news and moves from Salesforce, Squarespace & the U.S. Federal Trade Commission.
AI is NBD
What Happened? Marc Benioff this week said what we’re all thinking: AI is overhyped. Of course, it’s useful and is doing impressive things these days, but proclamations of its world-changing impendence (e.g., curing cancer and ending climate change) are overstated. During his appearance on the Rapid Response podcast, these comments came out, as well as a dig at his biggest competitor, Microsoft. He claims that Microsoft’s marketing around Co-pilot, and general AI horn-tooting, set unrealistic expectations for the tech. He made similar digs at Sam Altman for his AI evangelism. However, irony lies in the timing. Benioff just spent a week pumping up AI at Dreamforce… or at least the flavors of AI that are being infused into Salesforce. Still, his point is well-taken. AI is great, but it’s a bit oversubscribed today. The question is if we see a correction in the form of some burned investors and scaled-back operations for the AI companies that are growing at unsustainable speeds.
Why Does it Matter? Questions continue to loom about an AI bubble. Though the technology is here today and real – contrasted with hype cycles fueled by vapor alone (see metaverse) – have the investment and excitement outpaced the technology’s realistic capability? And has supply outpaced demand. If so, the correction noted above is inevitable… and all the pain that comes with it.
Going Private
What Happened? Private Equity firm Permira has finalized its acquisition of Squarespace for $7.2 billion ($46.50 per share), effectively taking the web host/builder private. This is one of the largest take-private deals of the year so far. It also culminates a volatile few years for Squarespace. After going public in 2021, it hit a peak market cap of $8 billion. Then its value declined sharply to $2 billion in 2022, then rebounded to around $5 billion. Now, its sale to Permira carries a 36.4 percent premium over its trailing three-month average stock price. But this still falls below Squarespace’s $10 billion valuation high before it went public. This news also comes amidst Squarespace’s sale of its restaurant reservation service, Tock, to American Express for $400 million. Going forward, the plan seems to be that Squarespace founder and CEO Anthony Caselena will continue at the helm. That commitment is galvanized by the large chunk of Squarespace equity that he’s rolled over, rather than cashed out.
Why Does it Matter? The news is mostly inside baseball and it may or may not impact Squarespace’s product, which counts a heavy SMB user base. Of course, private equity has a reputation for iron-fisted management and operational streamlining, which in turn degrade things like product and service quality. Though in fairness, Newfold Digtial’s PE ownership seems to be mostly positive so far on the product/service front. We’ll have to wait and see what happens there. Speaking of Newfold, Squarespace’s acquisition marks a bit of a trend in the website host/builder world. In addition to these two companies, we’ve seen a handful of other PE acquisitions of web hosts in recent history, including WP Engine’s acquisition by Silver Lake.
Click to Cancel
What Happened? The U.S. FTC has announced its final “click-to-cancel” rule. If it sees the light of day, this will require that companies who sell subscriptions – or anything with a recurring payment – make it “as easy for consumers to cancel their enrollment as it was to sign up.” This will impact companies that let you sign up online but make you cancel over the phone… during which you get a retention hard sell. Apparently, Amazon Prime is egregious in these offenses. Other businesses impacted include gyms that make you cancel in person where you’re subject to being shamed into keeping your membership by physically-intimidating specimens. Altogether, the FTC is basing its action on consumer complaints that have averaged about 70 per day for the past few years. This is also partially driven by the Biden Administration’s stated crusade against “junk fees.” All the above will go into effect 180 days after they’re published in the federal register; and the rule’s ultimate fate could be determined by who occupies the White House from now until then. The FTC’s republican minority all voted against the rule.
Why Does it Matter? This is a consumer-first move that few would disagree with. But it also has heavy lobbying from business interests who don’t want to see it go into effect. If it does, it has strong implications for companies built on subscription revenue. That’s everything from big brands to publications to smaller outfits. For the latter, it will be more challenging to muster resources to change systems to be in compliance. At least there’s some lead time to do so.
