When Seattle-based online dog-sitting marketplace Rover announced it was acquiring its biggest competitor, Santa Monica, Calif.-based DogVacay, in March 2017, the companies decided in advance that they would shutter DogVacay and bring everything over to Rover’s platform, rather than maintaining both independently.
That’s not always the case in the acquisition of marketplace businesses. Since Zillow Group acquired Trulia in 2015, for example, it has operated the Zillow and Trulia real estate services independently. The same thing happened with Grubhub’s 2013 merger with Seamless, a landmark deal in the restaurant delivery business. Both Grubhub and Seamless are still operating.
“If you look at how a lot of the marketplaces have managed this, not everyone goes as aggressively to one front-end, one back-end,” said Rover CEO Aaron Easterly on a recent episode of the Acquired podcast. “Very few actually have.”
Easterly said Rover and DogVacay had considered three options for the combination: maintaining two separate brands, merging the two back-ends and having separate front-ends, or the full absorption of DogVacay into the Rover brand.
But ultimately, he said, the “hard cutover” was right path. Rover was at a stage of its evolution where it didn’t want to slow down to navigate the internal lobbying that would inevitably result from maintaining two brands, or to integrate two different systems with multiple technical stacks, skill sets and software architectures, he explained.
“We just thought it would be a disaster to lose two years in that type of integration,” Easterly said. “If we were further along, if we were already a public company, or soon to be, like Grubhub and Seamless, maybe we could have made a different choice. But we just thought it would slow us down quite a bit for [the] uncertain benefit of keeping the brand.”
At the same time, Easterly acknowledged, “it’s also the most offensive thing to propose to another company,” that you’re going to buy them and shut down their service.
So Rover was careful to make sure to reach an agreement on the plan with DogVacay founder and CEO Aaron Hirschhorn and his team before completing the acquisition.
The benefits included a big increase in the supply of dog sitters and demand for their services on Rover, compared to both DogVacay and Rover operating alone.
Those were among the inside details shared by Easterly on the Season 2 finale of Acquired, a podcast that goes behind the scenes of technology acquisitions and IPOs. Easterly spoke with Acquired hosts Ben Gilbert, the Pioneer Square Labs co-founder, and David Rosenthal, a former Madrona Venture Group principal who co-founded venture capital firm Wave Capital last year.
The Rover story is also a personal one for the hosts. Rover’s success helped to inspire the Madrona Venture Labs startup studio, which Gilbert co-founded before starting Pioneer Square Labs with partners including Greg Gottesman, the former Madrona venture partner who came up with the original idea for Rover at a 2011 Startup Weekend in Seattle. Rosenthal was a Rover board observer as part of his prior role at Madrona.
The acquisition price of the Rover-DogVacay deal wasn’t disclosed originally, and it wasn’t revealed on the podcast episode, with the key people presumably bound by confidentiality agreements.
Other interesting gems from the conversation include:
- Easterly said that he and DogVacay CEO Hischhorn had been talking about a deal since the first year of the company. He said he believed that each company had its own strengths: DogVacay was doing well in markets like New York because it had PR and marketing expertise, whereas Rover’s strength, using backend data to evaluate the market, served the Seattle company well long term.
- The first Rover “dogstay” happened at the Madrona Ventures office, where Rover was operating out of at the time. Rosenthal said that the dog went to the bathroom on the floor and Madrona administrative partner Troy Cichos was skeptical of Rover for years after that.
- Few people believed Rover was a good idea when it first started. But copycat companies kept popping up. “It was kind of the worst of all worlds, where you have now like 10 potential competitors for an idea that everyone thinks is awful,” Easterly said.
- Easterly and Rover believed that marketplace mechanics and backend data would make the company successful, rather than depending purely on the scale of the marketplace. Instead of just pumping PR into a product, Rover needed to change consumer behavior.
- The post-close integration between the two companies was supposed to take six months, but the team got it done in three.