Yahoo Keeps Buying Startups That Don't Make Their Own Apps

Yahoo is deploying its billions of dollars in cash and its newly buoyant stock to purchase a bevy of startups.

It's worth asking whether its shareholders are getting their money's worth.

Qwiki, a mobile-app startup based in New York whose acquisition Yahoo announced this week, is getting sued by Chaotic Moon, an Austin, Texas-based app-design studio, which claims it hasn't been paid for work it did developing Qwiki's iPhone app, which assembles pictures and videos together into short movies. (That's a very different idea than the one Qwiki launched with, an iPad app which read Wikipedia entries aloud while displaying related imagery.)

In its filing, Chaotic Moon said it's owed $168,000. In its response, Qwiki said it fired Chaotic Moon and had to hire another, unnamed firm, to finish the app. Qwiki is asking for $250,000 in damages.

Chaotic Moon CEO Ben Lamm acknowledged the lawsuit and told ReadWrite that his firm "did design and develop a late iteration of the Qwiki product."

It's up to a court to decide who's right in the case. But whoever prevails, one thing is clear: Qwiki did not actually build the app for which it gained enough notoriety to land itself at Yahoo.

Talent, Or Show?

In discussing past acquisitions, CEO Marissa Mayer has said that her goal is to "bring … engineering and technical talent" to "accelerate our efforts in mobile development."

It's a good strategy. Is Yahoo actually doing what Mayer says it is, though?

The Qwiki episode reminds us of another splashy acquisition: Summly, which Yahoo paid a reported $30 million for early this year. Summly, it turned out, did not actually develop its core artificial-intelligence technology for news summaries; that came from SRI, the research organization that also spun off Siri, the voice-recognition startup Apple bought in 2010.

Plenty of startups hire contractors or license intellectual property. There's no inherent shame in it.

But the logic of a "talent acquisition," as Mayer characterized several of Yahoo's recent purchases, is that you're not buying the code as much as you're hiring the coders. And so if the people who created a compelling user interface or a brilliant algorithm aren't part of the package, it's questionable what the startup's worth.

We asked several Yahoo spokespeople for comment on the matter and haven't heard back.

Update: A Yahoo spokesperson pointed us to Yahoo's announcement of the acquisition. It cites Qwiki's "awesome technology" and notes that the team is joining Yahoo.