JAGTAG Acquisition WTF?

JAGTAG Acquisition WTF?The following is the weekly guest series by Derek Johnson, Founder & CEO of mobile marketing company Tatango. You can text him at (206) 334-4012 or email him at derek@tatango.com.

When I first saw the title of the press release last Thursday, “Augme Technologies Enters Into Agreement to Purchase Assets of Mobile Marketing Pioneer JAGTAG“, the first thought through my head was WTF?

A little background on what JAGTAG does, for you that aren’t familiar. JAGTAG believes that “no one should feel left out”, which is why they developed a mobile barcode that could be used by any mobile phone. More specifically though, they developed a technology that would allow any feature phone, (a modern low-end mobile phone that is not a smartphone) which represents 70% of U.S. mobile phones, to interact with mobile barcodes.

How did this work? A consumer would take a picture of a special JAGTAG mobile barcode on their phone, then if they were on the Verizon or AT&T network, they would MMS the picture to the short code 524824. If the consumer was on one of the other 178 wireless networks in the U.S., they would text or email the picture to an email address specific to the campaign, like contest@jagtag.com. If this sounds confusing, you aren’t alone. For a funny read, check out the post by my friends at Mobile Marketing Fail about their experience with a JAGTAG.

So why my WTF response after hearing of the JAGTAG acquisition? Two reasons.

1. The JAGTAG technology will be obsolete very soon. Yes, I realize that currently their technology allows that 70% of the market to interact with mobile barcodes, but times are changing, and fast. With 70% of all new phone purchases being smartphones with the ability to scan mobile barcodes without the JAGTAG software, it will only be a short matter of time until the JAGTAG technology will be rendered obsolete. When I heard about the acquisition of JAGTAG, with their technology that is becoming more ancient every day, you can see why my WTF response was justified.

2. The sale price math didn’t add up to a success for JAGTAG. According to the company’s form D filing, they raised a round of equity financing in late 2009 to the tune of $3,628,372. This most likely was an Angel round as there was no VC associated with the deal and their form D filing identifies 30 different investors participating in the round. For hypothetical sake, lets investors bought 20% equity in JAGTAG for their investment of 3.6M. That means JAGTAG’s pre-money valuation would have been just north of $18M in 2009. With Augme acquiring JAGTAG for $5.25M, that means that JAGTAG had lost over two thirds of it’s value in the last couple of years, prompting another WTF moment from myself. These numbers to me represent that JAGTAG management saw the coming trends and the future of their product, or lack their of, and decided to abandon ship before it actually sank.

So why did Augme acquire JAGTAG? Two reasons in my opinion.

1. Talent – It’s reported that JAGTAG’s CEO will become the chief financial officer of Augme, and all employees will be hired by Augme. This deal will add a considerable amount of value to Augme, as JAGTAG looked to have a significant amount of talent in both sales and mobile at the time of acquisition.

2. Clients – JAGTAG has an extremely impressive client base including well know brands such as 20th Century Fox, Dell, Unilever, Pepsi, IBM, Sybase, T.G.I. Friday’s, Nine West and LG. These brands coupled with Augme’s mobile offering will add significant value to Augme’s stock.

It’s pretty clear to me that Augme didn’t acquire JAGTAG for their technology, and I would wager that after the completion of the acquisition, we can officially say goodbye to the JAGTAG.

If not for the acquisition, would JAGTAG have become another drop in the mobile deadpool? What do you think?