Yesterday, Shutterstock announced the acquisition of WebDAM for an undisclosed sum. Acquisitions are always tricky things to interpret. Some are good signs for industry--strong companies being recognized for great performance. Some are fire sales by companies on the verge of bankruptcy. Some are neutral moves: industry consolidation, vertical integration, disintermediation. And regardless of the reason, acquisitions can result in a number of outcomes--both intended and unintended--for both companies and their customers.  So what does the WebDAM acquisition by Shutterstock signify, both for the companies involved and the larger Digital Asset Management market?

WebDAM is private and terms were not disclosed so we have to make some assumptions.  WebDAM isn't a major player in the DAM market, but they exhibit none of the signs of a struggling software company--employee turnover, reduced R&D headcount, customer churn, or outsized professional services team. On the other hand, they've been in the market for 9 years, and despite solid growth, they haven't seemed to hit hockey-stick startup nirvana. They've gotten the Forrester nod and have been SaaS since before it was cool, but they haven't separated from the pack of other competent but unexceptional low-cost DAM solutions.

These facts coupled with the fact that most DAM acquisitions of note (e.g. Artesia by OpenText, Xinet by North Plains, Vyre by North Plains) have been within the software industry seems to rule out the most extremely positive or negative acquisition scenarios.

Instead, this development appears to be an interesting and creative vertical integration bet by Shutterstock, a public company with some cash on hand after strong Q4 earnings. Shutterstock hasn't been overly acquisitive--their last acquisition was in 2009--but the microstock industry doesn't have much in the way of barriers to entry. The proliferation of amateur and semi-pro digital photography and the lack of exclusive distribution deals means that any new microstock website can quickly get content for sale. Unfortunately, that content is probably the same or similar content that their competitors are hawking, which drives prices down.  Large traditional players like Getty have countered these market forces by buying up their competition, but Shutterstock's play for WebDAM is an attempt to create true differentiation.

Whether the differentiation will prove successful depends on whether the vertical integration creates value for either Shutterstock or WebDAM's existing or prospective customers. Once the two companies have figured out their joint offering, we can expect that Shutterstock customers will be offered an easy way to store and manage the content they acquire from Shutterstock. This seems like a nice-to-have convenience feature, but it would be hard to justify a company with significant stock photography needs to single-source their procurement to Shutterstock. On the other hand, the casual or occasional purchaser of stock photography might opt for convenience, but it seems unlikely that those customers would have sufficient asset management needs to justify investment in a sophisticated DAM system.

The better value appears to be for WebDAM customers. It is easy to imagine a creative director struggling to locate the perfect asset from their existing WebDAM collection being offered a number of relevant options for purchase from the larger Shutterstock library. Each purchase decision would be minor and save valuable time. In aggregate, these small and minor decisions could add up to significant sales for Shutterstock.

So what does this mean for the DAM market as a whole? It seems doubtful that the acquisition on its own will boost WebDAM's market share. On the other hand, if you buy the logic above, Shutterstock stock might be a smart buy. And longer term, if Shutterstock's performance proves the competitive advantage of DAM integration, we may see other stock services looking for value buys among the smaller DAM players.