On Tuesday, Yahoo! CEO Jerry Yang mentioned that Yahoo! would be looking to invest in 2008. He did not name names.
Today Tech Crunch published a rumor that Yahoo! was going to be buying a video platform for $150M. Initially the rumor suggested it would be Brightcove, who’s raised about $80M in venture money, meaning a $150M buyout would not be sufficient to please investors. Then, some thought it might be Metacafe, previously rumored to be acquired by Yahoo!
Turns out the seller is Maven Networks. New Tee Vee confirms the price will be in the $160-170M range.
Maven powers videos for Gannett, Hearst, Fox News, Sony BMG, the Financial Times, Univision, TV Guide, CBS Sports, CNet, and Scripps Networks.
It’s worth noting that Yahoo! is making a bid for a platform for premium content, which is the exact opposite of Google’s M&A target YouTube, who is a platform for user-generated and pirated content. YouTube has since made a big effort to court TV and filmed entertainment content owners and “torso” content producers (such as WatchMojo.com).
It’s also worth noting that such a move comes with risk. When a media company buys a platform, there is a loss of clients. For example, will FOX remain a client, when you consider that FOX’s parent News Corp. has a deal in place with Google (for Fox Interactive Media’s search and contextual business) and Microsoft (for Dow Jones’ search and contextual business). While there is a merit to keep the video platform separate, as YouTube evolves and Google integrates Doubleclick and gets more and more serious about video advertising, expect this matter to come up in discussions. Judging by the client list, I do not see many major risks though, especially compared to the notable client flight risk that Google took on when it bought Doubleclick (and we highlighted - correctly - early on after that deal was announced).
But that is all secondary to the number of publishers that are about to check their contracts to see how quickly they can get out of the DCLK contract. And I’ve already addressed the number of advertisers who probably don’t want to work with a Google-owned ad server here. Just think of how eBay’s marketplace flopped. Sure, that was in TV, but who do you think Google is trying to win over with this deal? The major advertisers, who already fear Google’s ambition.
“I use DFP Reports daily to run the business. The ability to get detailed information on our ad operations has helped us to maximize our selling efforts and keep our advertisers happy.”
Matthew Goldstien, Vice President of Ad Sales Operations, MTV NetworksI really wonder how much longer Viacom’s MTV - the same Viacom who is suing Google for $1B - will be using Doubleclick’s (now Google’s) Dart for Publishers.
I expect competitors to start calling on Maven’s client list. Of course, as Yahoo! is searching for a video strategy (it’s already strong but needs fine-tuning), it’s worth noting that this could be seen as a major plus by clients who use Maven’s platform. Brightcove is a high-profile player in the space, it’s founded by Jeremy Allaire and has a cornucopia of big name investors, but an exit of $160-170M is a bad comparable given all of the money that’s been poured into the company.
Maven on the other hand “only” raised $30M from Accel, General Catalyst, and Prism Ventures. All in all, when you consider the buzz around user-generated content in 2006 and 2007, you start to see that that train has left the station and the market is moving up-market.
Expect a lot more consolidation in the video space, be it:
- platforms
- ad networks
- content plays.
In fact, you are seeing many VCs make calls to continue to fight in online video networks and platforms (by investing more money) or sell out. VCs have over-invested in file networks and platforms and this sale of Maven is, in my humble opinion, a manifestation of that. A $150M or $180M exit is fantastic, do not get me wrong, but for VCs who like to aim for the fences, this is not a grand slam by any stretch of the imagination, it is, I think, an admission that the network and platform space is crowded.
If the VCs owned 50% of the company, that means about $75M to $90M, split three ways, that is a $25M to $30M windfall for each. But the company’s been around since 2002. So six years after being founded, the VCs suddenly accept that kind of return? What happened to the bravado gents? I suspect once an IPO seemed implausible, then a sale became a good choice (why is an IPO out of the question? Exhibit 1: the stock market’s tepid start to 2008).
In fact, I’d argue that even sales are no slam dunk: when you think about it, when this rumor crept up, Maven was the third company that people thought of but there could be 10 others that come to mind.
The demand and supply dynamics are generally not in favor of your average, run of the mill platform or an network. I am not commenting on the businesses here, they are all fine businesses I am sure; I am commenting on these as VC case studies. Yahoo! could have made overtures to a number of these services and ultimately Yahoo! had a world of advantage over any selling party.
I personally see far better dynamics in the content space (a- the wheels have come off the UGC train, b- TV and Film content companies are still not confident in trading offline dollars for online pennies).
As such, the lead a company like WatchMojo.com is building grows… that still does not mean that VCs will or should invest in media content plays - as I had called for last year, I do not think most typical VCs understand media and content to dip their toes - but it does show that the upside to content plays is becoming bigger and bigger because the demand and supply dynamics are quite stronger in video content than platforms or ad networks.
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WatchMojo NewsletterEarlier this week, News Corp.’s Dow Jones unit signed a deal giving Microsoft the right to power search results, paid search results and contextual text ads on Wall Street Journal, Barron’s and Marketwatch.
I noted that this was a shrewd move by Rupert Murdoch to cut a deal with both Google and Microsoft, given Google’s existing $900M deal to offer the same on Fox Interactive Media. It was also an example of Mr. Murdoch getting the last laugh on critics who urged him to keep Dow Jones separate from News Corp.’s other assets…
Today, during Google’s analyst call, the company blamed softness and challenges in monetizing social networking advertising, not-so-subtly pointing the blame on MySpace.
I’ve always said that once the hippies out West put down the crack pipe and get off the social networking / community is love vibe, they’ll realize that advertisers cringe at UGC, social advertising and relying too much on the community…
My point is I am sure Google is being sincere… but maybe, just maybe, Eric, Sergey and Larry are not too pleased about Rupert Murdoch’s deal with Microsoft and this is simply a case of Google laying down the foundation to adjust the terms of the FIM deal to reflect the fact that a very valuable piece of real estate - and content (finance category) slipped through their fingers and landed squarely in Microsoft’s lap.
Related:
- Will Marketers Favor Content or Community
- Social Network Sites Losing Lustre?
- The Sound of Sucking: Social Networking Advertising
During Google’s troubled earnins report (see our coverage of that here), Eric Schmidt jumped in to talk about Google’s boundaryless display and video advertising revenue opportunities. Comments Henry Blodget:
Amid battering from analysts on unit growth, CEO Schmidt jumps in to remind everyone about the display revenue and YouTube opportunities. Out of character and probably a direct response to the quarter miss and resulting analyst pandemonium.
I do think that YouTube remains a vastly untapped but not obvious opportunity (disclaimer: WatchMojo.com provides content to YouTube as a professional producer).
But Doubleclick? Doubleclick did $300M in revenues in 2006 but has since lost some accounts (IAC, for example). So net-net, I’m not sure Doubleclick’s revenues will make a dent on Google’s massive $15B revenue base.
Moreover, ad serving is a low margin, competitive space. Plus, with open source ad server OpenAds raising $15M and “shrinking the ad serving market” I doubt Google will generate much more than $300M per year off Doubleclick in years to come. If anything, Google might take the price of ad serving close to zero (and pull an Urchin, ie. make it free to bolster its bread and butter which remains AdSense/AdWords).
But most importantly, let me grab my bullhorn and repeat:
“A lot of people said Google just hit a home run in online advertising by buying DCLK, they were wrong because saying DCLK is an online advertising play is akin to saying MSFT is strong with ad agencies because ad agencies use powerpoint in their client pitches. DCLK sold all of its media assets to L90/MaxOnline when ad rates were low and no one really paid CPM rates, and got into software only”
Doubleclick gives practically zero exposure to he faster growing display banner business. Google bought a software that is a commodity, a valuable piece of software, no doubt, but not one that will generate billions in revenue.
What should Google do right about now? It should buy Tremor Media or Broadband Enterprises, or maybe Brightroll. Read more on that rationale here.
To dive into display advertising they’ll need a media / sales platform, one company that could be interesting would be Tribal Fusion, one of the remaining ad networks that focuses on display advertising. There’s Valueclick, too, but Valueclick comes with a few more risks and baggage. Plus, Valueclick is more of a CPA play, whereas Tribal Fusion is a hybrid play with a CPM slant. For the difference between CPM and CPL and other ad terms, click here.
As per monetizing YouTube, trust me, I’m ahead of you! But that’s all I will say, for now.
See HipMojo.com’s post on the Doubleclick / Google deal below:
- Google Buys Doubleclick for $3.1 Billion; Blocks MSFT Acquisition
- Questions in Wake of DCLK/GOOG Deal; MSFT/YHOO Repercussions?
- Two Variables in DCLK/GOOG Deal: Dart for Publishers/Advertisers; All Cash Deal
- Why GOOG’s DCLK Makes Little Sense (To Me)
- DCLK Winners: Hellman & Friedman; Losers? DCLK’s Shareholders?
- aQuantive Under Spotlight
- Why aQuantive is Worth 2x Doubleclick
When Microsoft paid $240M for a 1.6% slice of Facebook, a lot of people were surprised that Google did not outbid Microsoft as it had done when it acquired Doubleclick for $3.1B.
In fact, conspiracy theorists argued that Google only showed an interest to ensure that the final price would not only reach investor Peter Thiel’s $10B sought price but surpass it as well.
Technically, the fact that MSFT “only” paid $240M (instead of $500-750M) to keep Facebook out of the hands of Google showed Bill Gates shrewdness… but it also suggested that Google had learned from history.
After all, when MySpace-led Fox Interactive Media got a $900M guaranteed deal from Google, I suggested that Google overpaid. That comment had nothing to do with MySpace, but rather because social networking in general was challenging to monetize. Of course, in the same vein, Google paid $900M to keep MySpace’s massive inventory out of the hands of Yahoo! and MSFT and could very well explain why Google’s market share continued to grow at the expense of IAC’s, AOL’s, MSN’s and Yahoo!’s.
But regardless, $900M was a lot of money, at the time it could have probably bought all of Facebook.
Today, a couple of years later, I feel somewhat vindicated by my call. From Google’s analyst, from CNET:
CFO George Reyes said social networking advertising is not monetizing as expected. When questioned further Sergey Brin, president of technology, said: “We don’t talk about individual partners or anything like that.” Brin noted some things were tried that didn’t pan out. While Brin won’t talk about partners it’s fairly obvious that MySpace is an issue. Google is obligated to pay at least $900 million in minimum revenue guarantees to MySpace through 2010. Later, the question was revisited again. He noted that Google also has Orkut and other social networking partners. “We have an incredible amount of this inventory,” said Brin. “I don’t think we have the killer best way to monetize social networks yet. We have had a lot of experiments (and some disappointments).”
Sergey Brin is smarter than I am, granted, he has enough expensive consultants around, but I see the “killer best way to monetize social networks” through content partnerships, which, you guessed it, is something we’ve been doing aggressively by virtue of distributing premium, professional produced video content on such social networking sites.
As I outlined this morning, you can’t get lazy and take shortcuts, media/publishing/advertising has remained fundamentally consistent and similar for over a century. Without good content, you cannot effectively advertise.
Disclaimer: WatchMojo.com is a content provider to both MySpace and Google’s YouTube, companies mentioned in this post.
Google reported earnings and missed analyst expectations. In after hours’ trading the stock is down $45 per share - or 9% roughly - to $516. The company started off 2008 in rough terrain, going all the way down to $520 but had recovered to $560. While long term bulls will view this as an opening to get into the stock, this top and bottom line miss will make investors wary of touching the stock at these prices.
Two things to consider (from a CNBC article):
Earnings Miss
Most shocking is the steep decline in paid clicks, one of the best metrics to measure Google’s underlying advertiser strength. Yes, Google posted a 30 percent gain, year over year for the fourth quarter, but only a 9 percent sequential improvement from the company’s third quarter. Bear Stearns, for one, anticipated a 10 percent increase; Piper Jaffray was at 14 percent; Citigroup was at 20 percent.
For comparison purposes, Google posted a 22 percent sequential paid click growth improvement from third to fourth quarter last year. The 9 percent move this year could suggest a marked slowdown in consumer interest ahead of holiday shopping; and does not bode well for those who might have thought Google was more insulated against an economic slowdown than others.
This was expected, and the fact that some felt that Google would be immune to any slowness in ad spend was ridiculous! We covered this in Effect of financial advertisers on Google.
More dangerous, frankly, is Google’s mushrooming headcount, now over 16,000! Can anyone say: Yahoo!?
The company also hired another 900 workers on the quarter, bringing full-time employment to 16,805 employees, even as the company said tonight that “we expect to make significant capital expenditures.”
Heavy spending, big-time hiring, and unable to meet Street expectations on the top and bottom line is a big problem especially for shorter term investors hoping for a shot of optimism from the company.
Frankly, while we think it’s great for Google to add to headcount - especially as it seeks to diversify revenue - it is taking on a lot more risk than added expenses alone. For one, Google’s success has largely hinged on its a) organizational structure (or lack thereof) and b) its reliance on automation. By crossing 16,000 employees, those days are gone. Google might become the next Yahoo! (a common criticism of Yahoo! is that it grew too large, too fast). I covered this challenge in Does Google have any people skills?
Google is at crossroads in the sense that it needs to start managing earnings better. If it chooses to avoid giving guidance, that is fine in Hippieville, but on Wall Street, this means that analysts will do some guesstimating and even despite strong numbers, when analysts are disappointed, investors shall bail.
Note: no position in Google, long YHOO
People are getting tired of social networking and the hangover from the overdose of exposing oneself. Shocking.
Facebook’s growth is slowing down. Shocking.
Wonder if that $15B valuation is sensible today. Nope. Yahoo! - stripped of Alibaba and Yahoo! Japan - is not worth $15B today… would you really take in Facebook’s $150M in revenues and everything else it has going for it over everything (good, bad and ugly) that Yahoo! has?
It’s ironic that I came across this piece of news just after arguing that content will prevail over community.
Also fitting that just last week we made our case for the decline of Facebook.
Ultimately, I think the over-simplified conclusion is app-fatigue, sure, but not all social networking are [cr-]app cesspools.
So the flip side is lack of good content and ironically, lack of utility.
Venture Beat has an interesting rundown on the “state of the ad industry” from Silicon Alley technologists and Madison Avenue advertising executives meeting at the AlwaysOn OnMedia NYC conference. There’s plenty to discuss, but one thing of note stood out:
Content vs community is emerging as a major debate:
In the TV world, advertisers attach ads (like beer) to pieces of content (TV shows) that are associated with specific audiences (men, ages 18 to 25). The problem is, online advertisers, including many tech start-ups, are trying to attach ads to content in the same way. But the advertisers don’t want to get close to user-generated content, like party pictures of people drinking beer on Facebook.
But, online ads should follow users and communities, since users are the ones to decide what content they want to put where, says David Carlick, Managing Director at Vantage Point Venture Partners.
“[I] say no, now you [the advertiser] are sponsoring the consumer—not the content online, but what they want to do online. If they want to go on MySpace and look at half-naked drunk photos, who are you to say that’s not good for my brand? You need to go where the people are and sponsor what they do, and not attach yourself to the 5% of content that looks like TV.”
It’s a minority opinion in the ad industry, but as Jeff Jarvis notes here, a potent one. Digital content is less about free-standing web sites these days, as users share videos, blog posts, and widgets with each other across sites, and as big media (like CBS) starts to push their content out to multiple distribution partners. At the same time, digital content is starting to flow off the PC and onto mobile and ipTV platforms.
This dual flow is changing how we interact with digital content and ads. It’s starting to push a proliferation of ad formats (beyond pre-roll, overlay, interstitial, banner, etc) and ad targeting paradigms (beyond contextual, demographic, social, behavioral).
This is the fundamental question facing the ad industry and publishers.
Yes, I’m biased: I’m now a publisher/producer of video content.
But, I’ve also worked with Fortune 500 advertisers and global ad agencies.
I think the notion that advertisers will chase communities (alone) is sound in theory but fails in practice. The reason is simple: only the early adopter keener crowd goes out there and creates or appropriates media. Most of the world’s consumers don’t. They consume content in a fairly laid-back manner. Yes, younger generations might tend to be more proactive in UGC and content-sharing, but guess why that is? They have nothing better to do! As they enter the workforce and begin to understand the concept and value of time, they won’t be as willing to do all of these wonderful things that prognosticators like David Carlick and Jeff Jarvis pontificate. Both men are brilliant, don’t get me wrong, but sometimes when we try to be thought leaders, our thoughts can tend to get too ahead of the curve. Carlick, of note, isn’t some technologist who is dipping his toes in content and media, he’s helped launch media ventures such as iVillage and Netscape… but as a Venture Capitalist, he falls in the category of stakeholders who has probably invested in a good number of solutions that marketers don’t want or won’t need.
Media, publishing, marketers and advertising has remained significantly consistent for centuries. The details change, for sure, but the big idea remains the same:
Step 1: Content draws Audience
Step 2: Audience creates Demographics, as a virtue of the content
Step 3: Marketers spend money to advertise their brands.
Why is that? Because most normal people are not passionate about about brands. They are passionate about subjects, it is such topics that create content. Readers, listeners, viewers, or browsers - some but not all of whom are consumers - put up with advertising message or PR pitches. We don’t actually go out there and seek these out.
Brands come to life when they’re juxtaposed to content.
This is why the “community” camp falls flat.
Now, some would argue that user-generated content will prevail and be sufficient to please marketers, to that I say “I’ll believe it when I see it.” Thus far, since the advent and explosion of user-generated content, marketers have distanced themselves from UGC. UGC, by the way, is in itself is a misnomer, if anything, it’s user-appropriated content because 80% of what passes as UGC is pirated content; the remaining 20% might indeed be user-generated but it is of poor quality.
YouTube sold a whopping $15M in 2006 revenues despite online US video advertising having been roughly $450M. $15M for the whole year for the market leader is pretty puny.
As I said, I am biased, but my bias comes after my belief: I maintain that yes, marketers are looking for ways to reach audiences on those massive video social networks and portals, but currently, the money is being spent on the latter (video portals) and not the former. The way for social networks to win some of the pie is by partnering with content producers. This is in fact what WatchMojo.com has done, does and will continue to do. Obviously, we’re not alone. But unlike many TV and Theatrical Content Owners who are worried that they are trading “offline dollars for online pennies” to us it’s all incremental. Credit that penny/dollar quote to NBC CEO Jeff Zucker.
To quote a VC, we are all for shrinking markets and make no doubt about it, there is a risk that over time - adjusting for population growth and what not - marketing as a whole will shrink because web advertising brings a degree of transparency and efficiency not hitherto found in any form of advertising.
That is something that should worry ad agencies and publishers but please advertisers… The bottom line is that media producers need to find more and better ways to become efficient because only the fittest will survive.
Why this is even more folly is because even Google - the world’s most profitable and successful ad machine - could care less about community. They focus 100% on content. Mind you, they don’t own the content, but the conduit is a keyword, which is the simplest form of content. Think of it as atomic content (and traditional content as molecular).
But to answer the question will favor content or community, I think the answer is both, either one alone won’t prevail, but if I had to pick one, I’d say it’s content. Sumner Redstone is right: content is king. There will be an ever-increasing number of distribution points, and that in turn makes ownership of high-quality content worth exponentially more.
So for the technorati who think they can bypass content and go straight to the communities, they’re dreaming.
Nick Carr published a piece titled The internet rewards the lazy and punishes the intrepid. Given Carr’s usual rants, I thought the title was figurative, but it was in fact literal: he’s talking about navigation systems and what not.
But the title led me to think: what ever happened to long term business planning? Are companies ever built to last or are they built to flip? My vantage point is skewed because I work on the Web, where 1 year is an eternity for some and the notion of creating, building and holding a business for 10 years is nearly impossible (”it will be shut down or sold”).
This past weekend, a successful entrepreneur and reader of this blog emailed me to ask if I’d be at FOWA.
FOWA? I thought. A quick search gave me the answer: the Future of Web Apps. And so I clicked on the result and could not help but laugh when I read what was on the agenda. One bullet point was this doozy:
Launch a web app in 40 minutes.
Why would anyone want to build (let alone launch) a web app in 40 minutes? How lazy, impatient and short-sighted have we become to aim for that.
Forget defensibility issues, what about common sense?
After YouTube got acquired by Google for $1.65B a mere two years after the URL was registered, Guba CEO Tom Mcinerney resigned and said: “I think we can all acknowledge that YouTube has won the big prize… Guba is at a crossroads, and we’re deciding whether to look for funding or to sell. I think we’re inclined to sell.” He said other execs might follow his exit as the company figures out its future. “The billion-dollar opportunity has kind of passed,” McInerney said. “(The executives) are bright, and they’re interested in going for the gold.”
This is enormously candid and a reflection of the mindset we seem to operate in, but is that not like saying Geocities won the big prize in social networking and Friendster, MySpace, Facebook, etc., were hatched in vain?
Maybe I’m old-fashioned, but it takes a lot more time than 2 years to build companies, let alone 40 minutes!
Some of the blame, of course, should rest with investors: be it angels or VCs. Time is money and despite a lot of capital looking for bright people and brighter ideas, investors want to focus on what maximizes returns in a short time span. So invariably this mindset trickles down to entrepreneurs, too.
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