Michael Robertson made $115M when Universal acquired MP3.com. But most importantly, the acquiring party paid $14M extra. That’s something that got lost in the shuffle of the $372M deal, and it’s something, Robertson is betting, that will make entrepreneurs, analysts, members of the media and investors take an interest in his new site, Dealipedia, which is essentially a wiki-based, wisdom of the crowds community on deals.
The site launched and is sure to raise eyebrows.
It’s a sign of the times, following in the footsteps of Wikipedia (in the sense that it allows anyone to edit the content) and TheFunded.com (in the sense that it adds transparency to business deals).
Of course, Robertson’s pet project takes deals a step further than financings alone, by adding data on mergers and acquisitions as well as IPOs.
You want crazy? Check out Who Made the Money, which, as the name implies, tells who you made how much in deals. What I don’t get, however, is why you don’t see how much VCs made in deals (you only get how much VCs invested in deals).
Make no mistake about it, there is a business here, albeit a niche one. Dun and Bradstreet, Thomson et al. generate millions charging for such information. Dealipedia has the potential to be a typical shrinking business that sucks out revenue from those services with the upside potential to scale quickly.
I’ve sent in an email requesting an interview with Robertson. I’ll follow up with the Q&A soon, provided he grants us one.
Anyway, read my interview with Venture Hacks here, and Ted of The Funded here.
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WatchMojo NewsletterA lot of interesting observations and analysis coming out today in Microhoogate. The general theme du jour was that Microsoft’s offer for Yahoo! was less enticing today than it was a week ago when it offered $31/share to acquire Yahoo!
Is this accurate? From a purely technical, mathematic perspective, yes. But Steve Ballmer’s volley over the Net was really just the initial foray. Over time, as MSFT’s share price falls, the invisible hand of capitalism will make MSFT look increasingly cheap, and investors will pile in and start to add shares. That means that - much like YHOO’s stock fell and made it cheap and someone bit - pretty soon, MSFT’s stock will come back up to where it was. Yes, there will remain some uncertainty surrounding MSFT’s stock (as there is with all buyers’ stock) but MSFT looks pretty cheap. I might be adding some shares, to be honest with you.
But the bigger question is: will this make MSFT pull the offer?
No. Ultimately, what this week has proven to Jerry Yang and the Yahoo!’s running the board is that Yahoo! has little options, if any.
- Outsourcing search to Google only strengthens’ Google’s hand. Yang’s emotions are blinding him from this little fact: it is Google, and not MSFT, that is Yahoo!’s main competition, both operationally as a company and financially as a stock competing for institutional and individual shareholder demand. For more on this, click here.
- Selling to private equity is looking like a no-go. The credit markets remain spooked and few, if anyone, can justify the cost and revenue efficiencies to pull it off. For more on this, click here.
- NBC has passed, as a partner to MSN, they welcome the influx of new eyeballs. For more on this, click here.
- AOL can’t budge, as Time Warner is itself undergoing some soul searching.
- News Corp.’s done the math? Think again, it has a guaranteed $900M positive cash flow stream from Google, why replace that with a negative $45B outflow in an acquisition of Yahoo!? For more on this, click here.
The point is, when push comes to shove, Steve Ballmer will get on the phones again, and tell Jerry Yang exactly what Yahoo! told Overture when it made an offer that Overture could not resist.
Back in the day, Overture had very little leverage as a provider of paid text links with no distribution. Overture - formerly GoTo.com - was approached by Yahoo! about a sale. Overture initially rebuffed, even asked for more money, but ultimately, Yahoo! (GoTo.com’s largest distributor) threatened to pull a MSFT/Looksmart.
Microsoft had canceled its distribution deal with Looksmart and Looksmart lost the lion’s share of its business’ value. In fact, if Looksmart capitulated on search and became what it is today, it is specifically because of that deal.
In the same vein, Terry Semel politely told Overture that it could tender an offer of $1.5B in order to amicably acquire Overture… or, it could cancel its distribution deal, drastically cut off Overture’s revenue stream, and then proceed to acquire the pay-per-click pioneer for pennies on the dollar.
To his credit, John Battelle brilliantly outlined and chronicled this in his book The Search.
Today, Yahoo! has oodles of leverage more than Overture does, that is for sure, but ultimately, Jerry Yang can take all of the time in the world, but the longer and more difficult he makes this process for Steve Ballmer, Bill Gates, Ray Ozzie and the entire MSFT brass - and YHOO shareholders - then the longer and more painful will the acquisition and integration be.
The danger is: “what happens if MSFT pulls the offer?” They won’t, because MSFT can smell blood now (hence the “bear hug” strategy) but even if MSFT decides to balk, investors will destroy Yahoo! and force Yang out. If that happens, then YHOO will be vulnerable to private equity (who will cut even deeper to the bone) or MSFT, for cheaper.
If I were Jerry Yang, I’d go back to Steve Ballmer and graciously thank him for his interest in the company he and David Filo founded. I’d also show a desire to bring Yahoo! back to a competitive level that we have not seen since the Y2K bug was a business threat to Yahoo! and MSFT, but ultimately, I’d ask for $50B buyout price and a commitment to maintain Yahoo! as an independent operating unit that reports to MSFT. For more on that, click here.
Note: Long YHOO
Is it just me or is it ironic that Howcast is entering a very crowded space in the how to video space on the day we learn that Revver might be getting out of a very crowded segment of the video space (see our open letter to Revver’s backers here?
Even more ironic is how Tech Meme managed to weave the stories side-by-side. Sometimes I think Gabe Rivera is really just sitting there biking faster and faster to make these things happen (hmm… no, doubt it).
Anyway, I’ve covered the obsession with the how to video space before, in the “How To Videos: Demonstrating vs. Storytelling” post.
Last week we lobbied bankers to pony up $500M so we could buy About.com. Shockingly, we did not get a credit memo. So this week, we’re asking for a bit less. Read on.
Revver’s Fate and The State of Online Video
It turns out that Revver’s potential sale to Brad Greenspan (who founded Intermix, then sued to try to block the sale of MySpace to News Corp., and since launched Vidilife.com and LiveVideo.com) fell through, according to CNET. Paid Content and Alley Insider are commenting on it, too. The touchy situation was Revver’s debt, which stands at $1M.
Sometimes, There’s Only a Few Buyers Than Can Reap Value
In today’s market, not everyone can assume debt, especially when there are many stronger, debt-free opportunities on the marketplace, all itching for an exit. But much like News Corp. was uniquely positioned to make an offer for Dow Jones, and Microsoft is uniquely positioned to acquire Yahoo!, I believe that the right company can integrate Revver and build on its assets to create something very valuable and compelling, in an efficient manner.
A Cluttered Landscape Amongst Video File Sharing Sites
For some time now, I’ve been saying that a lot of the video file sharing social networks would be shut down or forced to sell as a result of the over-investment in the space.
When I wrote “the fight for #3 is on” I mentioned that players like Veoh, Metacafe, Break and Daily Motion would be trying to chase YouTube and MySpace TV.
Consolidation to Come, But Are There Enough Chairs When the Music Stops?
Truth is, once Yahoo! Video, MSN Video and AOL Video decide to get serious about video, they will make the lives of independent players like Veoh, Metacafe, Break and Daily Motion very hard. Frankly, the main salvation for Veoh, Metacafe, Break, Daily Motion will be a sale to the likes of Yahoo! Video, MSN Video and AOL Video, or CBS, Viacom, NBC, etc. For the traditional media companies, it will be hard to have a change of heart and buy one of these sites, because many of these sites have thrived on “user generated content”, which is essentially a nice way of saying “user pirated content”.
Revver’s A-List Backers
Alas, I never mentioned Revver in that list, because from my vantage point (a content producer who works with all of these distribution players), it was clear that Revver was smaller. More importantly, I wondered how much longer Revver - under its current incarnation would remain under operation. Ironically, Revver was one of the first file sharing social networks to focus on video. But oftentimes being first is a kiss of death (iFilm anyone?). Given that it had raised $12.7M in funding from top notch backers like Bessemer Venture Partners, Draper Fisher Jurvetson, Draper Richards, William R. Hearst, III, Comcast Interactive Capital and Turner Broadcasting, it would probably not live long enough to survive because investors usually cut off the lifeline once they realize the company won’t command a massive return and continues to lose money.
Stalling the Engines at Revver
It’s a shame, from my interactions with the team at Revver, I see that they’re all nice people. Today CNET reports that the headcount has been halved from what it was 18 months ago. I presume with the deal falling through, no one else would really be interested because the demand and supply dynamics in Revver’s existing market are very challenging. There are over 1,000 YouTube clones out there, many with less complex and convoluted capital structures than Revver.
Of course, 18 months ago, in mid-2006, YouTube was independent too, and were it not for the sale to Google, it could be YouTube who would be falling on hard times for no other reason that its bandwidth fees far outweigh its revenues.
YouTube + Google = Lights Out
Once YouTube got acquired by Google, I said the going got rougher for YouTube competitors, including Revver. Revver had some management changes at the top. And competitor Guba’s CEO even said many people would be exiting the space because YouTube had won the grand prize.
Revver’s days, I felt, were numbered. As a content producer, I continued to root for Revver by providing them with content. However, Revver today not only competes against YouTube, Daily Motion, Veoh, Break and what not, they also compete for content producers’ attention, because content goes where the distribution is.
Video Remains Embryonic
While the explosive popularity of video consumption ensure that costs remain high, the embryonic nature of online video predicts that revenues in 2008 will remain small. Yes, online video advertising expenditures will cross $1B in billings in 2008, but they remain to scale. By 2012, it is predicted to become a $7.1B market in the US alone, but right now, online video is where search was in 2001: a major segment of the online advertising ecosystem, desperately looking for a business model.
One of the reasons why the business model remains to be developed is
a) the large majority of content out there is user-generated and of low quality
b) a lot of the videos consumed belong to old media and are pirated online
These two variables give advertisers a source of hesitation. It’s a catch-22: you need better content to attract advertisers, but advertisers won’t spend online to give owners of content an incentive to shift content online.
Content is King
This dichotomy has created an opportunity, one that WatchMojo.com has exploited perfectly. Recognizing that UGC does not lure advertisers and that old media will be wary to cannibalize their revenues by shifting content online, we have built one of the largest libraries of original video content with nearly 5,000 1 to 3 minute assets representing hundreds of hours of content across the following categories: cars, fashion, health, video games, music, comedy skits, film, travel, etc.
As we continue to grow, it was inevitable that we consider one day acquiring one of these many file sharing networks. Because of Revver’s DNA as a platform serving a network of producers (and not a platform to simply upload any UGC), I think Revver represents a very unique opportunity for WatchMojo.com. In turn, few companies can make the case to spend anything near $300K to $500K plus the assumption of $1M of debt when over 1,000 “YouTube clones” exist out there.
Leverage Assets But Reposition Revver
For us, we would certainly not be interested in doubling up Revver’s efforts to fight YouTube, Veoh, MySpace TV, Daily Motion, Metacafe, Break, Yahoo! Video, MSN Video and AOL Video etc. After all, these companies are valuable and respected distribution partners of ours.
What we would do is use the Revver technology and leverage Revver’s network of loyal content producers to create the 21st century’s answer to a media company. This would be by no means n easy feat. But we are confident in our ability to salvage and reposition Revver’s assets in a way that would create a lot of value in the years to come.
Our strength is in storytelling and packaging. While gifted content producers have chosen to leave Revver for greener pastures, we think that WatchMojo.com can in fact create a hub for content producers all over the world to offer advertisers what they have been looking for - but not been able to find - in online video. Our expertise is in advertiser relations, we do not think that Google’s AdSense, for example, represents the holy grail for Revver or for WatchMojo.com.
We also think that over time, content producers will be looking for homes where they may remain creative and be rewarded for it.
Soul Searching for Debtors
Of course, this begs the question: if I had millions in the bank, would Revver be the best place to park the money? Well, that depends on its network of producers, demographic of its users, technology, and its employees’ desire to tweak the business plan to build something of value and unique enough to stand the test of time.
If all of those things fall in place, then we are confident to be able to strike a fair and reasonable deal with the company’s Board of Directors that would leave all stakeholders happy with the resolution.
So, while this post started off as a pontification on Revver’s fate and the state of online advertising, inadvertently, it has become an open letter to Revver’s stakeholders, all of them.
If the rumors are true that there’s an amount of debt to be serviced, then clearly, the power is in the hands of the lenders.
I know who the shareholders are, but I wonder who the debtors are. I presume they’re reading this, so the ball’s in your court. If you want to chat, you know where to find me (ash@mojosupreme.com).
Jerry Yang is idolized in Silicon Valley and around the world, with reason.
But I think he is starting to show why he is no CEO, at least not one of a publicly traded company. He is telling employees to “stay focused” while he and the Board “explore options” to what most now see as inevitable: a sale to Microsoft.
In his eyes, however, increasingly the only option - one that won’t pass anti-trust scrutiny frankly - is to outsource search to Google. This is not only a worst option, it is only going to aggravate Yahoo!’s problems.
So Yang will yo-yo around the campus and talk to investment bankers searching for an answer, when he has the inevitable outcome before him: partner with Microsoft and remain relevant. Let’s face it, much like all that changed at aQuantive was that it became a subsidiary of Microsoft, then most probably, Yahoo!’s brand will remain intact, but at least, it won’t be Google’s whipping boy.
If Yahoo! outsources search to Google, it only adds velocity to Google’s firepower, bear in mind, Google’s growth rate is falling. Google here needs Yahoo! more than Yahoo! needs Google. What Google needs, it the financial firepower and resources of Microsoft. Oh, it also needs MSFT’s execution track record and bravado.
Why? If Google and Yahoo! remain two stocks competing for shareholders’ money, and Google wins Yahoo!’s business, Google (the stock) will far outperform Yahoo! (the stock).
This not only will make the $30 price barrier a short-lived dream but it will make $20 seem like a bargain.
Last year Eric Jackson went all out to replace Terry Semel; if Jerry Yang does not honor his fiduciary duty to shareholders and messes this potential salvation up, someone (trust me) will ensure that Jerry is shown the door and returns to his honorary Chief Yahoo! role. You can’t ask for the ball if you’re not willing to let it go.
I sat through 3 years’ worth of conference increasingly losing patience and faith in Jerry Yang and YHOO’s management. Meanwhile, despite everything being thrown at them, MSFT continued to execute. Recognizing that it needs to emulate what it has in Office and Windows in the burgeoning online ad market, it now wants to acquire Yahoo!
What Yahoo! should do, and should do soon, is to go back to MSFT and get it to bid $50B which would make Yang triumphant in shareholders’ eyes. I wrote in detail here. He should also get concessions such as leaving the Yahoo! brand intact, keeping autonomy to some extent… yada, yada, yada. But ultimately, devoid of any other options (PE, competing bids) the mere thought of handing off search to Google is criminal.
PLAY
