We’ve long known that to Google means to search, but right now, at 9:05pm EST, Hillary Clinton said: “when you watch the YouTube, you realize that…” - does that mean that officially, YouTube means video?
I guess so.
Folks, Google’s cornered the world, we can go home. Why is Sergey Brin worried about MSFT’s bid for YHOO again? Actually, maybe this is why: once upon a time, Netscape ruled the world in the browser wars, then MSFT entered the space and crushed Netscape’s Navigator. Today Netscape owns 0.61% of the pie, MSFT’s Internet Explorer has 75% - and upstart Mozilla has almost 17%.
Of course, Netscape, while symbolic of the Web’s first thrust was no Google, today Google is the MSFT, frankly, the company that can “add a link” and enter and dominate any market. All I know is that regardless of what happens this is interesting because for once the Google guys are scared… or at least, concerned.
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WatchMojo NewsletterOne of the reasons Yahoo! should go private is because it could then manage for the long-term, instead of worrying about quarterly expectations of short-term minded investors and analysts.
The problem is that Microsoft threw a curve ball by launching a $44.6B takeover bid, which represented a 62% premium to Yahoo!’s share price before the deal was announced.
As such, going private is less plausible and anything other than selling to MSFT an unlikely option.
One option that won’t go away is a partnership with News Corp. whereby News Corp. spins off Fox Interactive Media into Yahoo! for about 20% or so of a new company valued at $50B.
In three years, FIM has become a major force in online media by:
a) integrating the online properties of American Idol and other offline assets,
b) partnering with MSN to propel FOXSports.com into a contender, and
c) buying IGN Entertainment, Photobucket, Scout, Flektor and mainly, MySpace for $2B.
As a Yahoo! shareholder, former employee of News Corp. and current business partner of MySpace, I won’t comment on what I think of such a venture (at least not yet), but I will say the following.
It is not surprising for News Corp. to want this to happen, even though News Corp. Chairman and CEO is currently guaranteed the lion’s share of a $900M advertising revenue deal with Yahoo!’s real competitor Google. Here are the reasons:
1) AD NETWORK
Back in November 2007, News Corp. hinted at launching an ad network. We said it was a brilliant move - not only for its own media properties but also for other publishers looking to tap into News Corp.’s amazing sales machine to increase ad rates. Of course, as I’ve always said, ad networks don’t make publishers any money, they make ad networks money.
Since that rumor, many more companies have dived into ad networks: a consortium of 4 newspapers, Comcast, Viacom being the latest ones.
When the dust settles, many of these knee-jerk, me-too reactions will fizzle. A few ad networks will materialize. Ultimately, few will see the light of day. The main reason isn’t lack of trying, it’s a lack of DNA.
Media companies just do not have the a) entrepreneurial or b) tech DNA to venture into ad networks.
We’ve even argued that Yahoo! itself should have bundled its ad networks (newspaper consortium, Right Media, Blue Lithium) and spin them off to raise cash for acquisitions and to unleash shareholder value. Of course, that’s moot now.
In other words, the requirements and focus required to build a world-class ad network are enormous.
Of all of the media companies that really needs an ad network, I hate to say it, it’s News Corp. I am not sure how much of the following is private and confidential, so I’ll only say that News Corp. has some of the elements already in place (and I am pretty sure, already launched)… but to really make the billions of ad impressions on MySpace worth more, they need a lot more because monetizing audiences based on data is both risky and impractical.
a) Social Network Advertising is Risky because audiences are willing to let advertisers target them based on many things, but it has not yet been proven that private data is one of them. Second, we’re not even sure that personal data contributed to social networks are always 100% accurate.
b) Second, Social Network Advertising is Impractical because just because the data is available does not make it sellable. I can imagine a media planner wanting to reach a MySpace female user, 25-34, living in the Midwest, who is in the market for a bathtub. MySpace might even have that data, but there might be 3 of those users… even on a site with billions and billions of daily impressions.
Rupert Murdoch is a smart media man who understands technology better than many technologists, but he recognizes its limitations too. He knows that no matter how quickly he moves, he won’t be able to propel FIM into the ad network business as quickly as he would like.
Sure, there are privately held assets in play such as Tribal Fusion, Specific Media, AdConion and others… there is also ValueClick, who is publicly traded, but Yahoo! actually has the best 1-2 punch out there with:
- the best clickstream-based display ad network in Blue Lithium and
- the most robust ad auction serving platform in Right Media.
Yahoo! got these for just over $1B.
It should be noted that:
- last year MySpace actually surpassed Yahoo! to become the largest media property when measured in pageviews…
- pound for pound, MySpace has boatloads more of unsellable, low-value inventory than Yahoo!, who itself has relatively little premium ad inventory.
So if Right Media and Blue Lithium were worth $1B to Yahoo!, they could very easily be worth $2B, if not much much more to Fox Interactive Media.
In fact, while we always think of MySpace, it’s worth noting that IGN Entertainment (my former employer after it bought my old company) has so much low-value inventory (think message boards where no self-respecting advertiser wants to be) that it would welcome a robust and developed ad network.
For Rupert Murdoch - who proved to be very patient with Wall Street Journal and Dow Jones - digital media and interactive advertising has been a titanic, once-in-a-lifetime revolution. In his 70s, we’re hoping that Mr. Murdoch isn’t going anywhere anytime soon (he sure does provide great storylines to cover and sets an example for younger generations of entrepreneurs) but he is probably not happy to sit around and watch the creation of an ad network from scratch.
At well over 100B ad impressions per month, a slight nudge in the right direction in terms of CPM or sell-through rate would make a huge difference for Fox Interactive Media, who did short of $1B in revenues in 2007.
2 ) VIDEO
Yahoo! Video is a great asset. MySpace TV (disclaimer: WatchMojo.com is a content provider to MySpace TV) is fighting an interesting battle against its peer group and positioning itself as an entertainment platform. Yahoo! Video’s content would be perfect on MySpace TV.
Of course, MySpace will have a sister site Hulu (a joint venture between NBC and News Corp.) which will be distributed on Yahoo!, MySpace, as well as Comcast and CBS. The point is, Murdoch sees a lot of ad dollars leaving TV and headed for online. Right now, I am not sure if Google’s YouTube is the beneficiary, yet companies like Yahoo! are (see more on Google’s YouTube video ad efforts here).
3 ) EMAIL, IM, VOIP
This one is less important right now, but over time, as media companies evolve, they will also need to have a communications aspect to them. MySpace is already a messaging and communications platform for many, as is Facebook… but being able to tap into Yahoo!’s expertise and innovation in these areas will better position News Corp. in years to come.
4 ) DEAL VALIDATION
Are there any other reason why? Yeah, I think so. As they say, just because I think my house is worth $1M does not mean it actually is worth $1M. Someone has to come in and pay that for it. When MSFT paid $240M for 1.6% of Facebook, it valued Facebook at $15B. Indeed that shot up the value of digital assets and social networks; with MySpace being the main beneficiary. But until someone comes along and rubber stamps MySpace the same way, Rupert Murdoch is itching for a deal, any deal… and as the largest social networking site around, there aren’t many dancing partners that won’t get crushed by MySpace’s two left feet.
Of course, this is all nice and dandy, but one wonders: does Murdoch really prefer owning 100% of FIM within News Corp. or 20% of Yahoo! and FIM that he cannot consolidate? Time will tell. I think part of why this is being talked about is that Murdoch fancies being one of the few media moguls and companies that can do something. I don’t think they would. I could see of 2 ways a deal could be struck to please both sides, but ultimately, MSFT has more firepower plain and simple, and Murdoch knows it. I think in wake of Google complaining a bit about the $900M deal not being profitable, this might be more about Murdoch keeping Google honest than a sincere attempt at beating MSFT. Mind you, ask yourself if Google is happy about not giving itself an out clause in that deal.
Ultimately, yes Murdoch wants Yahoo!, but as we said +$900M is easier to accept than -$45B, let alone -$50B.
As a Yahoo! shareholder and participant in the greater ecosystem, I am paying attention, and so should you.
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