BUSINESS BLOGS
BUSINESS BLOGS
category: business
15 Apr 2008

In any self-respecting capitalist society, the capital markets will be at the heart of any financial storm. As such, it’s no surprise to see the fallout from the sub-prime mortgage crisis spill over to other segments. However, for all of the doom and gloom scenarios, in the context of how this affects the Web, a few things are very different from 2000.

The main reason for that argument being that the 2000 meltdown was a result of the Web and high technology excess, this time around, it’s a victim, and dare I say it: an innocent stander-by. Let’s consider how times are different:

In 2000, as this table above illustrates: the main culprit was the technology and new media sector (ie. the Web). Today the Web - while not a shelter per se - does offer some cover for traditional media companies. It’s not the culprit, it’s the refuge.

Last Friday, GE for example suffered the twin attacks of seeing a massive fall in earnings on its financial unit (GE Finance) as well as see its media arm NBC Universal experience some weakness. But that weakness in media came due to NBC’s reliance on traditional media: TV mainly.

While digital revenues are not yet material enough to provide much hope for such behemoths, the fact remains, online is actually one shining light. In fact, provided there is a dynamic of scarcity, you will see many more deals. It’s not a coincidence that Q1 saw more deals for more money. This trend will continue, today AOL announced that they are buying Sphere.

In 2000, for example, AOL had just come from a disastrous merger with Time Warner and was not exactly in the market looking for more digital acquisitions. Today, it wisely sees digital as its salvation.

TW is not an exception to this trend: these days tech companies are cash rich: Apple for example has $18B in cash on its balance sheet; it just hired a lawyer from HP whose background lies in M&A. Back in 2000, all tech companies were seeing their stock prices tumble. All of a sudden, the currency they had used for acquisitions was in the toilets.

Today, these companies generate billions and have cash and stock as available currencies. But it’s not only the buyers who are in a very different state of mind, sellers too have changed: Sphere for example had only raised $3.5M in financing.

It’s also not a coincidence that you will see more and more buyouts: when we compiled a list of the top 10 best digital acquisitions of all time, most of them came during the 2001-03 nuclear winter. As they Japanese say: where some see threats, others see opportunity.

Big media and technology firms have learned the lessons: CBS just opened an office in Menlo Park to make more digital acquisitions, presumably. See our thoughts on CBS’ options here, in CBS Should Buy CNET, merge with Yahoo! or go private.

Of course there are fundinistas that have raised $25M to $100M in capital (making them harder/impossible to sell) but the fact remains: this time around, it is different… the technology and new media crowd are not the culprits, they are the victims of the mess in the housing, credit and banking sector.

This does not mean that we in the new media or technology are immune, it simply means that it’s a bit different in 2000 when we all got decimated.