You might recall how Answers.com tried to buy Dictionary.com etc. (all part of Lexico).
Well, that deal went nowhere, but Ask.com did buy Lexico for $100M.
You might be wondering what is happening with Answers.com, well, they’re now trading for $25M.
Nice.
I was talking to an executive at IAC and told him that to differentiate Ask.com and one of their other properties, IAC should better merge content with search.
Looks like MSFT beat them to it:
The memo, first obtained by Gigaom, details the company’s effort to build on MSN’s vision of delivering “relevant” and “social” content experiences, whatever that means. It is also merging, to some extent, the search and content teams, as “it’s imperative that we setup for blurring of the lines between Portal and Search to drive experiences that enable more seamless exploration of content across the search-browse continuum.”
One of Ask.com’s strong differentiation points is that parent company IAC has a lot of strong properties in the content space. Since these are all branded differently, users won’t think or care that it’s from the same parent, they should offer more direct links to pertinent content. Yes, this might reduce clicks to paid ads, but the goal should be to drive more search queries overall and improve relevance of results, first.
Why? A few reasons:
- Users in the real world are not represented by the vocal minority in Silicon Valley.
- Google’s uber neutral approach to content is a strength and a weakness and MSN is well served in exploiting all of the content across MSN properties.
IAC’s Ask.com already uses Google’s text ads, but hitherto, it’s still used its own search algorithm, which it acquired when it bought Teoma. Teoma and Wisenut were once considered to be potential Google killers, Ask Jeeves bought Teoma; Looksmart bought WiseNut.
Anyway, Ask.com already uses Google’s text ads and when Google filed to go public, it was disclosed that Google was giving Ask a 110% revenue share. That’s right, Google was essentially paying off Ask.com for market share. However, IAC always maintained that one day, it might launch its own ad platform, too. This always seemed to be a hollow threat, because Google has created the world’s most effective and valuable advertising marketplace… it did not make sense for Ask.com to do that, frankly.
Today SAI is reporting that blanketed between potential layoffs is the possibility that IAC simply drops using Teoma to power Ask.com’s search engine and instead fully turns to Google for both algorithm and paid search.
The implications are actually both trivial and important. They are trivial in that Google is getting access to Ask.com’s less-than-5% market share as is via the paid ads relationship; but in the backdrop of MSFT arguing that the market needs a strong No. 2 to fend off a Google monopoly in search, Google might also want to avoid this. Google already powers AOL. So if Ask.com is also powered by Google, in fact, Google “owns” the real estate on 3 of the Top 5 search engines (Google, AOL and Ask.com). In that context, I hate to say it, but it would make sense for YHOO and MSFT to hook up, because otherwise YHOO and MSFT will be fightning for the #2 slot instead of taking on Google for the #1 rank.
Yesterday at 6pm EST, I was speaking with a successful entrepreneur who mentioned that the sale of his company ranked in the Top Internet deals of all time. I didn’t say anything, but had the gentlemen known that I was obsessed with deals and dealmaking, I had written a couple of posts on the matter, like the Top 10 Web M&A deals of all time, or a comprehensive post on 2007’s deals in new media and tech. Anyway, when we hung up, I asked, what are the top m&a deals of all time. So as I began to wander the Web I began to compile a list - far from complete mind you - of big mergers and acquisitions in technology, media, health, finance, energy, etc. Here it is.
But that is not the point of this post. Let’s back up some more in time.
Importance of Natural Language Search
Yesterday morning, Nitin Karandikar, who pens the Software Abstractions blog emailed me a post he published on Powerset. In it, he chronicled the merits of natural language search. I didn’t read it initially at the time he sent it to me, but went back to it today and agree in general that natural language search has its place. Whether or not it will be a killer app of sorts remains to be seen, largely because natural language search is akin to the better mouse trap syndrome. It’s a nice to have, not a need to have… and the few times you need it, a normal search engine like Google would suffice.
Opportunities for Niche Search Engines
Bear in mind, before I launched WatchMojo.com (video content, syndication & monetization) I invested a bit of money and time in a vertical, domain-specific search engine called MetaMojo.com. I even added a meta video search engine component on top of it. The point is I have put my money where my mouth is: there is a place for niche in search… but I think search is pretty much a done deal unless a massive tectonic shift in the landscape.
How Google Won in Search
Mind you, such changes have occurred, but before search engine advertising was a 40% piece of the global $30B online advertising pie. The main landscape-altering deal was Yahoo! deciding to power its search results with Google. That was a micro event. At the micro event, it was both the portalization trend that all initial search companies embraced in the late 1990s (AltaVista, Lycos, Excite, etc.) combined with the Nasdaq crash and dot com bubble bursting which allowed Google to coast to the finish line. In my humble opinion, the only way for there to be any challenge to Google entails not a better mouse trap but a cataclysmic shift to Google’s obstacles. The only thing I see is a merger of MSN.com/Live.com and Yahoo! and in a separate entity outside of Redmond-based Microsoft (owned 33-45% by Microsoft and 55-67% by Yahoo!’s existing shareholders). But this post is not about that.
This post is more about asking, does natural search engine alone merit a shift in consumer behavior? I do not think so. I think Nitin is right that natural language search is a welcome addition to the landscape, but it is neither tectonic nor cataclysmic. It is evolutionary at best, and not revolutionary.
Speed Kills
Frankly, the most recent revolutionary change in search was when Google [quietly] began to update its index perpetually, or least every 24 hours. Up to 2005 for sure, 2006 probably, and I suspect some time in 2007… Google did not update that quickly. But faced with Technorati’s blog search which did seem to index recently-posted content better, Google stepped it up and now seems to update very quickly. I think this is more important than natural language. Bear in mind, we live in a very different world. Yes a lot of searches are done on timeless topics (who was Alexander the Great?) but a lot more will be done in timely topics (who killed Benazir Bhutto?).
Follow the Audience
As more and more audiences move online, when news breaks, less and less people will turn on their TV to get news. In this context, the search engines who will most quickly connect audiences with content will have a chance to win.
Testing the Top 4 Search Engines
So, since we’re talking about search… why on earth did I start this manuscript with my recent post on largest M&A deals of all time?
I’m glad you asked. Last night I published that post at around 11pm. I continued looking for deals to add this morning… and today continued in between calls, meetings, and the 5 or so posts I published on HipMojo.com.
CONTESTANT #1: GOOGLE.COM
When I did the search this afternoon, I was impressed to see that Google had already indexed my post - less than 24 hours after my post (2nd result):
That being said, given what the searched keywords were, I am surprised my article did not come out #1. The reason for this is two-fold, result #1 comes from a high-quality source, probably has a lot of PageRank mojo, and is close enough in content… but not precise, since 2006’s top deals is really not all-time top deals. So Google loses some points.
=> Google Scores: 4.5/5
CONTESTANT #2 - YAHOO!
So I continued my search. Did Yahoo! index the content, too? As you can see, sort of, it picked up the tags of categories that the post was listed under, but not the actual post’s URL.
All in all, they still score high because at the time a user searches for it and clicks on it, they would fall on that tag, and thus post, unless the publisher would have published more posts under that tag, at which point the user would not get the article or story in question. It is very important for Yahoo! to score high in terms of speed for one simple reason: it’s a portal, people are already on Yahoo! pages so if they search for something timely and do not get what they are looking for, they will go elsewhere, likely to a place like Google.
=> Yahoo! Scores: 4/5
CONTESTANT #3 - MSN.COM
What about #3 MSN.com?
MSN.com actually missed my post (but its results were fine). A friendly suggestion to MSN Search, if you are trying to fight for market share, updating the index is something you might want to do). Similarly to Yahoo! though, since MSN is a portal, that means they have an existing audience firing off searches. If a user does not find the most timely of information, they too will bolt, probably once again to Google.
=> MSN Scores: 3/5
CONTESTANT #4 - Ask.com
Last but not least, IAC’s Ask.com:
Ask.com did not pick up the post at all, but it did index a previous post I had on M&A, so I can’t say anything too negative about them (I’m kidding).
At the risk of being a smart ass, I will say this: IAC spent $100M on an advertising campaign that was ineffective, touting some algorithm.
Maybe, I’d invest $75M of that in servers and index the Web more frequently… and then take the $25M to buy up keywords on larger search engines such as Google, Yahoo! and MSN.com to tout the fact that Ask.com has the latest results… of course, for that to happen, they actually need the algorithm to do that.
Now that would be a helluva [mouse] trap to steer away users.
=> Ask.com Scores: 2/5
So, what does this all say?
This is a very small test to show why Google is winning in search. My post went up 24 hours ago and it was technically the only search engine to pick it up.
Cliches aside, online, 24 hours is a long time… if search engines want to become the default choice for users, as more and more users turn to the Web for news and information, then I would think timeliness and speed of indexing new content is as important - if not more - that natural language search.
Lastly, I know what you’re thinking: what about Searching off the News Tab, which indexes more recent material. Well, that is pretty niche. We think that ultimately, the future of the Web is closer to Universal Search than niche search…
The following is a perpetual-work-in-progress. Once you start to compile a list of mergers and acquisitions, you realize why it’s nearly impossible to have a complete list. We are quite confident that the following is a very good, comprehensive list of the largest, more notable deals… but it is not - and no list will be - fully complete because there are too many countries around the world and too many industries to report (it is highly possible that the Wall Street Journal or Financial Post, for example, has such a list… but it would be thick and unwieldy).
We have included:
- many industries
- have not adjusted for inflation
- mergers (be it all cash, cash/stock, or all stock)
- acquisitions (we have excluded partial acquisitions)
- private equity deals.
It is certainly not complete, send me any ones you think I am missing or industries you want us to add next to ash@mojosupreme.com or leave in the comments.
Trivia:
- In 1981, when DuPont acquired Conoco for $7.8B, it was the biggest deal of all time. But adjusted for inflation, that remains a $20B deal by 2008 standards.
- KKR’s private equity deal for KKR remains the biggest buyout when adjusted for inflation, but in actual dollars it has been long surpassed.
Related on HipMojo.com:
Last year Barry Diller decided to get serious about search and plunked down $100M in an ill-fated advertising campaign for Ask.com. Today, Ask.com’s market share is lower than it was last year.
Let’s hope the company’s Chinese ambitions will fare better. Today the company said that it would spend a whopping $100M on its Chinese strategy. I’m not sure if my use of the term whopping is cynical.
Frankly, $100M was way too much to spend on an advertising campaign, but not enough to spend on China… where deeper pocketed competitors like Yahoo!, eBay and Google have all faced challenges against local players.
If I were Barry Diller, I’d spend that $100M on investments and partial acquisitions in Chinese startups, and not on investing in Ask.com’s own properties, frankly.
In fact, this is exactly the advice I gave Diller earlier this year: don’t waste $100M in advertising why Ask.com is a better mouse trap, invest in small, niche search companies, technology and applications that would enhance Ask.com’s position in search.
Interestingly, that sounds like the plan, maybe:
“Diller said he would consider buying an existing company, but would prefer to establish a new business, perhaps by backing a Chinese entrepreneur.”
Editor’s note: I knew we were speaking too soon. One more deal to add to the list: Time Warner to buy Quigo. Added to the bottom of the list, under ad networks.
According to The Jordan Edmiston Group Inc.’s October 2007 Client Briefing report, the number of deals through the first three quarters of 2007 exceeded full year 2006 figures: 637 transactions with $95B in value thus far. Do the math and that is $150M per deal, quite rich.
As such, publishing our list in November 2007 is a bold and potentially premature thing to do. Regardless, why wait?
What started off as a Top 10 list turned into a Top 27 list: then it got out of hand because we were comparing apples with oranges. We’re at over 30 M&A deals in web-oriented sectors that stood out.
The deals are not listed by size or order of magnitude, just a combination of value, strategic fits and long term potential. Others made the list due to the storylines, frankly, or because they took a while and garnered the media’s attention.
At least one, you’ll see which one, has yet to be finalized, but we expect that it will.
Enjoy, feel free to add, criticize, re-order etc. Surely we’re missing some major ones… some time in December, using emails, comments, suggestions and votes I’ll probably publish a top 10 list of 2007 acquisitions…
ONLINE/OFFLINE PRODUCTIVITY SUITES & COLLABORATION TOOLS
- Yahoo! acquires Zimbra for $350M
Yahoo!’s email service remains the most popular in the world, but when it comes to online meets offline office suites, it was sorely lacking, in particular due to Google’s encroachment onto Microsoft’s terrain against the backdrop of Yahoo!’s dead silence on the front. But, in one move, Yahoo! staked its claim to the party.
- Google acquires Postini for $625M
Google is trying to dethrone Microsoft’s grip on productivity suites while Microsoft is trying to encroach on online advertising. Google has bought Writely, launched a spreadsheet program and while these initiatives and acquisitions have gotten the vocal minority excited, they have failed to win the hearts and minds of corporate IT decision makers.
While we doubt one decision alone will make a change, the acquisition of Postini - makers of corporate email security tools and anti-spam software - could technically make a difference over time. Let’s face it, Gmail is indeed pretty cool, but corporations won’t be caught dead using it. Maybe by meshing Postini with Gmail, offices worldwide will stand up and take notice.
- Facebook acquires Parakey
In 2007, Facebook grew synonymous with hype. Anything the company touched, or sought to touch, quickly turned to gold. Mind you, the company’s torrid growth rate was nothing short of breath taking. But when Facebook announced that it had acq-hired Parakey, a yet-to-launch web operating system developed by Firefox co-founders Blake Ross and Joe Hewitt for an undisclosed price, people noticed because this meant that Facebook had MSFT in its cross hairs. Over time, MSFT made a $240M investment in Facebook, creating an alliance between the two firms, and suggesting that Google, and not Microsoft, was Facebook’s true nemesis.
See HipMojo.com’s post on the deal here.
- Cisco buys Webex for $3.2B
Webex was the first stock I bought, and the reason was simple: companies spend so much money on travel and phone calls are not always easy. Webex was a simple way to bridge the gap between people who needed to at least be on the same page when it came to sales calls and phone meetings etc. Webex who for the large part of the 21st centuy traded slightly above $1B in market cap ended up fetching quite a premium from Webex, selling for a whopping $3.2B.
See HipMojo.com’s post on the deal here.
PUBLISHING
- Answers.com acquires Lexico for $100M
Answers.com, whose parent GuruNet Corporation paid $57,000 for the URL moniker, turned around and paid $100M for the parent corporation of Dictionary.com and Thesarus.com, fitting for a company who bills its Answers.com site as the world’s largest Encyclodictionalmanacapedia.
Of course, Answers.com got far more than two sexy URLs, Lexico did decent revenue and earnings, too. But any way you dice it, the deal was rich, translating to:
- 35 times earnings
- 15 times revenues
- $9 per unique
See HipMojo.com’s post on the deal here.
- Discovery Holdings acquires How Stuff Works for $250M
How Stuff Works has been around for what seems to be forever. It raised $50M for expansion this year and many expected the company to be the one signing the checks, but by year’s end, the company’s interest in all things video led to its sale to Discovery Holdings for a whopping $250M.
See HipMojo.com’s post on the deal here and here.
- CBS acquires Wallstrip
On the one hand, as a fellow video producer at WatchMojo.com myself, I was happy to see Howard Lindzon’s Wallstrip exit successfully to CBS: it showed that one can create something of value in video content and, in all honesty, it created a floor price and a comparable… But, by the same token, I think Wallstrip sold too soon and for too little (nothing against CBS).
Ultimately, in the year when marketers spoke loudly against user generated content, it created a first example that professional made video could represent a valuable business if done right. If I dare say so, we’re now going to show just how much a video content creation and syndication business can scale and grow if you stick to your guns… but that’s for a separate post.
- Hearst acquires UGO for $100M
Men don’t read magazines. They’re watching less and less TV. Where are they? Apparently, online and playing video games. If that hypothesis and premise is true, then Hearst made a much needed investment to get into a video game publishing network targeting men, that of UGO. Incidentally, when Viacom and News Corp. vied for IGN Entertainment [disclaimer: my one-time employer after it bought the company where I was a partner], Hearst balked at the price tag, which hit $650M. But two years after that deal, the trend lines were clear: Hearst needed to get serious about reaching men online and the $100M acquisition of UGO was to serve as the spring board. UGO had raised $90M since its inception.
See HipMojo.com’s post on the deal here.
- CBS acquires Max Preps for $43M
High school athletics is a hot sector. High school sports are a key part of local content and local advertising has always been a huge market, and one that is up for grabs, particularly as newspapers see ad dollars flow to the Web. More importantly, high schoolers don’t spend as much time watching TV (not suggesting that all high school sports fans are actually high schoolers, of course). Combine these trends and you see why CBS’ acquisition of Max Preps was a smart one. After the deal, Max Preps was rolled into CBS’ College Sports Television (CSTV) and its network of websites. It’s always very important to hook consumers early on, and there ain’t a better time frankly than before the college years.
- Yahoo! acquires Rivals.com for $100M
$100M for a sports site geared towards college sports seems like a lot, for sure, especially when the previous year, News Corp. bought Scout for $60M and CBS bought Max Preps for $43M.
But when you consider that said company has raised $75M in venture funding and run by CEO Shannon Terry who made the list of SBJ’s Top 20 in Online Sports, you know the deal’s final price will get high.
Ultimately, by making the deal, Yahoo! leveraged its massive audience to become a main player in sports, rivaling FOXSports.com, SI.com and ESPN.com. Mainly, by holding out and seeing CBS and News Corp. buy Max Preps and Scout respectively, Yahoo! not only saw a floor being created for Rivals.com but also had to pay a premium to ensure that the company not fall in another media company’s hands.
See HipMojo.com’s post on the deal here.
- News Corp. acquires Dow Jones for $5B
I know what you’re thinking, did he fire six shots or only five, “Dow Jones is not online. I mean, it’s flagship product, the Wall Street Journal is not even free!”
My friends, Wall Street Journal has the single most successful subscription business and gets 10m unique users per month. For decades, lest centuries, media moguls and tycoons have pushed the mantra of synergies. Rupert Murdoch in one single transaction:
- acquires one of the two assets he’s always fancied (WSJ, other being the Financial Times),
- he gets the best springboard for his new Fox Business Channel,
- acquires 10M uniques on WSJ.com, or 17M in all if you include Marketwatch and Barron’s,
- has the right, but not the obligation, to open up WSJ.com and make it into the most valuable place advertisers can reach the world’s wealthiest and most influential readers.
If you consider all of the variables, that’s one helluva deal.
SOCIAL MEDIA
- American Greetings acquires Webshots for $45M
Forget the fact that Webshots remains a strong brand that just a few years ago was bought by CNET for $70M, but Webshots is actually very complementary with American Greetings’ business. Photosharing has become a huge market, and while in CNET’s hands Webshots needed to be a leader in its space, under a company like American Greetings, it need not be. Moreover, while in the hands of CNET Webshots needed to generate sizable ad revenues (given how many pageviews it generates), in American Greetings’ hands, it need not. In other words, American Greetings is buying a large online property that is very strategic to its core business at a discount. That’s a great deal.
- CBS acquires Last.fm for $280M
Extra! Extra! Read all about it: CBS’ (and traditional media in general) core businesses are shrinking. CBS is the world’s largest TV company in terms of ratings, the largest outdoor company and second largest radio company. But like TV (and print), traditional radio is shrinking, so CBS made the prescient move to buy Last.fm. Similar to Pandora, Last.fm allows users to find new music based on their tastes and the overall community’s listening patterns. Was Last.fm the absolute best and biggest site out there? Probably not, but when you are CBS, you cannot pull a Bertelsmann and invest in a Napster-esque company that has burned more bridges than [won’t go there but insert anything you wish here].
See HipMojo.com’s post on the deal here.
- Cisco acquires Tribe
Cisco is no stranger to acquisitions, of course, but it usually acq-hires teams of engineers or technology. But by buying Tribe, one of the earlier social networking sites, did Cisco signal a shift away from Sun Microsystems’ mantra that “the network is the computer” to social networking is the Web? Perhaps, time will tell.
Ultimately, it’s a tacit admission that the web will become central to, well, everything.
See HipMojo.com’s post on the deal here.
- Nokia acquires Twango for $96.8M
Twango combines online storage with social networking, allowing users to organize and share photos, videos and other personal media.
Twango was founded in 2004 by former Microsoft employees and has around 10 employees. The deal is estimated to be just under $100 million, $96.8 to be precise. That’s right, it weighed in at $10M/employee. Twango is a small step in the seamless transferring of files from handsets to PCs. The fact that Nokia made the acquisition suggests that Finland’s most valuable company should not be seen as a telecommunications hardware company alone.
- News Corp.’s Fox Interactive Media/MySpace acquires Photobucket for $250M
Photobucket’s acquisition by MySpace makes the list mainly because the storyline behind it was pretty soap opera-ish. Photobucket builds business - according to MySpace and FIM executives - a la YouTube by leveraging MySpace’s audience and community, then adds insult to injury by trying to run ads in their slides.
Then Photobucket’s M&A advisors Lehman Bros. whisper their asking price: $300-400M. A lot of people scratch their heads. Of course, fearing a repeat of YouTube, where a company grew thanks to MySpace but sold to someone else, News Corp. blows a gasket and its MySpace site blocks Photobucket.
Suddenly, value of widget-driven businesses and Photobucket in particular plummets. Back channel diplomacy ensues, coup de theatre follows in the shape, form and fashion of a $250M buyout by News Corp.
In fact, the rumor of an impending deal broke out in early May, and the deal was formally announced on May 30th.
See HipMojo.com’s post on the deal here.
- Hi-Media acquires Fotolog for $90M
When European online marketing juggernaut Hi-Media announced its acquisition of Fotolog, eyebrows were raised. On the WTF? side of the argument were those who said: “using Fotolog’s forecasted 2007 revenue of$2.3M, a net-of-transaction fee sale of $90M implies a pretty rich 39 prices-to-earnings ratio. That’s rich. But, the counter-argument was that Hi-Media was acquiring a community of image-crazed users for 1/3 of what News Corp. paid for Photobucket; yes, call it the reverse fool theory. With $15M in financing, a $90M payout was part of the lure, turned out that the institutional shareholders of Fotolog decided to hold on to their stock holdings of Hi-Media. It should be noted, that just before the acquisition, Fotolog had signed a $75M advertising deal with Google, over 36 months, or roughly $2M per month.
See HipMojo.com’s post on the deal here.
- MSNBC.com buys NewsVine
What does this mean for Digg? We don’t know, but last year, the leader in social bookmarking and news, Digg, supposedly asked for $150M from News Corp. Rupert Murdoch balked, launched MySpace News. I’m not sure how well MySpace News is doing, I suspect Digg is doing quite well, but the fact remains, I doubt Digg will get $150M (then again, a sucker is born every second) because Stumble Upon’s $75M price tag and NewsVine’s price tag imply a lower value for Digg.
Of course, this is a post on NewsVine, not Digg. I can’t understand really the logic and prevailing wisdom to sell NewsVine, a company who had raised less than $2M in financing and who was riding high as America is about to enter an election season and NewsVine’s core focus seems to be political… but, I digress. On MSNBC.com’s part, this marked the NBC/MSFT joint venture’s first acquisition, ever.
E-COMMERCE
- Hearst acquires Kaboodle for $40M
Hearst bought a handful of companies this year: UGO for $100M, which was pricey but not very expensive for a company that raised $90M of funding since inception. But given Hearst’s traditional business focus in magazine, the deal for Kaboodle is intriguing because it allows fashion and retail advertisers - two of Hearst’s main clients - to tippy-toe online and connect branding with purchasing. If Hearst can pull this off, the combination can become powerful, and valuable. Will they? Big old media doesn’t have the best track record, admittedly, so time will tell.
See HipMojo.com’s post on the deal here.
- eBay acquires Stubhub for $310M
eBay = auctions, Stubhub = scalping. It didn’t take the MBAs very long to see fits. Speaking of graduate degrees, founders Jeff Fluhr and Eric Baker owned roughly 35% of the company and with $15M in funding over the years, they managed to build a controversial but successful company that did $100M in sales and $10M in EBITDA. The company’s backers included Allen & Co, Blue Water Capital, Pequot Ventures and Staenberg Venture Partners.
SEARCH, NAVIGATION & DIRECTORIES
- R.H. Donnelly acquires Business.com for $345M
When word got out that Business.com might be selling for over $300M, the natural reaction was to think “the bubble is back”. After all, just a few years ago, founders Sky Dayton and Jake Winebaum acquired the URL for $7.5M from Marc Ostrovsky. At the time, even I thought “will they ever generate $7.5M in revenues off the site, over the course of its lifetime”? Of course, when Dayton and Winebaum bought the URL, Google had yet to create the keyword ecosystem that today underwrites much of online advertising. While critics maintained that by 2007, Business.com was little more than a directory of resold Google text ads, R.H. Donnelly saw salvation for their shrinking print directories and agreed to acquire the firm for $345M.
See HipMojo.com’s posts on the deal before it happened here and afterwards here.
- eBay acquires Stumble Upon for $75M
Stumble Upon’s 2.3 million users and 5 million daily recommendations caught the attention of AOL, Google and eBay, and ultimately, after valuations ranged from $40-75M for a few months, eBay walked away the winner. When the rumor popped up and few understood the logic, though technically, like eBay’s Skype acquisition, the prevailing wisdom of the leading auction community to acquire a leader in “stumbling navigation” makes sense. Of course, that’s what was said about Skype too, and this year eBay wrote down a chunk of that acquisition, even though the fit was even stronger there. Stumble Upon raised less than $2M, which means that founders Garrett Camp, Geoff Smith, Justin LaFrance and Eric Boyd walked away with a nice payday each. Lesson for entrepreneurs: success did not come over night, the site was founded in 2000!
See HipMojo.com’s post on the deal here and here.
- Microsoft acquires Medstory
For all of the talk about vertical search engines being the next great thing, very few case studies proved to be profitable exits. Then came along Medstory and the battle for health information, which led Microsoft to acquire vertical search player Medstory as Google, Yahoo! and Microsoft all vied for search market share and to become the gateway to users’ health information online.
COMMUNICATIONS, WIRELESS VOICE SERVICES
- Google acquires Grand Central for $45M
Let’s face it, financially, Google remains a on-trick pony with 99.9% of its revenues coming from paid search ads and the two related products: Ad Sense and Ad Words. But Google’s product assortment has grown very attractive, from GMail, to Maps, Google Earth, YouTube and soon Doubleclick, Google is certainly laying down the foundation to become a diversified new media and technology company. In that vein, the acquisition of Grand Central to arm users with one number on any platform is consistent with Google’s global and multi-platform ambitions. In fact, at $45M, the deal was cheap and provided good value to Mountain View.
- Microsoft acquires TellMe for $800M
TellMe is “a leading provider of voice services for everyday life, including nationwide directory assistance, enterprise customer service and voice-enabled mobile search.” If the price tag weren’t so darn high, it would surely be higher on this list. Regardless, this catapults MSFT into voice services and voice-enabled mobile search, which a few short years from now will actually help it quite a bit against the #1 and #2 in search, Google and Yahoo!, respectively. While $800M is a large price, if it can execute on that alone, the deal can be a enormous coup for Redmond.
MOBILE AD NETWORKS
- AOL acquires Third Screen Media
Indeed, to quote the Wall Street Journal’s Kara Swisher, new CEO Randy Falco has been busy torching AOL’s Dulles, Virginia’s HQ, but while he’s been doing that, he’s also been making some bets on the next growth area: wireless. In 2007, AOL bought Third Screen Media, a mobile advertising network and ad-serving management platform provider. Will this be a repeat of Advertising.com’s $435M which today drives most of AOL’s top line? Who knows. I doubt it, wireless is way too embryonic, today. But one day, when cars fly and everyone has a pony, wireless entertainment and mobile advertising shall inherit the earth. Time will tell if Randy Falco will be ruling the fiefdom when that happens.
- Nokia acquires Enpocket
In the emerging mobile content and advertising market, Nokia hopes to expand its footprint beyond hardware. To achieve its goal the handset manufacturer agreed to acquire Enpocket to build its advertising platform.
Though Nokia has a content and advertising presence in Europe, its wanted to expand there and elsewhere, including the U.S., through internal development and acquisition. The Enpocket acquisition follows Nokia’s buy of social media sharing service Twango, as well as internal moves toward content publishing.
Enpocket has customers in the US, Asia, and Europe, including Vodafone, Telefonica, British Telecom, and Sprint. It delivers advertising across a variety of mobile formats, including SMS, MMS, mobile Internet, and video. Its customers include both carriers and the companies with which they do business, most notably Pepsico.
In some ways, this deal was in the same vein as Microsoft’s acquisition of European mobile ad firm ScreenTonic with the intention of integrating its capabilities into adCenter: “We want to deliver a platform that helps advertisers buy across all digital mediums,” said Joe Doran, GM of Microsoft’s digital advertising solutions. “As we build out the breadth of our platform, we are continuing to invest against that vision.”
- Nokia acquires Navteq for $8.1 Billion
Nokia is the world’s largest manufacturer of cell phones. Nokia owns this market, basically, and any acquisition it makes is bound to have ripple effects. NAVTEQ is a leading provider of comprehensive digital map information for automotive navigation systems, mobile navigation devices, Internet-based mapping applications, and government and business solutions. NAVTEQ also owns Traffic.com, a web and interactive service that provides traffic information and content to consumers. The Chicago-based company was founded in 1985, generated 2006 revenues of $582 million and has approximately 3,000 employees located in 168 offices in 30 countries. Incidentally, “Internet and wireless” make up only 5% of Navteq’s revenues, compared with 25% from mobile devices and a whopping 62% from in-dash navigation systems.
Translation? Lots of upside in Web and mobile revenues and the creation of a very powerful wireless and local ad network, perhaps?
AD NETWORKS
- AOL acquires Tacoda for $275M
One of the bigger and hyped phenomenon (fairly or unfairly) of web advertising remains is behavioral targeting (BT). Rightfully, to better optimize inventory and users, and to make the promise of web advertising a reality, BT has a role to play. But AOL’s acquisition of BT also demonstrated BT’s inherent limitations: few sites want to partner with BT firms, they want to own the data and underlying IP. Will it be an Advertising.com type of payoff? Time will tell, but Tacoda within AOL is worth far more than outside, in that sense, this deal made sense…
See HipMojo.com’s post on the deal here.
- Google acquires Feedburner for $100M
Google paid $100M for a company with $10M in revenue. Regardless of the financial merits of the deal, the fact is that had Google sought to emulate Feedburner (even had Feedburner not existed), the media companies that partner with Feedburner would not have allowed Google to access such private and valuable data. In other words, Google bought something that was worth many times more to Mountain View as in a year where it had become more and more enemy than friend.
See HipMojo.com’s post on the deal here, Google Buys Feedburner and Encroaches on Organic Ad Results.
- Yahoo! acquires Blue Lithium for $300M
Blue Lithium’s focus on introducing large, sexy brands to the virtues of advertising networks is legendary. Before more and more larg, Fortune 500-type marketers embraced running online ads - let alone using ad networks - Blue Lithium stood out of the clutter with a product and service that appealed to both sides of the online advertising ecosystem. Once upon a time, Blue Lithium’s management even talked of its advantages and strengths over online ad champion Google, but then lo and behold, Yahoo! acquires Blue Lithium for $300M to maximize the monetization of its ad inventory and to bolster its online advertising network both outside Yahoo!’s burgeoning media properties.
Given that the next wave of growth in online advertising will be display / banner ads (after video) and that will come from Fortune 500 marketers, this is a move that can pay off considerable dividends to Yahoo!
See HipMojo.com’s post on the deal here and here.
- Google acquires Doubleclick for $3.1B
Technically, this deal has yet to go through. But we added it onto this list because it shows that Google is completing its arsenal of web tools. Starting off with search, then video (YouTube), then email/newsletter (Feedburner) and now display/banners (Doubleclick), Google has the potential to circle the loop of online advertising.
We’ve covered this deal ad nauseum, so we’ll simply link back and leave you with this quote from one of our posts:
“When 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”
But, that notwithstanding, Google buying Doubleclick is a key deal because it bolsters Google’s online advertising software suite, which in itself helps it attack MSFT on many more fronts.
See HipMojo.com’s post on the deal here:
- 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
- Yahoo! acquires Right Media for $750M
Technically, Yahoo! paid $45M for 20% of Right Media first, then less than a year later, it paid $680M for the 80% it did not own. Right Media was unique in that it worked with other ad networks to allow publishers to create an auction process for a publisher’s long tail inventory. On a property like Yahoo! alone, with billions upon billions of remnant, unsold ad inventory, such a platform can be worth billions each year.
And, as Yahoo! develops its network online (away from Yahoo!-owned sites), Yahoo! liked what it saw enough to justify pushing up the price of the asset four times in less than a year.
See HipMojo.com’s post on the deal here.
- WPP acquires 24/7 Realmedia for $649M
WPP is one of the largest agencies in the world, a marketing behemoth with huge ambitions in digital advertising. It got one step closer to that when it bought 24/7 Realmedia, getting an advertising network, an email newsletter business, search marketing tools and much more. With its extensive advertiser relationships, WPP is sure to get enough bang out of its $649M bucks.
See HipMojo.com’s post on the deal here.
- Microsoft acquires aQuantive for $6 Billion
Microsoft generates very little from advertising. In the future, all advertising will be planned, bought and managed on digital platforms. And digital advertising will be larger than all offline advertising. Furthermore, targeted/tracked (web) advertising will command a considerable premium to non-targeted and untracked advertising. As such, for MSFT to win aQuantive - the crown jewel in the sector - it had to pay a commanding premium.
Like it or not, the market determines how much an asset is worth, which in turn is a function of demand and supply. aQuantive had a range of suitors, and the company that wanted it most ended up paying for it. MSFT’s acquisition of aQuantive can be a game-changer for MSFT if it does not botch it up.
See HipMojo.com’s post on the deal here.
- Time Warner acquires Quigo for $340M
Quigo, which signed a deal with Time Warner’s magazine division, Time Inc, and has more than 500 publisher relationships, is an Internet ad-targeting company that lets advertisers buy sponsored listings, much like Google’s AdSense, based on keywords or subjects.
AOL in September restructured its advertising business, consolidating ad network Advertising.com; Tacoda, which targets users based on their habits; wireless ad network Third Screen Media; video ads company Lightningcast; and ADTECH, a global ad-serving company, into one division.
What did you think of the list? Corrections, suggestions, comments etc., add to comments or email me at ash@mojosupreme.com.
When DCLK got bought by Google, and then aQuantive got bought out by Microsoft, I said independent of what you or I say about the prices paid ($3.1B and $6B respectively), aQuantive was definitely worth twice as much as Doubleclick.
Of course, like it or not, this might have everything to do with IAC’s Ask.com being a competitor of Google, now parent of Doubleclick. I had actually warned Google that it risked a publisher exodus… and now shockingly my prophecy there turns true. Hmm. For an overall rundown of the GOOG/DCLK deal click here.
Today, we see one more manifestation and argument supporting my claims - IAC drops DLCK for AQNT:
IAC owns Ask, Excite, Expedia, Hotwire, iWon, Live Daily, Match Ticketmaster, TicketWeb, Match.com, Citysearch and Evite. It characterizes its audience as “busy mothers, trendy singles, established professionals, tech-savvy consumers and affluent couples.”
The deal is a big win for Atlas and for Microsoft, which anticipates completing its acquisition of aQuantive by the end of the year.
“The relationship with IAC is a fairly comprehensive partnership that is, in essence, designed to take advantage of the Atlas Ad Manager technology for IAC publisher sites and manage the full spectrum of their business online in terms of inventory forecasting, analytics, targeting, etc.,” said Scott Ferris, Atlas’s senior vice president and general manager of the publisher and emerging media divisions. “It’s designed to encompass all of the IAC publisher and media property over time.”
It’s also a blow to DoubleClick and its likely future parent Google, though Google’s move to buy DoubleClick was not a factor in IAC’s decision. An IAC spokesperson said the deal has been in the works for a long time, pre-dating the merger agreement between Google and DoubleClick.
Sure, of course it is. I’d love for IAC to come out and say:
“Well, you saw how our search unit, Ask.com lost more share to Google, right? Well, it would just be stupid to keep our business in display with Google too, where pound for pound, at least for now, we’re stronger than Google… so we’re going with the lesser of two enemies, MSFT. Besides, let’s face it, one day, we’ll sell Ask.com to MSFT and get out of search. You do know Barry Diller’s modus operandi, right?”
Jokes aside, this is a smart tactical and strategic move for IAC.
Yesterday Joost co-founder Niklas Zennstrom made the announcement that Joost had 1M users. A lot of writers jumped on it to discern whether he meant 1M downloads, 1M users in all since launch or 1M concurrent users.
I have no clue which one he meant. Also, I wish Joost a lot of success, sure, WatchMojo.com is a content provider and all to them, but I wish them well because anything that gets more consumers viewing online video online is a good thing, independent of whether WatchMojo.com’s content happens to be on deck.
What’s interesting about Joost, or Babelgum, or Vuze, is that it will boil down to content. When I read Caroline McCarthy’s take on Zennstrom’s announcement, she too referred to the big C: “The catch is that one million beta testers absolutely doesn’t translate to one million active beta testers. I’ve been playing with Joost since the early days, and I tend to agree with much of the feedback I’ve heard about the start-up: amazing interface, effective peer-to-peer architecture, but a noticeable lack of worthwhile content.”
Caroline, may I sheepishly suggest the WatchMojo.com channel? Anyway, Joost’s 1M mark is impressive regardless of what Zennstrom meant, but it is true that for a company with $45M raised from outside investors (in addition to whatever Zennstrom and fellow Kazaa and Skype co-founder Janu Friis invested, expectations are high.
Which begs the question, are expectations reasonably high? How big can the video market get?
PART I: WHAT WILL BE THE TOTAL MARKET CAPITALIZATION OF VIDEO MARKET IN 2011?
We’ve seen estimates for video advertising surge rapidly. I’ve been keeping track of these, and here they are:
An estimate of the online video ad market for 2009 - set in 2004: $657 million | Source.
An estimate of the online video ad market for 2009 - set in 2005: $1.5 billion | Source.
An estimate of the online video ad market for 2010 - set in 2006: $2.3 billion | Source.
An estimate of the online video ad market for 2010 - set in late 2006: $3 billion | Source.
An estimate of the online video ad market for 2011 - set in 2007: $10 billion | Source.
$10B? That is more than double the highest estimate I had seen up to that one. But $10B is an interesting figure, not because it’s round and 11 digits long, but because that is how much Google generated in revenues in all of 2006 (with a 50%+ market share grip on the search market, mind you).
We’ll examine this $10B figure in Part III.
But, if Google generated $10B in advertising revenue and commanded a $150B market cap to itself, then could be the video advertising - potentially poised to make as much as Google did in 2006 - be worth $150B by 2011?
Of course, the major factor to that - in addition to the accuracy of the $10B figure - is whether or not Web video companies will command the same multiples as do search today?
And… that’s the problem facing TV companies, the projected market value has little to do with revenue, but rather, multiples on revenues. TV is today a $75B ad market, even by 2011, the video ad market on the Web will be a fraction, meaning that TV companies don’t have a reason to get online…
PART II: WHAT IS THE TOTAL MARKET CAPITALIZATION OF SEARCH ENGINE MARKET TODAY?
MSFT’s Don Dodge had argued that 1% share in search translates to $1B. I disagreed to some extent but largely agree that even 1% of market share is quite lucrative… I ran some more numbers are estimated that:
- Yahoo!’s search business is worth half of its market cap, so roughly $17.5B, something I analysed in “Can Google Buy Yahoo!?” - Analysis.
- MSN.com/Live.com - portal and search - was worth some $28.75B, the search component should be at most 1/3 of that, or $10B - Analysis.
- Ask.com was worth $3.15B - Analysis.
- Time Warner’s total market cap is $75B, Google invested $1B for 5% of AOL for an implicit valuation of $20B. Bear in mind that depending on which source you use, AOL’s search market share is less or equal to Ask.com. Let’s just assume for simplicity sake that AOL’s search business is worth exactly what Ask.com’s search business is worth, so $3.15B.
It should be noted that Google, Yahoo!, MSN, Ask.com and Time Warner’s AOL make up about 99% of the market share in search. In other words:
99% of the total market capitalization of the search engine industry is
= Google’s $150B
+ Yahoo!’s $17.5B
+ MSN’s $10B
+ Ask.com’s $3.15B
+ AOL’s $3.15B
= $183.8B.
Toss in all of the other wannabe’s (including our own MetaMojo.com) who account less than 1% market share for an additional $1.2B (somewhat fair since Dodge argued that 1% is equal to $1B) and then the entire market capitalization of the search market is $185B.
That’s a big number, indeed.
That’s not the volume of sales in search, but the market cap. Search gets 40% of the online ad pie, which in 2006 was $17B for the US, so $6.8B in the US.
The global Web ad market was set at $25B, so 32% of all (over time this will grow, Google is doing just less than 50% right now). So the total global search revenue stream was $10B.
In other words, in search: a cumulative, global $10B revenue stream generated a $185B market cap ecosystem, or roughly 18.5 times sales.
PART III: LESSONS FROM SEARCH FOR VIDEO MARKETWe know that search currently accounts for 40% of the total online advertising market, with video growing.
To put it mildly, video is far more nascent than search:
Search is like the mature, stable, “income” component of online ads, with video being the high-growth, volatile and uncertain revenue stream. Just look at some of the estimates and you see that it’s all over the place, as listed above.
I’ve already stated that I’m not sure how valid that last $10B forecast is, even though as a video producer ’tis music to my ears. But, of course, if it is true, then by 2011 the online video video will have grown over 2,300% from eMarketer’s 2006 figure of $410M. Admittedly, I’m mixing figures here, taking 2006 stats from eMarketer and 2011 figures from U&S, but who believes any of these stats anyway, the point is, if you were to make the case, you could argue that video advertising is about to explode much the same way that Google’s revenues did, leaving MSFT and YHOO’s advertising-based revenue in the dust:
Here’s one visual, taken from SeattlePI:
Here’s another, taken from Valleywag:
I personally doubt some of the numbers that are bandied about, especially over a 4-year period. But, if anyone would have put forth the following numbers, which represent Google’s actual, historical revenue growth, four years ago and said this is what one company - let alone a segment of the fastest growing ad market - would do, I’d be pretty cynical too.
Google had $439M in ad sales in 2002 and $10B in 2006, for a 4-year return of 2,300%.
So, if Google generated $10B in advertising revenue and commanded a $150B market cap to itself, then could be the video advertising - potentially poised to make as much as Google did in 2006 - be worth $150B by 2011?
Considering the market leader YouTube last year fetched $1.65B on $15M in revenues, maybe that deal (which we re-examined 9 months later here) is starting to look increasingly wise and over time might end up on the Top 10 M&A Acquisitions of All Time?
CONCLUSION: ROLE AND PLACE OF CONTENT
In search, the winner was Google because they bundled a good technology with an embedded advertising product. The problem is that Google’s maniacal success will make it harder for any one company to becoming all-encompassing in advertising as Google did. That’s the Google envy phenomena I refer to that seems to create obstacles in terms of standardization: everyone wants their platform to prevail.
So ultimately, I think that to echo the comments pertaining to Joost above, the value we’re placing on content is being underestimated. The natural conclusion is for the high quality content from TV to come online, but it’s not like TV companies will push that onto the Web, for there are technology issues and economically there is little incentive: TV is a far greater revenue stream than online will ever be, and the TV companies will never command the multiples of their online counterparts.
So while the natural conclusion or prevailing wisdom is that TV broadcasters etc. will be all over this growth, I just do not see this happening because as audiences continue to migrate online, so will ad dollars, but the ad dollars will be smaller than what TV is accustomed to now.
If you doubt my conclusion, ask yourself why and how the offline media giants failed to be the leaders online then during the Web’s first 10 years. It was not in their short term interest, and short term revenue and profitablity targets will always trump long term ones when you have to please fickle and near-sighted investors.
Another reason, is that they were slow and reactive. One more, frankly, is that digital revenues are rarely really incremental for traditional media companies, they are usually cannibalistic and take away from their core businesses.
That is why you have to feel bad for TV executives, who look at what happened to print companies (ie. even the companies that generate more revenue command much smaller multiples so they are, in fact, worth less) and understand the angst and envy they have for online content producers and technology platforms who are looking at all of this opportunity and wreaking havoc as the tug of war between old and new media continues to create more casualties.
On the one hand I give credit to IAC’s Ask.com search engine for offering users AskEraser. On the other hand, I wonder, why bother?
Apart from the vocal minority consisting of tech writers and bloggers, who cares how much or how little search engines know and track your searches. I mean, unless you’re Al Qaeda, do you really care? In fact, if you are a normal person, chances are you want a search engine to track what you searched, no?
The main reason why this is somewhat asinine is that it’s not only search engines that track your path, so do ISPs, your email service, etc. The web is digital, get used to it, if you don’t like being tracked, go pick up a magazine or newspaper or tune in to TV, trust me, those guys don’t have a clue who their audience is…
See our previous coverage of Ask.com here. Related posts:
- Ask.com is now worth $3.15B
- Ask.com should stop wasting $100M in advertising and buy new search companies
- Maybe I (we) owe Ask.com an apology?
PLAY
