“I have thought about what I will do and the conclusion I have come to is that I will get bored quite quickly with day time television. I need to do something that continues to be challenging and interesting. I don’t have any great ambition to go out and make money. But I am still a) fascinated in starting up businesses and b) starting it in a way and running in a way that I want to do it.”
Bebo co-founder Michael Birch, to Techcrunch.
I added the boldface along with a) and b) captions.
I can’t speak for other entrepreneurs but the boldfaced part captures the real, pure essence of a) entrepreneurship and b) company building.
On the money front: if I wanted to make money I would have stayed in my cushy, well-paying job.
On the a) vs. b) I think that some entrepreneurs like the starting aspect alone/more; personally I am starting to really enjoy the management and scaling as well.
YouTube is not making meaningful revenue for Google, according to SAI.
MySpace, Facebook and their ilk are trying many things, but none of them are working when it comes to scaling revenues, according to USAToday.
This year:
- YouTube will make $100 million in revenues.
- MySpace will make $700 million to $800 million, with FIM (which includes IGN) making $900M in all.
- Facebook will make $300 million.
How does this stack up against the index? Well US online ads are about $25B and global sales twice that much at $50B. The precise stats:
ZenithOptimedia estimates online ad spending worldwide will soar 26.5% this year, to $47.7 billion. Total ad spending worldwide, by comparison, is expected to grow 4.6%, to $653.9 billion this year, says Universal McCann.
Here’s the problem: social media advertising is a stretch for online media executives to swallow; for marketing execs from all walks of life (ie. offline) who will be seeing offline dollars flow online, at best it’s a joke… at worst, it’s borderline blasphemy.
Even within the online advertising segment, 40% of it is going to search; Google pulled in $17B in revenues in 2007. Do the math. Google owns 60% market share. Why did you think MSFT was willing to pay $45B for Yahoo!?
The opportunity, if you ask me, is neither in social media ads nor is it in search. The former is game over; the latter is too small relative to video.
After all, video is only going to do $1.25B in the US this year but will grow to $7.1B by 2012 and about $10-15B worldwide. By then, of course, global online advertising sales will be way north of $100B, I think video can be more because video ads stand to gain the most of TV ads; the one with the most to lose to online.
If I were Facebook, Bebo or MySpace, I would be focusing on using the social media bells and whistles to become a modern day video empire. Oh wait, YouTube is trying to do that. The problem? YouTube’s overlord Eric Schmidt, CEO of Google has pretty much admitted that he does not know how to make money off YouTube… that’s a problem. I see YouTube as a $1B-in-annual-revenues-property, the problem is, no one listens to me.
“Hire slow and fire fast” - those are not my words, they are the words of Seth Goldstein, CEO of Social Media, but they do strike a chord.
Last week we did an office pool to guess the score of a hockey game and I was taken aback by the fact that we were now 11 people on staff. Eleven employees is not a lot, mind you, but that’s more than we had at my old company. I don’t even know how we got to 11, mind you, but we’ve worked with well over 100 people in numerous capacities as freelancers and interns. The advantage there has been that I’ve been able to gauge people’s mojo without risking bringing on people that did not fit it or did not have their heart into it. It surely has been an indirect benefit of bootstrapping. Some times when companies get a massive injection of cash, they rush the hiring process and end up with bad apples that quickly become cancerous.
I won’t names, ok, I will. You’ve heard how this has happened at LinkedIn (which actually remains on the few companies out there with a real business model and potential). But the point is, hire slow and fire fast is a helluva good HR mantra. Better than Don’t Be Evil, just kidding, I think.
Anyway, here’s the video, from Paid Content’s latest shindig, lots of good tidbits, listen to it in the rearview as you work through your day:
Paid Content refers to a NYT article on CBS which calls for the company that Bill Paley built to make digital acquisitions, which begs the question: should they go for a big purchase or make small moves?
Of course, answering that question alone without addressing the backdrop to that question yields an incomplete picture.
CBS has hit some rough patches, according to Paid Content:
The parent company is under a mini-siege of sorts about
a) its performance,
b) Leslie Mooves’ salary,
c) Katie Couric’s disastrous tenure at the company,
d) layoffs (even on the digital side, as others are ramping up) and other issues (…)
e) CBS’s need for an acquisition is becoming apparent. Some CBS executives privately agree.
All right. I want to dive in and comment on e) but let’s run through this list quickly.
a) Its Performance
We’re not sure if they are referring to its financial performance or its stock’s, either way:
As per the NYT:
“Without the cushion of Viacom’s other properties, CBS has been more exposed to the struggles of the advertising market. In 2007, it earned $1.25 billion, down from $1.66 billion the year before. CBS stock closed at $21.40 on Friday, compared with $30.99 a year earlier.”
While no company or manager can control what happens to the stock price, I think big media will see a lot of revenue loss over the next few years. Print-centric media companies shrank, why would TV or radio-centric media companies be any different in the next wave of the Web’s growth?
After all, 1994-2003 saw text-based media explode online, 2003 is about audio/video-heavy media.
CBS is seeing this sooner and faster due to its exposure to TV and radio. However, they are strong in outdoors, the challenge there is the upside there won’t account for the downside in more traditional media.
So all hope signals point to online… which explains why:
“On Monday, the company’s interactive unit will officially open a fully staffed office in Menlo Park, Calif., in Silicon Valley, to stir innovation and content development.”
Ironically, the CBS Interactive brass gets the Web quite a bit, but it’s true that they have been overly cautious, too. Being cautious is a bad thing in booming times and a great thing in corrections. The problem for CBS is that the correction is coming offline and online continues to charge ahead… so indeed, CBS does need to make some bold moves. But what are those moves?
Last year, we suggested an outright merger with Yahoo! With MSFT’s $45B gamble, those bets are off (hmm… are they?).
b) Leslie Moonves’ Salary
Last week Henry Blodget wrote: “CBS CEO Moonves Gets 29% Raise, Just Reward For Job Well Done“.
Clicking through, I realized he was being sarcastic by pointing to the seemingly inverse relationship between Mr. Moonves salary and CBS’ performance. While I appreciate Henry’s position, the truth is that CEO pay is determined on a number of things, frankly.
It’s also about the demand and supply for talent. As the CEO of CBS, Mr. Moonves could probably command a much larger salary elsewhere, if CBS’s Board wants to pay him $100M because that is what it takes to retain him, I am not sure CBS or Moonves should be blamed. For the record, he did not make $100M but rather $37M. Is that a lot of money? Yes. But the company made well over a billion dollars in profit and $14B in revenues. Of course, I’m an executive so my perspective is going to be different than that of an analyst or journalist.
But my point is: running a shrinking business in a mature market is not something most executives would embrace, to lure the best (or retain them), guess what? It takes a generous compensation program.
c) Katie Couric
Don’t care personally, but indeed, this is becoming an albatross and if indeed she is that horrific (I don’t watch TV), it’s time to try something else. I recognize she might not be best suited for news, but surely there is plenty of things she can be doing for CBS in other capacties (infotainment, mainly).
d) Layoffs
Layoffs are always demoralizing, especially when a company is making over $14B in revenue and remains profitable. But what about a case - like this one - when the company is shrinking? This is a tough question.
My gut says Jack Welch’s “the lowest 10% should leave” is not a bad thing… so while I don’t want to dehumanize the layoff dynamics and their effect, I think it’s unfair to question the layoffs.
Of course, I do wonder why layoffs are taking place in online areas… which is what both Paid Content and NYT refer to. But just bear one thing in mind: many traditional media companies are not necessarily well structured in new media; divisions and structures are sometimes borne out of legacy organizational systems and sooner or later a correction or adjustment is called for. If this is the case, then I don’t think it’s fair to bash CBS on this point.
e) Acquisitions
The question remains: should CBS make one big hairy and ambition acquisition or should it buy a number of smallish companies and roll them up and/or foster their growth?
For the record, CBS has done both. In fact, it’s done everything including investments in Spotrunner, Joost and many others. In terms of acquisitions: Last.fm was a mid-sized / big one; Wallstrip was a small one.
What would you do if you were Quincy Smith and company? Buy? Merge? Sell?
ACQUISITIONS:
You know what, I admit a small acquisition won’t move the needle, but a major acquisition won’t either. Who would they have bought?
- Bebo? Is a company that marketers love really well-served by serving advertisers social networking inventory? Nope.
- Facebook? Too expensive to buy. Nothing to see, here (perhaps a merger? See below).
- Gawker Media? That might be an interesting addition. But I think Gawker Media founder Nick Denton wants to become CBS, and not sell to CBS. Anywa, Gawker Media lags in video, CBS needs to look ahead and not look back.
- Speaking of video, one company that might position it for future growth is Blip.tv, but Blip.tv does not own any content… so that is a risky move because CBS might buy a great video platform with amazing bells and whistles but then lose all of the content therein. [Disclaimer: Blip.tv is a partner of WatchMojo.com]. In the same broad category as Blip.tv are Brightcove and Video Egg. Bright Cove also does not own any content and is way too expensive, having raised $80M in funding. Video Egg ain’t cheap either, with $40M of funding in the tilt.
- Then there’s all of the YouTube/MySpaceTV competitors: Revver, Veoh, Metacafe, DailyMotion, Break, etc. Mind you, CBS invested in Joost… so what message would that send? As well, Revver was on the auction block and I presume CBS looked at it and then balked. Again, none of those companies own any content, CBS needs to be stronger in web content. That would be the hedge for CBS going forward, of course, it also needs better distribution. I see CBS works closely with Veoh… but is Veoh big enough as a distribution source? [Disclaimer: WatchMojo.com syndicates video to all of the sites listed here]
- Craigslist.org? Not sure Craig Newmark would sell, no matter how progressive Quincy’s team might be. This is Big Media after all… but Craigslist.org would not unleash CBS’ digital revenues.
- Glam Media? That would be a shot in the arm with regards to bolstering its female audience online… but here’s the problem: female audiences still watch TV… what CBS might be better suited for is getting access to a men’s audience. [Disclaimer: Glam Media is one of WatchMojo.com’s syndication partners, too]
- Digg? Not a fan of this one, frankly. Maybe a combo Revision3 / Digg? Even less of a fan of that. Revision 3 is way too niche: it’s too tech-oriented and relies on two hosts, largely. Given how Kevin Rose’s interest waned from Digg to Revision3, then to Pownce, I am not sure he’s buyable because he’s the main asset of Revision 3. [Disclaimer: if you look very broadly at all video content, then WatchMojo.com is more or less competitive to Revision 3, though I view them as rather complementary to our programming].
- Federated Media? Too tech-focused and they don’t own any of the content on the blogs they rep. Big media needs to own content to make it worth their while. Sorry, but that’s just the way media works.
- Gorilla Nation Media’s audience might be a better fit, but as an advertising representation firm, it faces the same challenges: You are buying a stack of contracts that at any point could be severed. Unless you own the underlying content, those contracts are not worth the paper they are printed on.
- Heavy.com? They have a men’s audience, for sure. But if CBS is to buy a destination, it needs to be an enormous destination, I am not sure Heavy.com would move the proverbial needle. In fact, in 2005, News Corp. bought IGN Entertainment, but IGN was doing over $70M in revenues on the strength of its Media Properties (IGN.com, RottenTomatoes.com, etc.), had a lot of technology (in-game advertising + digital distribution of movies, music and games). Moreover, IGN Entertainment was far and away the leader in terms of men’s 18-34 audiences.
However, if Fox Interactive Media has become a new media behemoth, it has more to do with MySpace’s burgenoning audience than with IGN’s properties. That being said: IGN Entertainment does give a lot of content and audiences that marketers look for. The challenge for IGN is that a major chunk of their inventory comes from their message boards, which are notoriously hard to sell and monetize.
This being said, when one looks at how instrumental MySpace and IGN’s acquisitions were, it’s fair to say that the ROI has hitherto been higher on the MySpace deal. I am surprised at this, I won’t lie. But this lesson would encourage CBS to look for a MySpace and not an IGN.
I am not that familiar with Heavy.com’s business, frankly, but I am not even sure if Heavy is an IGN.
- IAC is way too e-commerce oriented. Its search engine Ask.com does not really fit with CBS, either. So pass.
- There’s Meebo, but at $250M or more in value… I am not sure if CBS would even know what to do with it. And, who are we kidding: do marketers really even want to advertise in instant messaging communications? That one makes sense in theory but in practice? Not sure.
- There’s the barrage of search video tools: Blinkx, Pixcy, etc., but CBS remains a media company; it should be technology-centric, I think. What I mean by that is that its content should be compatible with all tech platforms to make it was widely available as possible.
- There are a number of ad networks: Tribal Fusion, Specific Media, Casale Media, Adconion etc. I think the obsession over ad networks will pass. Moreover, a lot of media companies will build and launch their own, which is a mistake as well. I am not sure if CBS should plunk down $100-$500M on an ad network. Advertising.com rescued AOL’s butt because AOL was transitioning from a walled garden to a normal website but the fact remains, that says more about how poorly AOL was doing than how great Advertising.com has done (for the record: it has done great).
Valueclick is publicly traded, but expensive.
If it was interested in ad networks, it might as well skip over display ad-based ones and dive into video networks such as Tremor Media or Broadband Enterprises. Again, I am not sure being in the ad network business is the best capital allocation move.
- It could - much like how NYT invested $29.5M in Wordpress - make a bid for Six Apart (makers of Movable Type) or even Wordpress. But, again, I am not convinced it makes sense for a media company to own a platform without the underlying content. News Corp. buying MySpace made sense because the content on those sites become News Corp. property, or at the very least, MySpace gets a license to profit from it…
- Slide? At the company’s last $500M pre-money valuation, I think CBS would gain street cred in one block on SF by buying Slide but see Wall Street punish it. Hey, just being honest here folks: that is one expensive widget company with moutain-fulls of unsellable inventory!
- There’s TheStreet.com, though I am not sure if it’s big enough or whether CBS really wants to get that deep into finance and investments. Bear in mind Wallstrip was all about investing… so this would be a doubling down on one category. Moreover, at a market cap of $250M, it would eat a lot of money the company could spend elsewhere.
- CNET remains very tech-oriented but it has embraced a lot of lifestyle properties, too. In fact, CNET would be a good fit with 100M uniques, $400M in revenues etc. In fact, trading at $1.2B, it’s not that expensive. CNET would give CBS some web DNA and CBS would open up swarms of traditional advertisers to CNET. This could be the best move yet: unlike most other options, CNET owns a lot of content. It also owns a lot of URLs such as TV.com that with CBS’ help could come to life.
Updated: Oh, wow, they listened to me: it’s official.
MERGERS
- CBS could in fact merge with Yahoo! I wrote about this and frankly, this remains an option.
- It could merge with Facebook; won’t happen. At a market cap of $14B technically Facebook is worth roughly the same as CBS. This would be a bizzarro world deal where Facebook trades in growth for CBS’ $14B in revenue… but this one is so loopy.
- As crazy as it sounds, it could undo the merger with Viacom; won’t happen.
SALE
What about a sale to News Corp.? News Corp. owns FOX, it would love to own CBS. But for this to happen, it would mean Sumner Redstone and my old boss Rupert Murdoch would have to come to terms; won’t happen.
Incidentally, last Friday, GE lost 12% of its value, or $40B. It could have bought two CBS’s. By buying CBS, GE’s NBC Universal would own two of the three main networks, making this an impossibility.
That same obstacle is present in a sale to Disney, who owns ABC.
CONCLUSION
As you run down the list… you realize that all CBS is actually a great media company that just needs some tweaking. Yes, indeed: “Nobody likes negative growth, from the guy who shines shoes to the C.E.O. Everybody feels the pain” the truth is no one wants to blow something up either.
My two recommendations for CBS:
- Buy CNET for $1.5B - $2B (that would be a 25% to 66% premium), which would take its digital revenues from “$200M” to $600M. Combining CNET with Last.fm would also yield a lot of upside in digital music and video tie-in’s. But even then: for a company with $14B in annual revenues, does $600M mean much? Many analysts only give credit to a media company’s stock if digital revenues account for 10% of total sales. Even News Corp. or Disney do not claim that.
CNET remains one of biggest acquisition targets that represent meaningful revenue opportunities, and even that won’t move the needle. So what other options are there?
OR
- Merge with Yahoo!
Actually, there’s also one more option:
GO PRIVATE?
One way that no one will care about a) Performance or b) Les Moonves salary is if it were not publicly traded. Moreover, Wall Street is being unreasonable: yes the company is shrinking, but it will take time for digital revenues to grow, anyway. However, if someone came along and took CBS out at $20B, I think a lot of shareholders would buy that (or I guess, sell for that).
It then allows CBS to d) clean house if they so choose to (and will have to). Kate Couric becomes moot in the grand scheme of things… but most importantly, it will allow CBS to roll up a number of smaller web properties, content producers and tech applications to bolster its overall portfolio. In 4 years - when video advertising will be $7.1B in the US (up from $1B) and all online advertising will be nearly $100B in annual expenditure - it can then be go public again…
This might very well be the best course of action. The question remains: does private equity have the stomach for a $20B debt purchase? With $16B in annual revenues… I think so.
All righty, that was a great use of 40 minutes of my time. Back to work.
In the wake of Bebo’s sale to Time Warner AOL for $850M, musician Billy Bragg asks: where’s the money, Birches?, referring to would-be, accrued royalties that he and other artists should have been paid from the site off its 40M users (basically, like radio).
Nick Carr says Bragg is right. The hippie love crowd says Bragg is wrong.
Here’s the thing: anyone who says one argument is right or wrong is wrong. This is complex. Admittedly, Bragg’s argument traces back to MySpace, who would try to seize ownership right of uploaded music and ended up selling for $580M to News Corp. Ironically, MySpace itself is an example of “ripped off talent and sweat” for its founders probably feel like they got jipped as parent Intermix and their VC Redpoint Partners walked away with over $550M (if not more) of the proceeds.
You see, in life, you don’t get what you deserve, you get what you negotiate for: Bragg says that artist royalties were the white elephant in the room when Birch asked him for feedback on artists’ demands and outlook (when he was introducing music to the site). Well, Sir, why didn’t you bring it up? The fact that the Birches did not raise the issue does not absolve them of any duty, but it does not make them wrong or criminal, at worst, it makes them opportunistic… and more power to them… for we live in a dog-eat-dog, capitalistic society.
Why is this important? Mr. Bragg argues that artists and musicians are no less important than accountants, engineers, investors. He is right, but I really, really, really doubt investors would have plunked down any money if Bebo had a guaranteed liability to artists yet had no tangible guarantee of any upside, revenue or value created.
I met the Birches very briefly in LA at Paid Content’s shindig and they seemed like genuinely nice people. I’ve never net or heard of Mr. Bragg but am sure he is no devil, either. Life is complex, business is even more so.
Ultimately, the lesson is very simple: sadly people don’t get what they deserve (good or bad), they don’t even get what they ask for… no one hands you anything, especially not in the super competitive music or business worlds.
Kara Swisher - who is pretty much at the epicenter of any and all rumors (not a knock) - publishes some interesting financials on the Bebo sale to AOL:
According to the several sources who were privy to Bebo’s financials, for example, Bebo’s revenues for 2006 were only $7 million with $3 million in EBITDA (earnings before interest, taxes, depreciation and amortization). In 2007, the results are still small, with $20 million in revenues and $5 million in EBITDA.
For what it’s worth, that is a very healthy growth rate, but what happened to the margins?
This can be explained by further investment in infrastructure and keeping up with the growth rate (Valleywag mentioned their down time, for example, leading all social networks). After all, the fact that this company did not exist 3 years ago is very impressive.
She continues:
Using 2007 results, that means AOL paid a handsome 42.5 times revenues and an incredible 160 times EBITDA.
AOL might assert that it makes Bebo a bargain, given Facebook got valued at 50 times revenue when it got that $15 billion valuation from the $240 million investment from Microsoft last year. Still, Facebook has a huge presence in the U.S. and is growing strongly in Europe, including being just ahead in Bebo’s strongest territory in the U.K.
Projecting outward, the company estimated–remember, these are not actual numbers, but a best guess by Bebo execs–it would have $50 million in revenue and $10 million in EBITDA in 2008; $117 million in revenue and $48 million in revenue in 2009 and $193 million in revenue and $92 million in EBITDA in 2010.
I am pretty wary of any company’s projections. Everyone wants to see a hockey stick, and it’s not very hard to deliver that using Excel. Regardless, here is the projected growth rate and impact on the margins:
Of course, if Bebo was looking at strolling towards an IPO, then they need two things:
- $100M in revenues, and
- the hockey stick.
Let’s look:
I am not saying that Bebo could not have hit these… but realistically… those are massive upticks in growth… and in the social media space, they are unfounded.
Kara continues:
While potential is important, the high price (which was still lower than the $1 billion and above that Bebo might have fetched even six months ago) and its small presence in the U.S. was the reason several companies passed on acquiring Bebo–including News Corp., Google, Yahoo and CBS, said sources close to each of these companies.
Indeed, clearly AOL is buying for the growth. See our commentary on the deal here.
Connecting the dots, both SAI and Giga Om talk about the price AOL paid per user:
- Bebo sold to AOL this morning for $850 million and have about 40 million users, costing $21.25 per user.
- In July 2005, News Corp. purchased the parent of MySpace for $580 million. At the time, MySpace had about 21 million users, costing $27.62 per user.
- Those are as direct as we can make it, but let’s say we bring out a crazy deal where the buying company admitted they overpaid. When eBay shelled out $4.1 billion for Skype, it paid about $52 per user.
I think historical prices and benchmarking Bebo to MySpace and Facebook - 3 and 1 year later - is unfair. Ultimately the Bebo crowd did not need to sell… but at $850M the offer was sound and AOL - despite the haters - remains a pretty solid media company. It just needs to do some soul searching. Here are some options for AOL.
Most media companies will look for micro deals in 2008 to complete their product lines, but today, Time Warner went against the grain by taking out its checkbook and acquiring European-centric social networking powerhouse Bebo for $850M.
Make no mistake about it, this is a sizable deal; after all, MySpace sold for $580M just three short years ago.
Tale of the Tape from Paid Content:
- Bebo.com URL bought for $8,000 in July 2005.
- Bebo.com raised $15M investment in 2006 from Benchmark’s European arm, Balderton
- Benchmark’s cut is $140M (doing the math, they owned 16.4%)
A few things worth emphasizing:
- For February 2008, Compete shows 3.5 million U.S. visitors to Bebo, 28 million to Facebook and 65 million to MySpace. So Bebo is the third-largest social networking service in the U.S. behind MySpace and Facebook, so this catapults AOL into a nice position, but time will tell if this will propel Bebo or slow them down.
- Bebo had been rumored to be on the auction block for $1B, if not more. The fact that they sold for less says something. What? I think that you are seeing financial backers want exits if there is no way for a company to be #1 or #2 in a space. As much as Bebo gets credit for their fantastic track record, there is no way to compete with Facebook’s $300M funding and MySpace’s parent, News Corp.
- Time Warner’s AOL is clearly moving away from destination (AOL) to network (Platform A + Bebo).
- Just yesterday, Time Warner CEO Jeff Bekwes said AOL was on the table. Clearly he knew this deal would be announced shortly, so this suggests that AOL is bolstering its value to others. In a way, it’s gobble or be gobbled… and AOL is both seller and buyer. Om Malik coins it better: AOL is schizophrenic!
- This reinforces the notion that for these massive new media companies, growth is in international, not US: Bebo is tops in UK, New Zealand, Ireland.
- TWX - whose stock is near 52-week lows - essentially took $850M off their balance sheet to help boost their top line (Advertising.com has been driving AOL’s revenues, so this does give Advertising.com more inventory).
- However, there is a risk here: social networking sites remain very challenging to monetize, but thankfully, AOL can leverage Tacoda’s behavioral targeting system, which they bought last year for a cool $275M.
- Bebo has a deal with Yahoo!, but since AOL owns Quigo, I presume AOL will soon swap out Yahoo!’s text ads for Quigo’s. However, Quigo usually partners with solid brands such as SI.com (also a property of TW, incidentally), I am not sure if the advertisers who turn to Quigo will really welcome social media inventory… time will tell.
- Speaking of Yahoo! - AOL has been in talks with Yahoo! about a hookup in the wake of MSFT’s unsolicited $31/share takeover bid. In some ways, this makes AOL more valuable in any merger talk with Yahoo!, but this also frustrates Yahoo! because Yahoo! was looking at buying Bebo itself (allegedly for $1B) and it was already in bed with the social networking site by representing its ad inventory. Not sure if Jerry Yang and company will see this as good news. Mind you, they’ll blame Microsoft for this, too.
Bottom line: this deal captures many of the trends we’re expecting to see in 2008:
- Go big or go home: if you are not #1 or #2, why bother? AOL knows that for it to be more valuable, it cannot be a has-been online.
Live blogging for those who cannot get enough Bebo and AOL here.
Disclosure: I own shares of Yahoo!
Bebo today joined the many large distribution destinations who lack any original compelling content and called out on content owners - mainly video content owners - to share the goods in exchange for branding and revenue.
Indeed, it’s all about perspective. The intro sentence is my version of the facts, a content owner.
If you read a lot of tech media’s take on it, you’ll see it from the other way around, such as, “Bebo opened up its social network to video partners who want access to its captive audience.”
That’s not really the case, that’s the spin. MySpace, Facebook, Bebo, Veoh, etc., all lack any proprietary content. Yet, they have massive audiences. They are getting marketers attention but the kind of user generated crap that their audiences are generating is not cutting it, so one by one they are “opening up and going platform.”
It’s a big pile of PR BS. Bottom line: content is was and shall remain king, and this is the latest manifestation. Whatever you want to call it, it’s a smart move from Bebo.
Also, big old media will initially try and test anything (think NBC and YouTube) but eventually, it’s hard to teach new tricks to old dogs, so while 22 partners have signed on to Bebo, over time, old media will take back control (think Hulu).
But, like I said, that’s my version of the facts…
When Facebook got MSFT to pony up and pay millions of dollars in guaranteed revenue in exchange for their search business, the immediate reaction was: “MSFT got market share”. Over time, as Facebook continued on its solo route, the reaction turned to “Facebook has revenues over $100M, so it can IPO”. When the IPO drumbeat got louder, that changed to “IPO? You do know that most of Facebook’s revenues come from 1 deal, MSFT, right?”
In other words, we recognize that business deals that seem good can turn to bad ones over time. We’re not saying that the Facebook/MSFT deal is bad for either side, we just wonder why companies do these business development deals that clearly impact corporate partnerships and acquisitions down the road.
For one, if my memory serves me correctly, it would only cost Facebook $10M to break the MSFT deal. Paltry, when you consider what Facebook would fetch in a deal. Heck, Mark Zuckerberg would be able to pay for that himself.
Today Yahoo! announced a deal with Bebo, in a deal that makes me scratch my head (disclaimer: long YHOO stock). Here’s why: social networking sites are notoriously tough to monetize. If Yahoo! is doing this deal, it’s essentially a me-too, herd mentality move because MSFT is in bed with Facebook and Google is in bed with both MySpace and Friendster (remember them?).
Yahoo! had shown an interest in buying Bebo, for a reported $1B, but that did not materialize. By signing this deal and getting (we presume) guaranteed revenue, then Bebo need not sell to Yahoo! In other words, they are reiterating that the cheapest form of equity is in fact sales.
For Yahoo!, it will be getting millions - if not billions - of impressions that will only pummel their click through rates (CTR) and in fact bring down their effective revenue per clicks (RPC, or CPC to advertisers).
After all, if Facebook was knocking CTR, CPC or revenue out of the park for MSFT, MSFT would have stepped up and paid a premium and bought Facebook by now. They have not.
So why would Yahoo! do this?
Well, let’s face it, no one really cares about CTRs and CPCs so long as total, aggregate revenue goes up, and with a rapidly growing Bebo and a hot UK ad market, then this deal is probably about that for Yahoo! Boosting exposure in Europe and the UK and trying to make up the massive revenue gap between itself and Google.
A couple of weeks ago, eBay was said to buy Stumble Upon, sort of.
Last week, CBS bought Wallstrip, sort of.
Today, Yahoo!’s buying Bebo, according to the Telegraph, sort of.
I met Michael and Xochi Birch at EconSM. Nice folks. Happy for them if the deal goes through. Well, that’s if you think of Friendster’s fate, who passed on an offer from Google that would now be worth well over $1B had they accepted. If you think of MySpace or Facebook’s fate, then Bebo should not sell, given the red hot UK ad market. As a YHOO shareholder, I think I’d like this deal to go through because a) YHOO would get a nifty social network and b) a great shot in the arm in the UK.
Paid Content points out that Toby Coppel - YHOO’s former dealmaker - is now its Head of Europe, so this sounds like it could all be true, but PC also points out that the Telegraph’s report is indeed highly speculative, since it’s a UK based newspaper reporting based on “Silicon Valley” rumors. Yeah, highly credible.
Either way, the consolidation continues. Next thing you know, something crazy will happen like News Corp. trying to take over Mojo Supreme… For a look at publicly traded firms that might be on the radar of buyers, click here.
All to say, I doubt YHOO would be looking for more “unsellable” inventory (social networks yield lower ad rates) had it not bought Right Media, but given YHOO’s willingness to up the market value of Right Media from $200M to $800M in less than a year in successive deals, something tells me that this auction bidding ad inventory management is panning out. Of course, knowing YHOO, they might find a way to mess that up, but the point is that Bebo is a nice social network, run by smart people, positioned well in the space (a cross between MySpace and Facebook, is how Birch described it) and extremely well in the UK… and if via Right Media YHOO can monetize all inventory - even the longest of tails, then this could be a shrewd move.
PLAY
