The Grinch Who Stole Q1
Tech Crunch has been making the rounds and the projections for Q1 2009 online advertising are bleak:
Display advertising revenue is going to fall of a cliff in January according to a number of content sites I’ve spoken with who rely on advertising for revenue. “Sales through December were mostly strong as advertisers used up their marketing budgets,” said one sales exec. But, he added, “there are few buyers for this next fiscal quarter, and those few that are buying are looking for steep discounts.”
Just how bad will it be? I’ve heard estimates of 30%-80% revenue drops over the next three months from companies that serve a variety of content (games sites, tech news, celebrity news, political news, etc.). The median pessimism point is around 50%. The people I’ve spoken with work at large public companies and small one-person blog shops. Absolutely no one I spoke with said they expect an up quarter.
Negativity Begets Negativity
At some point (and we’ve passed that point, folks), the bad news becomes a multiplier effect for more bad news:
- a media buyer sees this kind of article, uses it to lowball a publisher,
- the publisher sees little bright news, so they give in,
- the rates fall downwards, the bookings become rarer and rarer,
- next thing you know, indeed, we’re in a down quarter.
D stands for Deflation…
The web economy and online advertising sectors represent tiny pieces of the bigger picture. The buzz word in 2009 will go from subprime to deflation… so if we operate in a climate (or think that we do) of falling prices, then I wonder why we’re shocked to realize that ad rates and overall ad revenue might fall. I think at the macro level (all marketing) this might - and will - happen. From AdAge, via MediaMemo:
… and Display Advertising!
But as we outlined in our 2009: The Year in Online Advertising, yes, display will be weak, but I think publishers are buying into the glass-is-half-empty outlook because of bearish reporting. The truth is, my gut says things will go down a bit differently:
- marketers will push for video ads (and rich media ads in general) in display advertising real estate,
- the definition for video advertising will move away from purely instream ads (pre-rolls or overlays, for example) to include in-banner video ads,
and by mid-year, the actual display advertising figures will be fine (when you include the video / rich media units).
I do agree that traditional display ads will be weak… mainly due to a horrible Q1.
Let’s be honest: CPA and CPC are for suckers
While many are using the downturn to suggest that performance-based advertising units will see a boom, I’d like to point out a truth that most publishers fear admitting: CPA and CPC ads don’t really work for publishers, so even in horrible CPM times, I don’t think you will see a boom in performance priced ads in a downturn. For more on the entire CPC, CPA and CPM and other online ad terms, click here.
CPA and CPC revenue does not pay the bills, and quality publishers generally reject giving up prime real estate to CPC and CPA inventory.
But don’t take this from me, just follow the market: why else do you think Doubleclick, Blue Lithium, aQuantive and Right Media all got bought out (they all pay out largely in CPM terms even if on the back end they arbitrage inventory on a performance basis) whereas Valueclick remains standing, with no one to partner up with. At its peak, Valueclick was worth $3B with talks that it could fetch more. Even before the market meltdown, it was trading at $1B. Today, in the post media meltdown market, it is trading at $562M in market cap, with an enterprise value of $460M. The point being: in my experience dealing with of all the ad networks, from the publisher’s perspective, Valueclick was the most exposed to CPC and CPA and thus, most expendable.
Now this is all just my gut, but my gut has been right before: here’s one example of CBS buying CNET.
All Things Are Relative: At Least We’re Not in Radio, TV or Print!
If online advertising sentiment is this bad, even if the outcome is half as bad, then imagine what the radio, TV or print outlook is right now. Can you really imagine a media buyer paying $1M - let alone $50M, as Dell balked at - to be in print? What about radio or TV, which represent a black box in advertising where you don’t get to even track or target anything?
Newspapers like NYT and Tribune are - or are at risk to - defaulting right and left. TV companies like CBS are seeing declines in revenues. Radio companies are not faring better.
The point I am making is: there is a bull market somewhere at all times - even these times - and that market is online. It’s time to balance the reporting, too. I find it appalling (alright, strong word) that a site like Tech Crunch inflated the bubble on the way up, and is now ringing the bells of doom in the downturn… but that is publishing… and Tech Crunch does it well.
Who does the doomsday scenario thing best? Henry Blodget. Reading his Alley Insider, you’d think he and his talented staff of writers were typing on a ledge somewhere, choosing between the Publish button and jumping out of the window. For a great piece on his comeback, read this Wired piece. Mind you, in all honesty, I am technically guilty of this as well, the title of this piece should be “Will Online Ads Fall by 50%”, and not “What Happens if Online Ad Revenue Falls by 50% in Q1?” - but when I started writing it, I was thinking more of the impact on print… but then I started to ask myself, can this even really happen?
Well, maybe. At the end of the day, we just saw a major evaporation of wealth throughout 2008 in the housing, financial and automotive sector, to think that online advertising will go on unscathed is foolish, but to alternatively expect a 50% decline in what is the only bright spot in all of marketing is equally foolish.
During Google’s troubled earnins report (see our coverage of that here), Eric Schmidt jumped in to talk about Google’s boundaryless display and video advertising revenue opportunities. Comments Henry Blodget:
Amid battering from analysts on unit growth, CEO Schmidt jumps in to remind everyone about the display revenue and YouTube opportunities. Out of character and probably a direct response to the quarter miss and resulting analyst pandemonium.
I do think that YouTube remains a vastly untapped but not obvious opportunity (disclaimer: WatchMojo.com provides content to YouTube as a professional producer).
But Doubleclick? Doubleclick did $300M in revenues in 2006 but has since lost some accounts (IAC, for example). So net-net, I’m not sure Doubleclick’s revenues will make a dent on Google’s massive $15B revenue base.
Moreover, ad serving is a low margin, competitive space. Plus, with open source ad server OpenAds raising $15M and “shrinking the ad serving market” I doubt Google will generate much more than $300M per year off Doubleclick in years to come. If anything, Google might take the price of ad serving close to zero (and pull an Urchin, ie. make it free to bolster its bread and butter which remains AdSense/AdWords).
But most importantly, let me grab my bullhorn and repeat:
“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”
Doubleclick gives practically zero exposure to he faster growing display banner business. Google bought a software that is a commodity, a valuable piece of software, no doubt, but not one that will generate billions in revenue.
What should Google do right about now? It should buy Tremor Media or Broadband Enterprises, or maybe Brightroll. Read more on that rationale here.
To dive into display advertising they’ll need a media / sales platform, one company that could be interesting would be Tribal Fusion, one of the remaining ad networks that focuses on display advertising. There’s Valueclick, too, but Valueclick comes with a few more risks and baggage. Plus, Valueclick is more of a CPA play, whereas Tribal Fusion is a hybrid play with a CPM slant. For the difference between CPM and CPL and other ad terms, click here.
As per monetizing YouTube, trust me, I’m ahead of you! But that’s all I will say, for now.
See HipMojo.com’s post on the Doubleclick / Google deal below:
- 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
- Why aQuantive is Worth 2x Doubleclick
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.
When pundits think of what might be in store for Yahoo!, the options that come to mind are as follows:
- status quo
- merger with eBay
- acquisition by/merger with Microsoft
- taken private
No one really suggests that Google will and can buy Yahoo!, and that has a lot to do with the current breakdown of the search engine market space.
Any combination of Google with Yahoo! would yield a monopoly obstacle. Google’s 57.4% market share in search and Yahoo!’s 22.9% gives the Stanford alumni 80.3% market share in the influential search engine industry.
But, some dealmaking could make that a non-issue.
I’ve already argued that in many ways, Yahoo! being taken private would shelter it from envious investors that yearn Google’s faster growth rates. That would allow it to continue to throw off more cash and eventually be taken public again when online advertising is an ever bigger juggernaut.
But say Yahoo! chooses not to stay independent as a publicly traded firm or go private, the options remain sell to MSFT or merge with eBay. The objection that some people raised with MSFT remained conflicting cultures and Jerry Yang’s supposed disdain of MSFT products.
But what about Google?
Sure, the egos at Yahoo! might never allow this to happen, for Yahoo! was close to buying Google for $1B, or so goes the legend. But what if egos can be set aside and Yahoo! considered a $50B offer from Google. At a market capitalization of $160B, with $10B in cash, that gives Google a $150B enterprise value.
Of course the second issue is would Yahoo! stockholders accept a stock deal, since Google will have, after a $3.1B Doubleclick acquisition, about $7B in cash left.
Assuming there are no restrictions and Yahoo!’s shareholders can simply sell the Google shares shortly thereafter, then let’s assume that this would work as well. Moreover, one of the main arguments why Yahoo! shares are in the dumps, some would argue, is that Yahoo! shareholders suffer from Google envy. Mind you, as a Yahoo! shareholder, I’m not sure I’d prefer having Google at $150B than Yahoo! at $36B. But I also said that with Google at $30B, $40B… ok, this is painful, you get the idea.
So assuming Google offers and Yahoo! accepts a $50B deal, that means that Google/Yahoo! (I’ll spare you all the potential names for a combined entity) would have a combined value of about $200B, with Yahoo! shareholders owning 25% of the firm. Like I said, I’m not sure Yahoo! shareholders would accept this, but it is 25% of a $200B enterprise value entity, that with its roughly $10B in cash (Google would have $7B and Yahoo! $3B) would have a market capitalization of $215B…
That, I’m sure you noticed, would technically be pretty close to Microsoft’s $259B enterprise value (its market cap as of today is $285B).
Of course, how could this happen, given that a comined company with 80% market share would never get approval to merge, right?
Wrong.
Some objections: Yahoo! has spent a lot of time and money to build Panama. But the flip side is that Google’s monetization is currently at $0.11, compared to Yahoo!’s $0.04. Of course, on record: as a Yahoo! shareholder, I fully encouraged, encourage and will encourage Yahoo! to build and own its search business. I think any new media company who relies 100% on Google for search is foolish. But in the context of building a powerful combination that would get by legal scrutiny, if Yahoo! shareholders really wanted this to happen, they could simply sell its search business to someone else, be it MSN, who commands but 8.8% share, or even IAC (though I doubt it could afford it) or Time Warner’s AOL, which commands but 5% market share.
Bear in mind that in the wacky world wide web, sometimes some deals don’t really make sense strategically, they just are part of legacy deals, arrangements, etc. Example: Google owns 5% of Time Warner’s AOL, yet Time Warner’s properties CNN.com and SI.com have their search powered by Yahoo! In some ways, it makes total sense; in other ways, it’s banal.
Now, there are a couple of ways this can play out.
1- Sale of Ad Technology Platform only
In this scenario, MSN buys Panama and Google/Yahoo! continue to serve ads, but split it with MSN. The split could be 50-50 or even 100-0 in MSN’s favor, since MSN would need an incentive to buy only the IT and IP of Panama but not get to generate ads. This arrangement could wok in the short and mid term, eventually MSFT would want total control, but I could see them agreeing in order to get approval from anti-trust chiefs.
In other words, Google would use its ad server, its keywords of paid ads, etc., and since they yield 0.11 CPC vs. Yahoo!’s 0.04 CPC, it could work in that the total pie could somehow be bigger. Technically, if the 0.04/0.11 ratio is correct, then Google would be happy to take 36% of revenus vs. 64% for MSFT.
MSFT’s incentive here is to get search advertising technology to reinforce its adCenter platform and boost its search engine market share from 8.8% to 31.7%. Google would still have 57.4%, or 81% more. Combined with its 275% times higher monetization rate (0.11 vs. 0.04), that still gives Google a whopping lead.
The cost, of course, is that MSFT won’t own the ad inventory, only the IP/IT. In this case, would MSFT still pay $50B? Probably not. It could technically get a discount equal to Yahoo!’s search revenue, discounted by a rate for the cost of capital for the number of years this arrangement would be grandfathered.
This sounds counter-intuitive, but bear in mind that we’ve search many odd arrangement in the search engine business:
- the above-mentioned AOL/TW/Yahoo! situation where TW relies on Yahoo! to power its properties even though Google owns 5%.
- Google paying Ask Jeeves 110% revenue share to lock up the distribution deal.
2. Sale of Technology and Ad Business
This one is less interesting to Google and Yahoo! in that they give up both the ad serving technology and the 22.9% market share inventory that Yahoo! currently gets. In other words, indeed, Google wins Yahoo!’s display business, its email business, all of the bells and whistles, from Flickr, to Delicious, etc. In fact, this is akin to splitting up the Yahoo! asset into two, with the search business becoming either a) a smaller, stand-alone company or b) sold to someone else, notably MSFT.
Of course, Google does not acquire the 22.9% search volume, but at 57.4% and rapidly growing, it might think it’s worth it to give that up for a shot in the arm in the faster growing video and display ad business. Bear in mind that despite buying Doubleclick and YouTube, Google is still not well positioned in either the sale of either display or video ads. This is why we just wrote: What’s the missing piece of Google puzzle?
Oddly enough, anti-trust chiefs would see this as a boost for competition.
Google generates more profit in one quarter that Yahoo! did all year: Google netted $1B on sales of $3B in Q1 2007 whereas Yahoo! did $751M in all of 2006 (on sales of $6.4B).
That’s in total ad business, so imagine how much more revenue Google makes in search revenue than Yahoo! It could basically view this as an immaterial loss, especially since Yahoo!’s audience has a far lower propensity to search than Google’s does. I covered this here, and so did Microsoft’s Don Dodge here. Another reason why Google would live with this, frankly, is that people spend more time on Yahoo! than they do on Google, Paul Kedrosky looked at this, here.
Oh, there’s one more reason why Google would do this, naturally by foregoing the search business - be it tech alone or tech and media - Google could pay far less. How much of a discount?
Let’s see.
When Don Dodge stated that 1% market share is worth over $1B, I disagreed. After all, with its 22.9% market share, that would imply Yahoo!’s non-search business is worth but nearly $23B and the non-search business is only $12B (and if you rely on comScore, then it would be $26.4B for search and only $8.6B for non-search).
I did some number-crunching and projected Ask.com to be worth $3.15B. In that post, we also projected that Yahoo! commands about $750M for every 1% it holds, so times 22.9%, Yahoo! search business is a $17B business, meaning that the non-search business is an $18B business (Yahoo!’s enterprise value, once again, is $35B), so it’s a 50-50 split, almost.
Frankly, I’d value it at more, but bear in mind that most online business are actually worth more separate than combined once they’re developed. Case in point: IAC spun off Expedia for a reason, and we ran some numbers to suggest that News Corp.’s Fox Interactive Media was worth more separate than combined, and given the focus on MySpace, IGN should be spun off.
Of course, once we consider all of this, then in fact we’re splitting off Yahoo! into two: the search business gets effectively sold to Microsoft (for example) and the rest goes to Google.
So Google would in fact not have to pay $50B, but only $25B, and Microsoft would then buy the search business for $25B. Google could sell more stock, raise cash and make an all-cash offer, or Yahoo! shareholders can ask for a portion in stock or all stock. By now, frankly, we’re talking crazy.
This begs the question: would Microsoft pay $25B for Yahoo!’s search business? Would it pay $50B for the whole thing?
Doing the former means that they get Panama, an additional 22.9% market share but they’re still a far distance away from Google, who commands 57.4% and would now have the Yahoo! video and sales ad sales machine under its umbrella. At that rate, Microsoft might as well make a run for all of Yahoo!, even though that creates some redundancies and doubles the financial risk.
Of course, for the former to materialize, that would mean that Google would want Yahoo! so bad (to get into the sale of video and display, reinforce its market share in email, double up ad inventory, get its hands on all of Yahoo!’s properties and assets etc.) that it would let the search IP go to MSFT or remain independent as a smaller, search player.
All of this is unlikely, admittedly, but when Jerry Yang and Yahoo!’s Board reads this, they suddenly realize the plethora of choices that present themselves to the company.
Disclaimer: Long Yahoo! stock.
Somewhat odd, and interesting, to see Google’s official blog list down the reasons why they’re buying DCLK:
“In summary, we’re buying DoubleClick because:
I definitely questioned the rationale here, but I think ultimately, Google + YouTube + Doubleclick can go crazy in the video and display business as it did in search.
There’s been a lot of talk about the steep premium MSFT paid to acquire AQNT, and there are many reasons for that, one being that in the ad networks marketplace, it had become a seller’s market, quickly, after DCLK sold to GOOG for $3.1B.
But in light of the bidding war between MSFT and GOOG for DCLK, I’m not surprised at all that AQNT fetched that much (I own shares in AQNT). I gave my two cents as to why “AQNT is absolutely worth 2 times DCLK” here. Of course, anyone’s guess is as good as mine. Today, TheStreet.com joins the camp of supporters who are bullish on the deal.
But ultimately, I think that they paid so much because a) AQNT was the jewel in the online ad crown in its segment and b) there were other suitors. Whether Google was one of the companies, I’m not sure. If it was, it was a defensive move. And if Google was interested, then MSFT wanted to show Google that goodwill, positive press and user euphoria notwithstanding, MSFT had the financial firepower to beat Google in the one area that in some ways counts: at the cash register.
Google is making a lot of money, we’re talking $3B in profits on $10B in revenues in 2006. But it has $10B in cash, and parting with $3.1B for DCLK. Even if it wanted to buy AQNT, it could not have spent $6B out of a remaining $7B on them.
This deal, besides getting MSFT into the red-hot online advertising space in a major way puts Google on the defensive in a few ways.
This is also why, you saw yesterday talk of a Google/Salesforce partnership. In the past, I had suggested Google could launch a Salesforce killer just by bundling some of its features. But the fact that Google is partnering with CRM and not launching a competitor or buying them shows the limits of Google’s capabilities.
Background
On March 27th, I suggested that MSFT should spin MSN.com/Live.com into Yahoo! In fact, afterwards a reader even sent me a link to John Battelle’s like-minded suggestion, time-stamped March 13th.
Bear in mind that last year, it was widely reported that Merrill Lynch analysts etc. suggested an all-out buyout of Yahoo! by MSFT, which at the time I did not think would be possible given YHOO’s desire to remain independent.
Recent Developments/The Rumors Start Again
Today the rumor mill began again, after Google bought Doubleclick and Yahoo! bought Right Media, Yahoo!’s appeal to MSFT only shot up. YHOO is my biggest holding in my portfolio, I am actually doing a live post on whether I’ll sell or not today here.
And of course, Terry Semel is doing the keynote at MSFT’s shindig. Things that make you go hmm…
From Marketwatch:
The New York Post and The Wall Street Journal reported that Microsoft may want to buy the firm in what could be a $50 billion deal.
Microsoft’s interest may be piqued by Yahoo’s recently announced intentions to buy Right Media to strengthen its display-advertising business. The deal “better positions Yahoo to compete with Google in display,” Bear, Stearns & Co.’s Robert Peck told clients.
Yahoo and Microsoft reportedly have held talks within the past year but couldn’t reach an agreement.
A spokesman for Yahoo said the company wouldn’t comment on market speculation. Microsoft, in a statement e-mailed to MarketWatch, said: “At this time, Microsoft has no comment.”
The Post, citing anonymous sources, said Microsoft has intensified its pursuit of Yahoo and has requested formal talks. Analysts say Microsoft may be feeling increased pressure from Google, which recently bought DoubleClick for $3.1 billion.
The Journal suggested that Microsoft could go for a smaller deal, spinning its online group into Yahoo in return for a stake in Yahoo.
Hmm… where have we heard that before?
Of course, everyone is adding their two cents, and that’s great, here’s one of my favorite observations, from Adam Lashinsky of Fortune blogs:
The article reads like banker talk: Investment bankers on one side or the other (or, better, a banker who couldn’t get a seat at the table) chatting up a deal to get things moving.
A Shareholder Asks: What Are Yahoo!s Options?
I’m asking myself: should I sell my holdings? I had a nice gain wiped out after Q1 results when YHOO let one rip and everyone in the room heard it. At the time I reiterated the pros of spinning a new MSN/YHOO online entity, but also reiterated the virtues of going private, where I believe YHOO (like DCLK) can triple in value by doing so.
I would like to stress that by now, this idea of spinning MSFT’s MSN/Live.com and YHOO in a separate company (outside of MSFT) is pretty much agreed to be the best solution. Henry Blodget is blunt and right on about why here.
And of course, Paul Kedrosky comes out and points out the inherent foolishness of doing just that:
Some people are saying that Microsoft needs to spin out its “Internet” business and combine that with Yahoo. Newsflash folks: This is 2007, every technology/software business is an Internet business. If you want to make the argument that MSFT needs to carve out media and advertising then make it, but don’t conflate media/ad with Internet and pretend the latter still remains a distinct category, because it doesn’t.
Pretending there are are Internet and non-Internet aspects to a tech company like Microsoft is like pretending you can have peeing and non-peeing sections in a swimming pool. It doesn’t work.
That’s precious, what a gem (almost as good as my line that if “prostitution is the oldest profession in the world then the oldest habit in media is publishers prostituting themselves for advertisers” here, but we’re sidetracking now). But indeed, I see that “This is 2007, every technology/software business is an Internet business,” and indeed my argument is to combine the “online advertising and search units,” hence why in my earlier post I explicitly say “spin MSN.com/Live.com into Yahoo!” and not “spin the Internet stuff out.” Though even then, I sort of see that one major reason for this kind of deal is the fact that software and online advertising will coexist sooner than later and this is done to offset Google’s foray into MSFT’s software.
Deal Structure: All-Cash, All-Stock, Half-Half?
MSFT has $25B in cash, according to Yahoo! Finance. While it won’t hand over every penny its got in its corporate coffers (and issue the rest in stock in a 50-50% cash/stock deal), it does generate something like $1B per month in free cash flow. Then, there’s debt. MSFT can easily raise debt, plenty of it, and pay YHOO shareholders $50B in cash.
MSFT is a growth and value stock at once, as a YHOO shareholder, I’d ask for a 50-50% deal. Note, that I owned MSFT for a while, getting in at $22 and selling at $30 this past year. Did I think there was no upside at $30? Not necessarily, but a combined MSFT/YHOO would represent some nice upside, though there are operational, cultural and financial risks for sure.
Tale of the Tape
Before this rumor crept up, YHOO’s valuation was at $32 billion. According to PaidContent.org, YHOO’ shares surged in overseas trading on news of the talks, raising the company’s market value to around $38 billion on Friday. Now the rumor has shot the valuation to $44B.
If this happens and MSFT buys YHOO for $50B, I make an additional 13%, if I sell now - that assumes that this deal won’t happen - I make a decent return and effectively end my three year support and love affair with YHOO. Of course, if the deal does not happen, does the stock fall back down to what it was at a valuation of just less than $37B?
Disclaimer: If it hasn’t been made super clear yet: YHOO is my biggest holding. See what goes through the mind of an investor here. Anyway, I’ll write more throughout the day.
One of the best things - ie. most reassuring - is that the stock market is not exuberant.
Today, Yahoo! bought the 80% of Right Media it did not own for over $600M, valuing the entire company at over $800M. To put this into context, NBC bought all of iVillage for $600M, News Corp. bought Intermix (MySpace’s parent) for $580M, and all of IGN for $650M. All of these deals took place less than two years ago.
Just last month, of course, Google bought privately held Doubleclick for $3.1 billion, effectively raising the price for peers such as Right Media. When I read this, I thought “that’s a home run for Right Media,” because by staying independent it would invariably face competition for Google/Doubleclick, but I also thought: what would that do to 24/7 RealMedia, Valueclick, aQuantive and other publicly traded firms.
Disclosure: of the companies mentioned, I own shares in YHOO and AQNT.
While some people had called for heightened demand for TFSM, AQNT and VCLK amid the DCLK buy, it was a no-brainer that YHOO would not be in the running for TFSM, AQNT and VCLK, since it already owned 20% of Right Media and backing TFSM, AQNT and VCLK would have an adverse effect on its investment on Right Media… but nonetheless, seeing Right Media shoot up from a valuation of $200M to $800M in a matter of months suggested that the implicit value of TFSM, AQNT and VCLK would rise, and not fall.
Today, the stock prices of all three TFSM, AQNT and VCLK fell, but not because of the fact that YHOO buying Right Media translates to one elss suitor for these firms, but rather, because Citigroup analyst downgraded AQNT (bad analyst, bad analyst).
Jokes aside, this was a welcome move by any sane and rational investor. Sure, short term I would have liked an additional spike in AQNT’s shares, but having seen the stock spike 30+% year to date, this $1.86 fall in AQNT’s stock price suggests that it will be easier for it to surpass expectations and or up guidance. Please note that this is an observation - and at the very most a wish from an investor - and not a recommendation to buy or sell any of the securities mentioned above.
I know a few people at Right Media and began to track them all the way back when they launched when I was VP of Sales at a publisher, so I am very happy for them in this stock/cash deal, but the rapid spike in valuation in a matter of months shows - like the DCLK deal showed as well, that the private market for securities is a lot more irrational than the public markets…
Or, maybe, both markets are equally rational / irrational and ’tis the market for all things digital that is hot… I do wonder what this means to the valuation of companies such as Tribal Fusion, Blue Lithium and other privately held online advertising companies…
Since 1994, we have seen many companies come out of nowhere, off the radar, only to grow into positions of leadership and dominate their sphere. Some go on and galvanize that leadership positions, others falter and let someone else pass by.The following is HipMojo.com’s list of Internet Company of the Year, based on growth, market leadership, traction, strength of management, prospects and overall accomplishments.
All right, time for the envelopes, and the winners are:
1994: AOL.com
The year 1994 marked the appearance of ISPs across the web landscape. By August 1994, AOL merged with Redgate (a multimedia publishing company specializing in CD-ROMs), and a couple of months later, in November, AOL declared war on Microsoft, betting the farm on an online strategy. This marks the beginning of the rise of the Web versus the desktop theme. AOL begins to mail out millions of CDs trying to win over the masses. It works. AOL becomes the fastest growing ISP ever, surpassed only by Japanese wireless service provider iMode a decade later.
1995: Netscape
Netscape was created by Mosaic Communicatyions Corporation on April 4, 1994 by Marc Andreessen and Jim Clark. On October 13 1994, Mosaic Netscape 0.9 was launched, and renamed Netscape Navigator shortly thereafter. But it was on August 9, 1995 that Netscape went public, offering shares at $14 and closing at $75. In doing so, it ushered in the first wave of the World Wide Web’s golden era.
1996: Altavista
AltaVista remains a poster boy for the “what could have been” lot. It was launched on December 15, 1995 by its parent company DEC, but given its pedigree, it was used primarily as a showcase for DEC’s computing power. In 1996 however, it became Yahoo!’s exclusive search provider, and by 1998 was sold to Compaq, who then began the even-more-misguided plan to remake the search engine into a portal. By then, of course, Google was rising amongst pure-play search engines. In March 2004, Yahoo! bought Overture, who had previously bought Altavista; Overture itself is the runner-up for the “what could have been” prize.
1997: eBay
The “Candy dispenser story” is created by eBay’s PR manager, which changes its name from AuctionWeb to eBay. In 1997, the company captures the imagination of the masses, the next year the stock goes public, like many dot com entrepreneurs, founder Pierre Omidyar becomes a billionaire. Unlike most, thanks to eBay’s 80% profit margins, Omidyar remains a billionaire to this day.
1998: Yahoo!
Yahoo! was founded in January 1994 and incorporated a year later on March 2, 1995. It grew reasonably quickly from the onset, and on April 12, 1996, the company’s IPO raised $33.8M for growth opportunities. The subsequent year, in 1997, it acquired Four11 and its Rocketmail service, which became Yahoo! Mail. The rest, as they say, is history: in 1998 the stock rose from a split-adjusted $4 to $40, cementing its spot as the future leader of web media. In October 1998, it made its first acquisition, that of Yoyodyne, by 1999 it was acquiriing larger firms, first Geocities (1999), then eGroups (2000). Yahoo! could have also been named 2003’s Internet Company of the Year, in all fairness, since that’s when it started its resurgence.
1999: Amazon.com
In December 1999, when Time Warner (still separate from AOL) published its end-of-year issue of Time magazine, it put Amazon.com CEO Jeff Bezos on its cover for Man of the Year. While cracks had began to appear in the Web facade, the fact was that no one, and we mean no one, saw the storm that was brewing around the corner. Amazon.com was still a money-losing enterprise, but one that was widely believed to be making a run to acquire venerable retailer Walmart. Yes, you read that correctly. Today Walmart is worth 10 times more than Amazon.com. But within weeks of that cover issue, publisher of Time magazine Time Warner merged with AOL, ushering in the beginning of the end.
2000: Lycos
Launched in 1995 by Bob Davis, Lycos grew to become the most visited portal in the world by 1999. It was sold to Terra in May 2000, for $12.5B. By 2004, South Korea’s Daum Communications paid $95.4 million - less than 1% of Terra’s buyout price. What could have been was, came and went and Lycos today is an asterix of the Web’s go-go days… but Davis legacy remains somewhat unscathed as the architect of one of the premier brands of the Web’s first era of prosperity. Today Davis is a VC, Lycos is Korean.
2001: Napster
Napster was built in 1999, it spread like wildfire in 2000, but it peaked in 2001. Shortly thereafter, it was forced into submission by the RIAA and the record labels, but the genie was out of the bag, paving the way for decentralized P2P file sharing sites like Kazaa, Limewire, iMesh and Bearshare. Napster was at the time the fastest growing consumer application, ever.
2002: Google
The year 2002 could be seen as an innocuous one for Google and in many ways, we’ll admit that we could have picked Google in any year. But since other companies had their standout years in specific years, we picked Google for 2002 for a few, well, innocuous reasons. After all, by 2002, the Web had just suffered its devastating crash, and while many dot com dreams had gone up in flames, one company emerged largely unscathed and perfectly positioned to benefit from it: hiring cheap and smart labor and investing in the super powerful computer it is today. That year Google’s revenue grew 409% from 2001, but 2002 was also the last year Google’s revenues were below $1B per year, coming in at $439M. Somewhat more interestingly, that year marked the last year Google’s ending headcount stood below 1,000, finishing 2002 with 682 Googlers, by the end of 2003, Google employed 1,682 people, and today it employs over 10,000. That year also saw the shift of Google from a “simple” search application to the search and advertising powerhouse it is today: the next year, it scooped up companies that added to its lethal search algorithm: first Applied Semantics in April 2003, then Sprinks in October 2003, right before it began to plan for an IPO, in August, 2004.
2003: Cisco
The network is the computer, and no company has benefited more from that than Cisco Systems, the stock that outperformed all others, and won our Top 10 Web / High Tech Stocks of Past, Present and Future (link below). In some ways, Cisco should not make this list, but since we’re looking at Internet company of the year, then it’s unfair not to give Cisco some credit, especially since they are the ones selling the shovels and hats to the many entrepreneurs and investors looking to succeed on the Web. In 2003, long after the bubble burst, Cisco’s stock rose from $13 to $24, nearly doubling and effectively ushering the return of the Web.
2004: Skype
Skype’s history can be traced back to 2002 when Draper Investment Company invested in the company, which was founded by the entrepreneurs behind Kazaa, Niklas Zennström and Janus Friis. The Skype domain names were only registered in April 2003, with the first beta version coming on the heels of that in August 2003. But by October 2005, eBay paid $4B for Skype. Oh, in between, Skype revolutionized communications and scaled to millions of concurrent users, after hitting 1M concurrent users in 2004, 2005 saw them hit 4M concurrent users.
2005: MySpace
MySpace was founded in July 2003 by Tom Anderson and Chris DeWolfe. As one of the leading and more visible players of the social networking landscape, it silenced all the critics many times over: first when it overtook Friendster as the largest social networking site, then when News Corp. paid $580M for MySpace parent Intermix in July 2005 and then when it went on to triple in size after Rupert Murdoch took over the asset and created Fox Interactive Media around it. Today, MySpace is the largest web property when measured by pageviews, with its 100 millionth user profile having been created in August 2006. We dubbed MySpace the greatest Web acquisitions ever after Google paid News Corp. $900M in an ad deal for rights to power its search engine and run contextual search ads.
2006: YouTube
YouTube went from 0 to $1.65B in eighteen months. Founded by three former Paypal employees and funded by members of Paypal who relocated to the Sequoia venture capital group, YouTube meshed user generated content with tagging to create the fastest growing startup, ever. The company secured $11.5 million from Sequoia and cashed out when Google made an all-stock bid for the company in Q4 2006.
2007: Facebook
Facebook opened its site up to the non-college crowd in September 2006, by springtime, when they announced their developer program, Facebook was clearly the “it” company of the year, despite being the second social networking site behind MySpace.com. Facebook’s growth spiraled rapidly as the 25-34 demographic connected with old friends via the site. Throughout the year, the paper valuation of the company spiraled from $2-4B, up to $6B, then $10B, ultimately settling at $15B with a $240M investment for 1.6% stake from Microsoft. Additional investors were Li Ka-shing - East Asia’s richest person - and then the Samwer brothers (in 2008). The company faced some turbulence with privacy woes, its Beacon advertising program was practically a disaster… but by year’s end, Facebook was breathing down MySpace’s neck and partnered with the world’s most valuable technology company.
Who’s your pick for 2008? Vote in the comments.
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