VCs have a saying “we all make money or no one makes money”. All right, so that’s not the real saying… but the idea is: once the VCs make their dough back, then the entrepreneurs can get their money out, too.
There’s also a saying, to the tune of “everyone is equal but some are more equal than others”. That’s from Animal Farm, a story of the Communism Revolution depicting pigs. It’s funny that the animal of choice is the pig because when it comes to investing, we’re all greedy pigs, I presume.
Hearing the non-brouhaha over the fact that some VCs from Insight invested into Photobucket with their own money due to a lack of match between the company then and the firm’s target profile, I realized that sometimes perception is more important than facts. True, the fact is Insight does late stage deals and at the time the partners invested their own money, Photobucket had 3 employees, so it was obviously out of the VC firm’s investment profile. All right, is this a crime? Nope. The fund had no business to invest in a company like Photobucket. For the record, I once had a VC tell me that WatchMojo.com was out of his firm’s target profile but that he and his peers sometimes invested personally, prompting me to ask if he wanted to invest personally, to which he answered “double no” (I’m not making this up!). So the point I want to stress is: in a way, good thing the VCs invested because that at least helped the company and entrepreneurs… however, does that make it right?
In other words, it does pose a couple of questions and raise some issues:
- Should VCs be allowed to invest “on the side” if they are asked to investon behalf of school endowments, retirement funds and what not? It’s one thing for a lawyer from a big firm to do something pro bono on the side… but if you are to invest $1M and get back $50M (or anything in this scope), I think you have a choice to make. There are exceptions, and those are for the very best VCs for whom the rules can be bent (yes, I said it: there are exceptions to every rule and everyone).
- Going back to my first point: we all make money or no one makes money, is the adage that VCs use. Maybe I’m wrong… but VCs track record at getting exits - let alone high ROIs - has been bad. So if I am Yale or whomever else invests in Insight’s funds, I would have a major issue with this, even if sure, technically, we’re talking about a mismatched investment. In other words: “hey buddy, maybe you should take a pass on those “on the side” deals and focus on getting my money back, plus a hefty return”.
- Moreover, I love the part where the VCs say they spent a maximum of 15 hours on Photobucket… this proves once and for all that beyond a check, VCs have little to offer. Nice to hear the admission from a VC.
- Last but not least, who cares. VCs are not the epicenter of the moral compass, they will push dying founders off a bridge to maximize their stake and fortune… which sort of explains why this is a non-issue.
I wonder who is the person who forwarded this to Valleywag and Paid Content… now that is a better story.
My conclusion: stay away from VCs, call your banker… frankly, there’s no real difference between the two, the banker probably is less dangerous and one less person you have to keep an eye out on (seriously, I’m not making this up).
Read more on VCs:
- Why do Entrepreneurs Accept Draconian VC Terms?
- Biggest Mistakes VCs Make.
The following is from SAI, about Fox Interactive Media’s revenues:
- Branded revenue is up 21% over last year and branded sell-through is trending up for the year with a 19% increase from Q1 to Q3.
- Performance revenues were up 24% year over year.
- Most importantly, as MySpace user base continues to grow, we’re actually earning more money per user. FY 08 revenue [display + search] per unique is up 49% over last year.
- 54% of all social network ad dollars are going to MySpace (eMarketer, 12/07)
- Hundreds of HyperTargeting campaigns have been run in last eight months – with 20% or more of all orders today including HyperTargeting.
- Seeing double CPMs for HyperTargeting vs. non-Hyper-Targeted
- Orders with HyperTargeting are about 60% larger
- Enjoying considerable number of repeat orders with about 75% of advertisers ordering HyperTargeting again.
- Also, seeing successes in sales of key pages with sought-after branded advertisers and attracting many high-profile brands for the first time this quarter, including Novartis, Wrigley, Virgin Mobile, Unilever and Toyota. Several have stepped up to the popular branded “skin” of the MySpace home page which goes for a 70% premium on the standard homepage buy.
- Major category growth including Automotive, up 73%, Consumer Electronics, up more than 300%, Beverage, up 600% and Education up 850% year over year.
- MySpace is at an all time high in terms of audience reach and engagement according to both comScore and Neilsen – more than doubling Facebook’s U.S. audience with 73 million users compared to Facebook’s 36 million.
- And minutes spent on MySpace in the U.S. far surpass Facebook – 242 vs. 167 minutes per user per month.
- MySpace TV continues to grow and is the number two online video site after YouTube.
- IGN and Photobucket are up 40% year to year in unique visitors worldwide. IGN remains the number one games information property and in the past quarter, its Direct2Drive service surpassed one million games sold. Photobucket’s worldwide page views for March 2008 were 2 billion – up 85% year on year
- FoxSports.com is up over 20% in worldwide unique visitors year on year and recently launched its mobile WAP site expanding its reach further – the Number one mobile WAP site for mobile sports information.
Right about now, I should mention that I was employed by IGN after they bought my old company. That last a few months until they pushed me out. Also, my new company, WatchMojo.com, partners with both MySpace TV and YouTube and provides these with a steady supply of video content.
That being said:
We know that MySpace’s annual revenues will come in at about $900M for fiscal 2007. That’s lower than the $1B that Rupert Murdoch threw out some time ago, but it remains a very promising figure.
SAI is right to point out that:
Even while MySpace and all of the other FIM sites continued to grow, FIM revenues dropped from $233 million in Q2 to $210 million in Q3; about a third of that total came from a 3-year guaranteed deal from Google.
But all that means is that MySpace remains an untapped goldmine, a work-in-progress. Admittedly, no one wants to see declining revenues and I am a bit surprised about that. All right, a lot surprised. Then again, I am a sales guy at heart and I always see media properties as “glass is half full” scenarios with more inventory as an asset and there always being more advertisers to engage.
I am not very bullish on social networking revenue, but I am very bullish on video advertising.
News Corp. itself admits, social networking has some specific challenges:
1) Tons of inventory. Lack of scarcity creates a liquidity challenge. Working on bringing big brands aboard.
2) People who are visiting social networks there for different reasons, different uses. Figuring out how to target.
3) What’s the value of a “friend”? Trying to figure out new metrics to communicate with marketers.
I believe MySpace TV needs to position itself as more of a media property and less of a social network. Why?
The numbers speak for themselves:
Let’s compare, first the figures for Worldwide Social Networking Advertising Revenue:
Compared to US Online Video Advertising Revenues:
This all comes from my earlier post: Hype Watch: Social networking revenues.
Regardless, MySpace’s stats show two things:
1 - In the social networking segment: right now, MySpace is crushing Facebook when measured by revenues.
2 - In the video segment: while Google CEO Eric Schmidt says that he does not yet know how to monetize YouTube, Rupert Murdoch guns for $1B revenue target…
I will say it: when it comes to media and advertising, technology firms are largely out of their element. Apart from Google who is the most successful ad-supported technology company, any company that strives to be an ad-supported entity needs to adopt a media-centric approach and folks, MySpace is doing that…
COO Peter Chernin might be spinning the facts, but in the context of “how long did it take for YHOO or GOOG to hit $1B” he is not wrong. However, I would add, GOOG and YHOO really had no clue with regards to advertising, I do think that using News Corp.’s world class sales force, MySpace should and could be doing a lot better. Maybe in a better economic backdrop and with more contribution from IGN, this would be a reality.
One of the reasons Yahoo! should go private is because it could then manage for the long-term, instead of worrying about quarterly expectations of short-term minded investors and analysts.
The problem is that Microsoft threw a curve ball by launching a $44.6B takeover bid, which represented a 62% premium to Yahoo!’s share price before the deal was announced.
As such, going private is less plausible and anything other than selling to MSFT an unlikely option.
One option that won’t go away is a partnership with News Corp. whereby News Corp. spins off Fox Interactive Media into Yahoo! for about 20% or so of a new company valued at $50B.
In three years, FIM has become a major force in online media by:
a) integrating the online properties of American Idol and other offline assets,
b) partnering with MSN to propel FOXSports.com into a contender, and
c) buying IGN Entertainment, Photobucket, Scout, Flektor and mainly, MySpace for $2B.
As a Yahoo! shareholder, former employee of News Corp. and current business partner of MySpace, I won’t comment on what I think of such a venture (at least not yet), but I will say the following.
It is not surprising for News Corp. to want this to happen, even though News Corp. Chairman and CEO is currently guaranteed the lion’s share of a $900M advertising revenue deal with Yahoo!’s real competitor Google. Here are the reasons:
1) AD NETWORK
Back in November 2007, News Corp. hinted at launching an ad network. We said it was a brilliant move - not only for its own media properties but also for other publishers looking to tap into News Corp.’s amazing sales machine to increase ad rates. Of course, as I’ve always said, ad networks don’t make publishers any money, they make ad networks money.
Since that rumor, many more companies have dived into ad networks: a consortium of 4 newspapers, Comcast, Viacom being the latest ones.
When the dust settles, many of these knee-jerk, me-too reactions will fizzle. A few ad networks will materialize. Ultimately, few will see the light of day. The main reason isn’t lack of trying, it’s a lack of DNA.
Media companies just do not have the a) entrepreneurial or b) tech DNA to venture into ad networks.
We’ve even argued that Yahoo! itself should have bundled its ad networks (newspaper consortium, Right Media, Blue Lithium) and spin them off to raise cash for acquisitions and to unleash shareholder value. Of course, that’s moot now.
In other words, the requirements and focus required to build a world-class ad network are enormous.
Of all of the media companies that really needs an ad network, I hate to say it, it’s News Corp. I am not sure how much of the following is private and confidential, so I’ll only say that News Corp. has some of the elements already in place (and I am pretty sure, already launched)… but to really make the billions of ad impressions on MySpace worth more, they need a lot more because monetizing audiences based on data is both risky and impractical.
a) Social Network Advertising is Risky because audiences are willing to let advertisers target them based on many things, but it has not yet been proven that private data is one of them. Second, we’re not even sure that personal data contributed to social networks are always 100% accurate.
b) Second, Social Network Advertising is Impractical because just because the data is available does not make it sellable. I can imagine a media planner wanting to reach a MySpace female user, 25-34, living in the Midwest, who is in the market for a bathtub. MySpace might even have that data, but there might be 3 of those users… even on a site with billions and billions of daily impressions.
Rupert Murdoch is a smart media man who understands technology better than many technologists, but he recognizes its limitations too. He knows that no matter how quickly he moves, he won’t be able to propel FIM into the ad network business as quickly as he would like.
Sure, there are privately held assets in play such as Tribal Fusion, Specific Media, AdConion and others… there is also ValueClick, who is publicly traded, but Yahoo! actually has the best 1-2 punch out there with:
- the best clickstream-based display ad network in Blue Lithium and
- the most robust ad auction serving platform in Right Media.
Yahoo! got these for just over $1B.
It should be noted that:
- last year MySpace actually surpassed Yahoo! to become the largest media property when measured in pageviews…
- pound for pound, MySpace has boatloads more of unsellable, low-value inventory than Yahoo!, who itself has relatively little premium ad inventory.
So if Right Media and Blue Lithium were worth $1B to Yahoo!, they could very easily be worth $2B, if not much much more to Fox Interactive Media.
In fact, while we always think of MySpace, it’s worth noting that IGN Entertainment (my former employer after it bought my old company) has so much low-value inventory (think message boards where no self-respecting advertiser wants to be) that it would welcome a robust and developed ad network.
For Rupert Murdoch - who proved to be very patient with Wall Street Journal and Dow Jones - digital media and interactive advertising has been a titanic, once-in-a-lifetime revolution. In his 70s, we’re hoping that Mr. Murdoch isn’t going anywhere anytime soon (he sure does provide great storylines to cover and sets an example for younger generations of entrepreneurs) but he is probably not happy to sit around and watch the creation of an ad network from scratch.
At well over 100B ad impressions per month, a slight nudge in the right direction in terms of CPM or sell-through rate would make a huge difference for Fox Interactive Media, who did short of $1B in revenues in 2007.
2 ) VIDEO
Yahoo! Video is a great asset. MySpace TV (disclaimer: WatchMojo.com is a content provider to MySpace TV) is fighting an interesting battle against its peer group and positioning itself as an entertainment platform. Yahoo! Video’s content would be perfect on MySpace TV.
Of course, MySpace will have a sister site Hulu (a joint venture between NBC and News Corp.) which will be distributed on Yahoo!, MySpace, as well as Comcast and CBS. The point is, Murdoch sees a lot of ad dollars leaving TV and headed for online. Right now, I am not sure if Google’s YouTube is the beneficiary, yet companies like Yahoo! are (see more on Google’s YouTube video ad efforts here).
3 ) EMAIL, IM, VOIP
This one is less important right now, but over time, as media companies evolve, they will also need to have a communications aspect to them. MySpace is already a messaging and communications platform for many, as is Facebook… but being able to tap into Yahoo!’s expertise and innovation in these areas will better position News Corp. in years to come.
4 ) DEAL VALIDATION
Are there any other reason why? Yeah, I think so. As they say, just because I think my house is worth $1M does not mean it actually is worth $1M. Someone has to come in and pay that for it. When MSFT paid $240M for 1.6% of Facebook, it valued Facebook at $15B. Indeed that shot up the value of digital assets and social networks; with MySpace being the main beneficiary. But until someone comes along and rubber stamps MySpace the same way, Rupert Murdoch is itching for a deal, any deal… and as the largest social networking site around, there aren’t many dancing partners that won’t get crushed by MySpace’s two left feet.
Of course, this is all nice and dandy, but one wonders: does Murdoch really prefer owning 100% of FIM within News Corp. or 20% of Yahoo! and FIM that he cannot consolidate? Time will tell. I think part of why this is being talked about is that Murdoch fancies being one of the few media moguls and companies that can do something. I don’t think they would. I could see of 2 ways a deal could be struck to please both sides, but ultimately, MSFT has more firepower plain and simple, and Murdoch knows it. I think in wake of Google complaining a bit about the $900M deal not being profitable, this might be more about Murdoch keeping Google honest than a sincere attempt at beating MSFT. Mind you, ask yourself if Google is happy about not giving itself an out clause in that deal.
Ultimately, yes Murdoch wants Yahoo!, but as we said +$900M is easier to accept than -$45B, let alone -$50B.
As a Yahoo! shareholder and participant in the greater ecosystem, I am paying attention, and so should you.
The following is a perpetual-work-in-progress. Once you start to compile a list of mergers and acquisitions, you realize why it’s nearly impossible to have a complete list. We are quite confident that the following is a very good, comprehensive list of the largest, more notable deals… but it is not - and no list will be - fully complete because there are too many countries around the world and too many industries to report (it is highly possible that the Wall Street Journal or Financial Post, for example, has such a list… but it would be thick and unwieldy).
We have included:
- many industries
- have not adjusted for inflation
- mergers (be it all cash, cash/stock, or all stock)
- acquisitions (we have excluded partial acquisitions)
- private equity deals.
It is certainly not complete, send me any ones you think I am missing or industries you want us to add next to ash@mojosupreme.com or leave in the comments.
Trivia:
- In 1981, when DuPont acquired Conoco for $7.8B, it was the biggest deal of all time. But adjusted for inflation, that remains a $20B deal by 2008 standards.
- KKR’s private equity deal for KKR remains the biggest buyout when adjusted for inflation, but in actual dollars it has been long surpassed.
Related on HipMojo.com:
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.
According to Silicon Alley Insider:
NY-based social networking/photo sharing site Fotolog has been acquired by Hi-Media Group for a combination of cash and stock worth $90 million. France-based Hi-Media adds Fotolog to its growing portfolio, which includes an ad network and a micro-payments business.
Invariably, the comparisons to Photobucket will come up, so let’s get that out of the way: yes, Fotolog is “only” getting 1/3 of what Photobucket got, but given its financials and traffic chart, it’s a very good deal.
One VC, Christian Leybold (with probably the best blog address for any VC) jumps in to clarify, however, that:
This is not “just another” photo sharing site, but a communications platform where people communicate through daily uploading of one picture and comment on each others works.
I had not heard of Fotolog until last week, when Valleywag mentioned it might be on the block. Of course, who gives a flying you-know-what if I’d not heard it. The key thing is that many prospective buyers had heard of Fotolog, Silicon Alley reports:
Fotolog estimates 2007 revenue of about $2.3 million. Last month, the company signed a 3-year search and advertising deal with Google that we estimate is worth a total of $75 million. Fotolog says sales have jumped 245% since January and that the company will break even within six months, resulting in positive operating income next year.
Take out your calculators folks, at a forecasted 2007 revenue of$2.3M, a net-of-transaction fee sale of $90M implies a pretty rich 39 prices-to-earnings ratio. Now, it’s one thing for a cash-rich traditional media company seeing audiences and revenue growth rates migrate to the web pay such a premium, but for Hi-Media, a French-based new media entity pay $9/user is impressive.
This is a nice payoff for the financial backers, who have put in $12M thus far.
The thing that I don’t get, frankly, is why would Google pay $75M over 36 months, or $2M/month, to simply sell ads if it can pay $15M more and buy the whole darned thing.
I understand all about time value of money… but, you’d think that after paying $900M to MySpace over 45 months (which turned out to be more given MySpace’s torrid traffic and revenue growth) a year after News Corp. bought MySpace parent Intermix for $580M, the brass at Google would be getting its corporate - and not business - development team making these deals.
In fact, Hi-Media is an ad network, much like what Google is today.
Regardless, I think some buyers just understand that some assets will not be cheaper tomorrow, only more expensive, and that’s if they are even still for sale, that is… because we’re in the early stages of a massive consolidation. This is nothing new, at the turn of the 19th to 20th century, we saw something of a similar scale. From Wikipedia.org:
The Great Merger Movement was a predominantly U.S. business phenomenon that happened from 1895 to 1905. During this time, small firms with little market share consolidated with similar firms to form large, powerful institutions that dominated their markets. The vehicle used were so-called trusts. To truly understand how large this movement was—in 1900 the value of firms acquired in mergers was 20% of GDP. In 1990 the value was only 3% and from 1998–2000 is was around 10–11% of GDP. Organizations that commanded the greatest share of the market in 1905 saw that command disintegrate by 1929 as smaller competitors joined forces with each other.
Sure, the dollars today are larger, but guess what, we don’t have 1B people on earth, we have over 6.5B and one - and only one - medium has the ability to connect people: the Web. It’s not so much of a land-grab mentality as one that “only the paranoid survive.” Cash is king, but on a balance sheet, it’s an afterthought. This is a cash and largely stock deal… and if you are a European ad network like Hi-Media that trades on the stock exchange, well, your stock is as good as gold, or cash.
And, of course, don’t kind yourself, the fact that the VCs backing Fotolog will keep their payout in Hi-Media stock implies that Hi-Media is itself potentially positioning itself for a flip. This is clever financial engineering, something I’ve seen in my days: IGN paid my company 11.35 times EBITDA, and my colleagues (who owned the company) agreed, then IGN turned around and sold for 40 times EBITDA, that little bit of financial engineering netted IGN shareholders (including Great Hill Partners) $28.65M more. Of course, paying 39 times sales, it seems unlikely that Hi-Media is doing this for any other reason that getting an asset (10M members) that it feels it can monetize and potentially flip.
Today News Corp. made it official: Fox Interactive Media Agrees to Acquire Photobucket and Flektor, Inc.
A couple of years ago, Rupert Murdoch told the world that he was earmarking $2B to invest in digital media, technology etc. He then made a series of deals, effectively becoming my boss in the process:
- MySpace parent Intermix: $580M
- IGN (my former employer): $650M
- Scout: $60M
- Strategic Data: $?M
- Photobucket: $250-300M (reported, but unofficial)
- Flektor: $15-20M (reported, but unofficial)
Combining it all does not even add up to $2B… though we don’t know how much it paid for either Flektor or SD, but the point is, Murdoch is getting back $900M from Google over the next couple of years, and FIM is now on pace to make $500M in revenue this year…
Was the earmarked $2B worth it?
Two years later - and roughly $2B spent - his Fox Interactive Media is the “Web’s most-viewed network in the U.S. with more than 45 billion page views per month. The group’s properties include MySpace, IGN Entertainment, FOXSports.com, AmericanIdol.com and others.”
You better believe it.
Murdoch did to the three kings of new media (Yahoo!, Time Warner’s AOL and Microsoft’s MSN) what he did to old media (Walt Disney’s ABC, GE’s NBC and CBS) with the introduction of FOX, he became a player through sheer willpower.
Love him, hate him… the man walks around with a swagger and he isn’t all talk.
And, his company is the only one - other than MSFT - in the running to acquire Facebook.
Mark my words.
Generally speaking, Michael Arrington is a smart fella, but when he penned “Photobucket was a steal (compared to YouTube)”, I thought he was crazy. Thankfully, a lot of people on his comments board pointed out to the fact that no one actually visits PB, while YouTube they did.
If you want a visual demonstration was PB is anything but a destination and is rather a glorified Web 2.0 hosting company, check out their main page:
Can you think of any main page where the only content is investor relations-oriented?
- 2.8B images
- 41M users.
Do users actually care about that?
I put 4,000+ videos on WatchMojo.com’s main page, but there’s actually content on that page as well. If all you saw was 4,000 videos,” it only reinforce that it was not a destination.
On YouTube, you actually get content as well.
The point is, Photobucket is no YouTube my dear.
Apparently, Valleywag is reporting that Photobucket sold to MySpace and the staff will learn about it in 20 minutes at 1pm EST/10am PST.
Note that Photobucket leaked some lofty revenue figures earlier this year to test market sentiment about a price tag of $300-400M. We respectfully disagreed, mainly because those revenue increases seemed way too aggressive.
The usual suspects are commenting on this one, as they should, but in the absence of a price, it’s useless to comment on whether this was wise or not.
More comments and analysis to come throughout the day, but I will say this:
- Photobucket’s picture feature is widely more successful than MySpace’s in-house solution, and
- having learned from YouTube ending up with Google, and
- fearing Facebook’s torrid growth, I am not surprised to see Murdoch et al. buying Photobucket after they showed them who’s boss.
Reminiscent of Yahoo!/Overture Deal?
This reminds me of when YHOO bought Overture, Overture was getting most of its distribution from YHOO, and YHOO told them they could make a deal now or make a deal after YHOO pulled the plug on their deal and cut off their traffic, with revenues falling off and a reduced market cap, YHOO could buy them for cheaper after the fact.
I would not be surprised if the same thing happened here, though in less clear and bold terms.
Update 1: Matthew Ingram is a bloke I usually agree with, but respectfully I think the eBay/Paypal analogy is way, way off. Paypal today drives a lot of the revenue at eBay. That’s why we put that deal as one of the best M&A deals ever on the Web. In Photobucket’s case, it never will. This is a commodity service with no - absolutely no - path to revenues let alone profits. This makes sense, but not for the reasons Matthew outlines. Regardless, check out what he says here.
Update 2: TechCrunch is reporting $250M purchase price, and says it has confirmed it with senior management.
All right, now that a price is reported, here are some thoughts:
- Last year a company with the momentum of Photobucket would have not settled for a $250M sale price, but today, with the end of Web 2.0 innocence live and loud on our doorsteps, this deal is a sign of a more sober time.
- It also shows that MySpace’s parent Fox Interactive Media is the master of the M&A, old-school style.
People can be delusional and say MySpace acted in bad faith etc., by shutting off Photobucket, but the fact is that Photobucket was violating the T&C of MySpace. Furthermore, MySpace saw an asset it wanted, instead of reaching out to Photobucket via investment bankers, it reached out to Photobucket via lawyers.
It’s not my style, but it means that MySpace bought Photobucket for $250M instead of the $300-400M Photobucket was hinting it would take to sell.
Trust me when I say that this is in fact, indeed, FIM’s modus operandi. Sometimes it pans out, sometimes it backfires. That’s all I will say.
Photobucket had very little leverage in talks, because they had unwisely whispered some numbers about revenue potential, which was aggressive, as we outlined here and with MySpace cutting off Photobucket, it would not hit those numbers and fail to attract a price anywhere near that whispered figure.
If Photobucket had leverage, they would have - like Google/YouTube against Viacom - fought back. But by agreeing to sell for $250M after asking for $300-400M, it’s a sign that the leader in a so-called Web 2.0 space (image hosting and sharing in this case) can exit and make money, but the revenue/profit path is anything but clear.
- Props to Photobucket nonetheless for…
Let’s face it, the founders, shareholders, employees etc. at PB deserve a lot of credit for taking something like image hosting and turning it into a $250M exit. They also deserve a lot of credit for doing it somewhat profitably all along, and lastly, they realize that they can really grow much more within MySpace…
Trailing 12-month P/S: 15 times.
I do not think it’s realistic to say that Photobucket sold for 10 times 2007 revenues because a) the growth rates were absurd and b) without MySpace, where would those revenues be?
For that reason, I simply look at 2006’s revenues of $9.3M and at 15 times 12-month revenues, this deal is very nice for shareholders and frankly, it’s change to someone like Rupert Murdoch who strengthens and galvanizes his social media empire.
Social networking tale of the tape:
- MySpace - personal pages: $580M in 2005.
- YouTube - videos: $1.65B in 2006.
- Photobucket - images: $250M in 2007.
What does that say? Man, that’s a post onto itself. But if Facebook is social networking of networks, how much is that worth? Food for thought.
Update 3: Interesting to see the wide spectrum of opinions circulating around the Web. Robert Scoble mentions that other photo-sharing sites, like Zoomr, will get funding. I’ve never heard of Zoomr, but generally speaking, when a #1 in one dominant sector buys a large player (especially if the #1) in another segment, I would surmise that means investors are less willing to back an upstart. Depending on the size of the industry, this can be different. But when Google (#1 in search) bought YouTube (#1 in video), I don’t recall many new YouTube clones getting funding. In this case Photobucket sells to the leader in social networking, why would any other startup have a shot at gaining traction?
Platforms only scale in value with network effects, there’s value in the IT alone, but not exponential value. Google would have only paid $33M for YouTube’s platform, the difference, called goodwill, was in the network/audience. If I’m a VC, I move away from hosted image solutions to something else, of course, I’m not a VC.
Again, more reporting and analysis to come.
Rafat Ali and Staci Kramer joined forces to moderate and tag team a nice panel on dealmaking, Yahoo!’s Toby Coppel and former Fox Interactive Media CEO Ross Levinsohn were no-shows, FIM’s Mike Lang was kind enough to step in and pinch-hit, and he added a lot of good intel.
Anyway, the roll call:
- Quincy Smith, CEO CBS Interactive
- Esther Dyson, Chairman EDVenture
- Jason Hirschhorn, President Sling Media (formerly MTV Chief Digital Media, after MTV bought his company Mischief Media)
- Mike Lang, EVP, Business Development and Strategy, Fox Networks
(disclaimer: I was an IGN employee after it bought my old company in June 2005 and then a News Corp. employee after it bought IGN in October 2005, I left the companies in Dec. 2005 to start WatchMojo.com, they’re big fans of the site and have been known to check it out frequently…)
Ali asks: is there a clash of objectives, the goal of media now is to buy early while startups don’t want to sell early, something that MySpace is to this day criticized with.
Smith: We work with VC and investment bankers… a major plus in deals is acquisition of “startup DNA” that media companies sometimes lack, so not really a clash of objectives…
Ali then asks Lang on the difference and nuance between IGN vs. MySpace intergration
Lang: “Both integrated really nicely in News Corp. environment, but MySpace is so much larger, IGN is strong in vertical of video games with good assets, but MySpace is a lot larger than we expected. Resources gravitate to MySpace. Management: Chris DeWolfe has been a wonderful addition in terms of so-called startup DNA, that DNA was not in News Corp… Chris has become a point man on new ventures,” interesting, since a lot of rumors circulated on the MySpace guys not being happy with their proceeds in the sale.
Hirschhorn: “No blueprint for financing, but old media is into control, control of distribution and brand. Angel community is more forgiving (than media). In some cases, media is good at pitching themselves, while others are not. Fox and CBS are good, others are bad. ” Who is he referring to? His old company Viacom? Disney? You got a sense he’s pitching himself to Fox and CBS, who are sitting next to him. I’m kidding, Hirschborn is a riot… can’t tell when he’s serious or joking…
When it comes to the integration issue:
Lang: “What can we do with our brand… instead of using the acquired entity on a stand alone basis. The successful media companies let it be, they try not to win over control.”
Dyson: There’s no sense in the deal if you don’t give it money. Media can put in too much process, but the smaller firm has a challenge getting buyer to spend more after the paying price tag.”
True be that. At my old employer, for example (which is ironically now a part of FIM), the online publisher sometimes only publishes 1 or 2 new articles when back in the day it would publish 4-7/day… Of course, not my problem now, but that is something you see across the board.
Hirschhorn: Ask the right questions. Look for people on the buying side…
Smith: When we acquire audiences, the seller needs to know that they can’t control their audiences anymore, but sellers become the reps of the audience…” using MySpace’s Tom or Chris as example of people that then become reps of the audience to the parent company.
Kramer brings up the new GE fund, which I wrote about here and how it will affect the landscape.
Smith: CBS has done 4 deals since November, 2006.
Lang: “FOX made small acquisitions, but is not interested or a believer in minority investments… shareholders looking for value, and not returns. Long term value? Minority ownership does not give you any protection, it inadvertantly boosts value of the company you invest in and that runs counter to long term value for your shareholders.” This is consistent with what Ross Levinsohn would say about “we don’t lease, we buy,” by the way.
Hirschhorn: On IT and patents etc., he adds: “don’t need to own it, but do need to have a say in it.”
Smith: Lists Spotrunner as an example: “we tell them, ‘don’t exclusively work with us, be successful out and about, we need to understand what you do. Electric Sheep represents a toe in the world. We have cash, and we need to sprinkle our DNA and we need to be in the board room…”
Lang: “Of course, sometimes we have commercial relationships, but we don’t need to invest.”
Ali shitfs focus and asks what they look for when investing in US companies vs. around the world?
Dyson: ”A lot less ample opportunities outside, be it in India, Russia, Brazil, it’s much tougher… exits are harder.”
The panel gave a lot of good insight on what happens after deals materialize, so I asked them what was the biggest mistake an entrepreneur would make before, during dealmaking?
Just curious, no reason I’m asking, I swear.
Lang: “Mistake #1: Not being realistic about price or competiton, saying ‘we don’t have any competition…’ and mistake #2: just being way too influenced by VC who have a different mindset and push for a theoretical IPO.”
Hirschhorn: “It’s the old ’salary of stars’ problem, so mistake #1 - the entrepreneur want what company A got… it’s tough to have those competitions. Mistake #2 - there are always some management issues in term sheets… sometimes the best man to run after a deal is the chief product officer or a chief strategy officer and not the founder… yet the founder wants to be CEO.”
Smith: ”#1- Sometimes the buyers are great at telling you how to downsize business, not good at managing growth. It sounds funny but you need to have a 3 to 5 years plan… #2 - Truth is we on the buying side will make mistakes too…. speak up. But it’s a weird dynamic, both are in sales process… that song and dance has to stop. You are not doing any side a favor.”
Ali wonders how do you compete with Google who can spend anything on anyone? He lists MSFT’s turned down offer by DCLK who was not at all interested and favored Google, regardless of price.
Someone, I missed who, said: “It’s a bit like dating in high school… she tells you she’s not interested.”
Smith: “I think that had more to do with MSFT than Google…” though he was quick to add both MSFT and Google are great partners.
They were asked what they looked for in new deals:
Smith: “#1: We’re looking for reach/distribution. #2: We don’t compete with FOX, we compete with LonlyGrl, so we need new content, regurgitated content from TV does not work… we need to be in that business, the mentality to know how to do that…”
This was an eye-opener, I always thought that from an M&A perspective, if I wanted to sell WatchMojo.com, it would be more valuable to print companies looking to get more and more into the Web and video in particular, but it’s true that TV companies too need to understand that TV content repackaged online is not ideal… and even if it were, then it would eat away at their offline business, something I wrote here. But Smith was candid and humble to say that “TV networks can’t be close minded about this,” so I doubt all TV firms share this view…
Lang: FOX is looking for a) video applications be it content or platforms do things with video, b) international opportunitues and c) mobile.
Ali at one point asked whether companies can build businesses on top of other companies’ API, naturally Photobucket vs. MySpace came up, Lang deferred to Shawn Gold, who was sitting right behind me, but he did not want to address it (can’t blame the guy) though a Photobucket rep did say that “a) Photobucket is not a widget company and b) we hugged it out.”
Ali then asked about Skype/eBay:
Lang: That was lot of money. What was strategic rationale for eBay? Meg is hoping it becomes a communication tool… what you read is that it’s a whole new vertical business, that is a tough business with a lot of competitors…”
Incidentally, Lang mentioned that the Joost guys “are pitching the same technology… they keep saying ‘it’s the same thing we used on Skype,’ well, you would think that eBay would have protected itself then.”
This raises a couple of points: Mr. Lang is no doubt a smart guy, and I am not privy to the term sheet and contract of sale, but Joost uses P2P - like Kazaa and Skype did - but if eBay bought the Skype business, then using their expertise in P2P to do Joost does not seem, to me, to be a conflict of sorts. That being said, what I do see as a conflict is that the Joost founders are still technically involved at eBay… but then again, when you build and sell two of the most successful applications in the past 5 years, do you really care what anyone says?
Lang concludes “but I would not underestimate Meg and eBay… but it’s a pretty big price.”
Hirschhorn: “What are they gonna do with it… AOL bought Winamp. Yahoo! bought Musicmatch. What are they doing with it… I can see some things, but it’s sitting there.”
I really liked Hirschborn, but eBay viewed it as an entry point in a new business, but one that has hundreds of millions of users. Yes, it’s a big price, but eBay has high margins, spits out cash, is worth $40B and if it sits on his cash pile, that will hurt it more. Of course, $4B for any company with relatively small revenues is worth to be questioned, so I commend Lang and Hirschborn for not blindly sipping the koolaid.
I raised my hand to ask about Facebook, namely: “has Facebook priced itself out of the M&A category and on its way to an IPO? I wrote about this earlier here, and Ali did the honors of asking: “what about Facebook, how much longer before it’s acquired?”
Lang to Smith: “Is that one of your big deals? It’s a CMO’s dream…”
The room laughed, though if Smith’s for billions to buy, it’s not a bad place to park it. I do think that Facebook is on pace to be company of 2007, though it’s premature to say that for sure. See our post and audience poll here.
Smith: “You need to sell and buy from a position to strength… Myspace is a textbook deal: management core is in place… the reason why these so-called next generation networks are important, they do not incorporate traditional media tradition but they talk about it… That is very valuable.”
Dyson: “Should Facebook IPO?” Hmm. Maybe I should send her my post.
Hirschhorn: “I don’t know about IPOs, every public CEO I see is being walked into a courtroom with raincoats over heads, backdating is not a dating theme,” which drew a good share of laughs.
Lang: “Some companies have taken too much money, especially in these later stage financings at these high valuations. When you raise over $200M, it’s too hard to get a huge buyout.”
This was probably my favorite panel because the topic is what most interests me… definitely some good intel, and this panel, along with the entire conference only reiterated my belief in the value we’re creating at WatchMojo.com.
On that note, a couple of big announcements to come this week…
See all posts on EconSM here.
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