A decade ago, the media world - which at the time consisted mainly of TV, print, radio, etc., ie. the World Wide Web was a small piece of the puzzle - was tripping over one another to merge together. AOL / Time Warner being the poster boy of what can go wrong at one extreme.
Today, the Web is the media that garners most interest. The reason is simple: people spend 25% of their online, advertisers only spend 10% of their budgets online. Given that advertising is a $200 billion+ industry, those numbers matter, especially when the stocks of Disney, Viacom, News Corp. have been flat for years.
TV is confused, radio’s terrestrial and satellite are going through a civil war, print is - to quote Jon Stewart - sitting at the kiddie’s table… etc. The Web is sexy, the Web is hot, the Web is set to grow by leaps and bounds. What’s odd is that despite all of this potential, a lot of Web players are looking to sell.
One reason is that many companies who were founded before or during the crash of 2000 know how hard it is to compete in this space, especially when you have Tiered players (Tier 1: MSN, Google, AOL, Yahoo! / Tier 2: CNET, iVillage, IGN, etc.). Many have seen paper value evaporate so when they smell money on the table, even if they know it could be more, they decide not to risk it all and cash out.
Another reason is that many of the so-called Web 2.0 companies were not funded by VCs, in other words, it does not take a great offer to entice the founder to sell. A company with no VC that sells for $10 million is a coup; a VC funded company that gets an offer of $10 million is not a coup.
That being said, history repeats itself, yes. But even if the market could be due for a correction, the bottom line is that people spend 25-35% of their time online yet advertisers spend at most 10% of their budgets online, this is a discrepancy that will continue to favor Web companies more over time than a one-time 25% correction. Also, no one is really going to convince me that we are set for a correction like that. Over time, I see the values of online business rise, I am not talking about the value of online applications and gadgets. In other words; props to Facebook for its growth, but it’s not a $1 billion business, let alone $2 billion, the figure that Business Week threw out this week.
My personal two cents: unless the offers are insane, Web entrepreneurs are foolish to sell if they can envision building a business model around their applications and properties. If they cannot envision and execute a successful business model, then sure, sell.
But when I see corporations like Viacom and News Corp. looking to consolidate the online marketplace by acquiring online brands and looking to cross-sell one with another in order to generate more revenues… I don’t know, I am not so sure. In my former life, I worked in banking for a few years and saw that cross-selling was more hype than substance. The few banks who can cross sell tend to create shareholder value, but, the simple fact is that there are more superbanks who cannot cross-sell effectively and end up not creating any shareholder value; they should be smaller and nimbler. Look at JP Morgan Chase’s stock or Citigroup’s stock.
The same applies to media conglomerates: Viacom was split up, AOL Time Warner was… well, you know that story. So why do we think that Web companies should be tied together. Some disclosure: I worked at an online publisher that was independent for 5 years; it got acquired by IGN, IGN got acquired by News Corp. As much as I was happy for everyone’s payout at every interval, I personally would have held out and build an empire with the assets they had at their disposal. Now, as much this year’s P&L might sugget it was a great idea and this year’s growth makes it look like a wise move, the truth is that the greater share of the Web story remains to be told.
If you ask me, Gestalt psychology might not hold up in this case, not yet anyway. Gestalt psychology being the theory maintaining that the whole is greater than the sum of its parts.
Consider the following:
News Corp. has also launched a “custom solutions team” to assist large advertisers who want to buy space across its Internet portfolio, which ranges from MySpace to FoxSports.com to AmericanIdol.com to gaming site IGN.com. The move could ignite ad buys on MySpace, since the sales force doing business with major advertisers for the Fox Sports or “American Idol” sites may be able to persuade them to experiment with MySpace.
You know what: if I’m an advertiser who wants to be on American Idol’s website, I’m not sure I want MySpace too. And if I want IGN, I’m not sure I want FoxSports shoved onto me. If a seller keeps shoving something else onto my space, I’ll go elsewhere where I get the same psychodemographics without the hassle. IGN is Gamespot; MySpace is Facebook, FoxSports is ESPN, American Idol is, well, there’s only one American Idol!
But you get my point, I personally / humbly believe that independently, IGN.com, AmericanIdol.com, FoxSports.com, MySpace.com etc. can sell more ad revenues separately than when bundled together. But then again, call me biased.
But hey, isn’t that what the banking and media mergers of yesteryear taught us.
Then again, who knows, maybe, just maybe, this time things are really different…
Yeah right!
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April 6th, 2006 at 1:47 pm
[…] Here’s my previous post on advertisers’ wariness of advertising alongside user generated content. Here’s my previous post on why with all mergers in new media, “the sum is greater than the parts” argument might not hold up. […]