When Facebook got MSFT to pony up and pay millions of dollars in guaranteed revenue in exchange for their search business, the immediate reaction was: “MSFT got market share”. Over time, as Facebook continued on its solo route, the reaction turned to “Facebook has revenues over $100M, so it can IPO”. When the IPO drumbeat got louder, that changed to “IPO? You do know that most of Facebook’s revenues come from 1 deal, MSFT, right?”
In other words, we recognize that business deals that seem good can turn to bad ones over time. We’re not saying that the Facebook/MSFT deal is bad for either side, we just wonder why companies do these business development deals that clearly impact corporate partnerships and acquisitions down the road.
For one, if my memory serves me correctly, it would only cost Facebook $10M to break the MSFT deal. Paltry, when you consider what Facebook would fetch in a deal. Heck, Mark Zuckerberg would be able to pay for that himself.
Today Yahoo! announced a deal with Bebo, in a deal that makes me scratch my head (disclaimer: long YHOO stock). Here’s why: social networking sites are notoriously tough to monetize. If Yahoo! is doing this deal, it’s essentially a me-too, herd mentality move because MSFT is in bed with Facebook and Google is in bed with both MySpace and Friendster (remember them?).
Yahoo! had shown an interest in buying Bebo, for a reported $1B, but that did not materialize. By signing this deal and getting (we presume) guaranteed revenue, then Bebo need not sell to Yahoo! In other words, they are reiterating that the cheapest form of equity is in fact sales.
For Yahoo!, it will be getting millions - if not billions - of impressions that will only pummel their click through rates (CTR) and in fact bring down their effective revenue per clicks (RPC, or CPC to advertisers).
After all, if Facebook was knocking CTR, CPC or revenue out of the park for MSFT, MSFT would have stepped up and paid a premium and bought Facebook by now. They have not.
So why would Yahoo! do this?
Well, let’s face it, no one really cares about CTRs and CPCs so long as total, aggregate revenue goes up, and with a rapidly growing Bebo and a hot UK ad market, then this deal is probably about that for Yahoo! Boosting exposure in Europe and the UK and trying to make up the massive revenue gap between itself and Google.
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