Everyone assumes that if Facebook ever sells, it would be to a company like Viacom, News Corp. or the like. Of course, this does not mean that only old media would be interested, since it’s conceivable that most new media firms would love to have their hands on a site like Facebook.
I just posted something about Facebook reaching 85% of college students. As such, all companies would want to own Facebook, cause it’s easier to acquire a user in a relatively early stage of their consumer life cycle… If you are Gillette and can win over an 18 year old, you are set for life. That’s a lot of razors and cream over a lifetime. Lose out Schick and you will spend quite a bit in marketing dollars to try to steal that client.
But after posting that post about Facebook’s reach amongst students, I then read another article bashing Google for failing to “kill” with their killer applications: arguing that:
Perhaps Checkout will be a big hit, but the fact remains that for all the attention that Google’s product launches get, they haven’t been very meaningful for investors, nor have they shaken up the online landscape as it had been assumed they would. Google Base didn’t kill Craigslist; Google Finance didn’t kill Yahoo Finance; and Google Spreadsheets hasn’t killed Microsoft’s Excel. The list goes on, and even though Google often claims it isn’t trying to “kill” anything, why should the company bother entering these markets if it isn’t going to put pressure on competitors?
Allow me to state that I am not a fan or a critic of Google, I just think they’re a great case study in business. Everything from how the two founders met and didn’t initially like one another, to how they stuck to their guns in search, to how they got two competing VCs to invest, to how they managed Yahoo! to use their search after Yahoo! didn’t want to license their product originally, and of course, to crushing everyone in search when people thought search was dead.
Point is, five years ago, Google’s revenue was probably $0. In fact, until they basically stole Goto / Overture’s cost per click model, they had no idea how to generate revenue. But in less than five years, they went from $0 revenues to $6 billion. They are on pace to generate $10 billion very soon, meaning that they will make more money than most media or tech companies do. And, since most of what they do is automates, they have margins that are the source of envy in the industry.
That’s why people bash Google. I did not buy any of their stock because I didn’t have much funds at the IPO date, and I never did because the stock is expensive to me, I own shares in their competitors like Yahoo! and MSFT because these seem cheap relative to Google and mainly because they are far more diversified.
Which gets me to my point: Google knows that it needs to diversify, so it is growing in many directions, including taking on eBay, Craigslist, MSFT etc. But it knows that those companies have focused on their core and will not be “killed” overnight, hence why Google does not come out and say “we’re here to killl competitor X.” More power to them for showing some class in a time and age where most business people and business organizations lack it big time.
What Google realizes is that it really needs 1 out of all of their Google Labs ideas to take off. If Google’s Ad Sense - the magical search ads that generate 99% of their revenue - took less than 5 years to blow up and vault Google’s market cap to $120 billion, then all they need is for 1 or 2 of those ideas to develop or for 1 to blow up. Trust me, the same people who bash Google will love them.
So, let’s connect the dots (can’t I ever be brief?): what Google is doing is slowly but surely changing people’s consumer habits. I am 28, I am used to load up Excel when I need a spreadsheet program. But, I also use email far more than instant messaging (IM). And I rarely text message people with my PDA/Cell. Yet, those under 25 probably use IM a lot more than I do, they also text message one another a lot more… and by that same extension, they might grow up not loading up Excel but rather using Google Spreadsheets.
So you see where I am going with this.
If Google wants to accelerate the change in consumer habits: you know, instead of going to Craigslist, you go to Google Base, instead of paying with Paypal, they use Checkout, and yep, instead of using MSFT Office, you load up Writely and Google Spreadsheets, then it might be interested in acquiring Facebook, since 85% reach amongst college students will put it and its products smack in front of the next generation of business leaders, consumers and what not and increase the likelihood of turning its new products into killer applications.
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WatchMojo NewsletterFacebook, which is especially popular with college students, attracted 14 million unique visitors last month. Founded in February 2004 by Harvard University undergraduate Mark Zuckerberg, the site now reaches 85 percent of U.S. college students.
According to Mediapost.
Sometimes, the Web surprises me.
There I was logging in to Gmail when I see a link to Ask Yahoo in the Gmail RSS feeds.
That’s odd, and interesting. Why would Gmail do that? I do not see why they would not, good content is always in demand, but why a) promote your competition and b) promote your competition’s competing product that you have both recently launched?
(yes, those numbers are right, I have over 20,000 emails and my inbox has 9,237 “new” emails, I am above 60% capacity in my quest to see what happens when I hit Gmail’s capacity)
Well, if everything we are seeing now since mid-2003 is reminiscent of the Web’s first show of force (1994-2000), then today’s announcement that Doubleclick bought video ad company Klipmart is both surprising and not so surprising.
First off, let’s consider the fact that Klipmart is a video ad specialist known for their premium, high-end campaigns, creative and platform. The company has been on the rise and judging by their CEO Chris Young alone, have solid management and brain power in the space.
DCLK’s Dart Motif is an advertiser favorite (along with aQuantive’s Atlas suite) but as of last year was an investor dog. That’s why San Francisco buyout firm Hellman & Friedman LLC for roughly $1.1 billion. The company was playing the red hot online advertising sector, but since many view ad serving as a commodity, it could not get the kind of premium pricing in its stock. The one-time stock market darling was trading in a rut and it actually made a lot of sense to take the company private, spruce it up to one day sell it to a larger player, a competitor or simply spin it off in an IPO once again.
I know, we’re not in a bubble, this time it’s different. And you know what, it sort of it. Klipmart realized that alone it would have a hard time competing in a tough, overcrowded rich media space. I should know, for five years I worked in sales for an online publisher and the options for rich media were plentiful: Klipmart, Unicast (who itself was sold for $100 million to Viewpoint), Eyeblaster and Dart and Atlas’ own products makes the space sexy but extremely competitive.
But, the deal makes sense for both: DCLK immediately becomes much more interesting to agencies and advertisers, because they now can offer A to Z solutions to clients, and they secure some bright leaders in online video in Mr. Young and company. Read more about the deal here.
What’s interesting to note though is that DCLK’s benchmark / competitor / comparable aQuantive is worth $1.85 billion, so it’s safe to assume that such a deal would make DCLK worth more than the $1.1 billion the private investors paid for it. However, you and I both know that like venture capitalists, private investors do not get into a company to make a “paltry” 70% return, but considering that the Klipmart probably cost DCLK something in the $35-100 million range (I know, wide range, but I do not have much data on the privately held companies and am going off the Unicast deal and Paid Content’s website) it might be a worthwhile investment as Klipmart is sure to jack up DCLK’s multiple.
Note that I own shares in aQuantive as well as DCLK until it went private.
Interesting read from Om Malik and Business 2.0, called Sly Fox, on Ross Levinsohn’s efforts over at News Corporation’s Fox Interactive Media. Indeed, in 2 short years, the man’s gone from a criticized lieutenant in Rupert Murdoch’s fiefdom to a visionary, who now, as he puts it, has a lot of friends in Silicon Valley thanks to the $600 Million he has left in his piggy bank… and a lot of leverage with major new media companies.
Ah, the web kicks ass. In two short years, an old media company can drastically reposition itself and become relevant online. To his credit, Levinsohn admits: “we got lucky,” though he does deserve credit for snatching MySpace away from Viacom and landing IGN (also from Viacom). Which begs the question, Mr. Redstone, if you folks need any help with online strategy, M&A targets and closing deals, let us know Sir.
This also begs the question: here’s a 2,900-word article on FIM in Business 2.0 and MySpace gets all of the ink, with not a single mention of my old employer, IGN. That’s odd. Mr. Malik is a much respected writer with a keen eye, and he is certainly right in saying that FIM is best positioned with cornering the 18-34 and 18-24 markets, but the credit there goes to IGN, and not MySpace in my humble opinion. (Great, there goes a Malik-written piece on WatchMojo.com, forever).
An interesting stat to note:
Handful of acquisitions in the new media space: $1.2 billion
Rise in Market Capitalization of Acquiring Company: $1 billion
Becoming a media darling amongst New and Old Media Firms: Priceless
Oh… how I would love to be a pebble in that ocean. All right, maybe not…
When NBC asked YouTube to yank off the SNL/Lazy Sunday video, many writers and analysts criticized NBC, arguing that such viral marketing was priceless. Of course, upon getting a letter from NBC’s lawyers, YouTube pulled an un-Napsteresque and obliged. In fact, according to Julie Supan, senior director of marketing at YouTube, the company tried to head off the earlier conflict, approaching NBC in late December about a possible partnership–but didn’t hear back until NBC’s legal warning arrived in February.
Today, it was announced that NBC will have its own channel on YouTube, marking the first time that the popular video sharing company is partnering up with an established network.
If you haven’t noticed, this is part of YouTube’s ongoing efforts to clean up their site, in the figurative sense of the word, by signing up more Directors and legit filmmakers who own the content. This reduces the amount of copyright violations and allows YouTube to funnel traffic to areas of the site that hosts “monetizable content.”
This past week, YouTube began to promote Director Videos a lot more, with a prominent right-hand side panel displaying videos from Directors as well as a box in the center of the main page. This makes sense to YouTube, it had a lot of traffic but advertisers would not want to advertise along content of dubious copyright nature.
This changed things, slowly but surely, and today’s announcement of the deal with NBC is a major coup for the company.
What’s interesting to note is that it could be argued that because NBC acted so strongly, it forced YouTube into developing an NBC channel, in other words, had NBC not said anything, it would not have had the leverage to ask for a specific channel. Of course, it could also be argued that YouTube wants to develop channels for all networks, creating a sort of alternative to those same networks’ websites, but giving them much more reach than they would get otherwise.
Also, the fact of the matter is that without YouTube, NBC never managed to stoke as much excitement for all of their failed attempts to spawn sequels to Lazy Sunday. So, perhaps, just perhaps, it was not their initial tough stand but rather, their missed attempts without YouTube to develop follow ups to Lazy Sunday that made this deal a no-brainer.
Incidentally, this begs the question, will ABC, FOX, CBS and company be next in signing up for this kind of arrangement? Of course FOX might be more prone doing something like this on MySpace… we shall see
I was recently forwarded something regarding There.com and it billed itself as a “a virtual community giving users an online getaway where they can hang out with friends and meet new ones - all in a lush 3D environment“. I figured that I would check it out, and that is pretty much an accurate description. Basically, users download the program and register themselves in the virtual world, and then they are free to roam around and explore and chat and interact with other users. The download did take quite long, but once your in the world it is pretty cool. Users create “avatars” which are basically online personas that offline users take to represent themselves, and they are free to alter them in any way they choose. They can also play games, and a number of other activities throughout the program.
As soon as I was placed into the 3-D world there was another user beside me and she began chatting with me. Its pretty intuitive, where all you have to do is type back, and then press enter, and your instantly in a conversation. I didnt chat too long, because I wanted to roam around a bit, but it definitly seems like a unique way to connect and meet people as opposed to other social networking sites where you’re looking at pages, or pictures of someone. This is much more interactive and closer to the real thing where people look at each other and introduce themselves, etc… The 3-D world is pretty cool, but pretty basic. I roamed around for about 5 minutes, and got a little bored… but I think thats really because I’m not that into the whole social networking thing anyways. I can see kids loving this though, and I think its got more appeal than sites like myspace and facebook, especially for a younger demographic.
Something else I found interesting is the opportunity to shop while in the virtual world. A virtual currency called Therebucks is used as a means to upgrade the Avatar’s clothing, accesories, living quarters, etc. A user can purchase Therebucks directly through There.com or by using a 3rd party online bank to transfer the funds. This also opens up the opportunity for real world retailers to consider selling their clothes virtually… because who wouldn’t want their Avatar running around without an American Apparel t-shirt?? Seriously, how else are they gonna pick up virtual babes?
All to say, this is an interesting and different spin on Social Networking and if you’re into that sort of thing then check out There.com.
Last week, former Silicon Alley and Inside.com writer Rafat Ali’s “blompire,” ContentNext Media - which operates paidContent.org and MocoNews.com - turned 4 years old.
This week, the company, which has been profitable since Day 1, secured financing from venture capitalist Alan Patricof. I must admit, and I apologize for this, but this is the first time I heard of Mr. Patricof even though he has funded the likes of Apple computer, AOL and New York magazine. Rightfully, Mr. Patricof viewed paidContent as a must-read for industry insiders.
Truth is that Mr. Ali deserves a lot of credit for bootstrapping the operations of PaidContent.org. What started off as a away to boost his profile amongst writers became a full-time gig and company. He projects revenues in the low single digit millions and I believe that right now many companies in old and new media would pay quite a multiple to get their hands on Mr. Ali - and his team - and his properties. And… the more power to him. What he did, when he did it and how he did it was one of the reasons why I decided to venture myself into starting a company.
I also fully get what Mr. Patricof must have seen in Ali, who blends a mix of confidence and brashness that is de rigueur in successful entrepreneurs.
We’ll see what the future of his company holds, but suffice to say that between an investor with Mr. Patricof’s track record and an entrepeneur like Mr. Ali, things can only get better.
Cheers!
Read more here.
Allow me to preface this exercise in insanity by saying this will probably never happen, but after reading Merrill Lynch’s analyst suggest that MSFT acquires Yahoo!, I thought it might be interesting to at least examine the more realistic likelihood of Google merging with Yahoo!
Note that I use the term merging and not buying because Mr. Filo and Yang, whose company’s brand became synonymous with the Web, would probably only entertain a merger, and never a sale. Mind you, I know what you are thinking, Google is worth 3 times more than Yahoo! - so wouldn’t any hookup be a sale? No, that’s where you are wrong.
You see, culture is the most important factor in any merger and acquisition. Market share can go up and down, product lines morph over years, management comes and goes, but culture, while fluid and changing, is essentially one and the same from the day a company opens its doors.
Google and Yahoo! are far more complementary than competitive; more importantly, while their cultures are not perfectly aligned, they are in sync. For starters, Filo and Wang went to Stanford, as did Google’s Sergey Brin and Larry Page. Both Filo and Wang have yet to return to finish their PhD’s, ditto Brin and Page. Yang was born in Taipei, Taiwan, Google’s Brin was born in Russia. Yahoo!’s Filo and Google’s Page were born in America…
Put Page, Filo, Brin and Yang in a room and all of those things is a bit like the other…
Put Page, Brin, Yang and Page in a room with Bill Gates, Steve Ballmer and yeah… two of those things are not like the others.
Also:
Google and Yahoo! are all about the Web, MSFT underestimated and undervalued the Web until it had change its mind because Netscape was dominating browsers.
Google and Yahoo! have search as the central core of their DNA; MSFT underestimated and undervalued search until Google dominated search. You see the pattern folks?
Onto financials: yes, Google is worth 3 times more than Yahoo!, but the fact of the matter is that in 2005, Google generated $1.465 billion in net income off $6.1 billion in revenue; Yahoo! generated $1.9 billion in net income off $5.2 billion; mind you, Google’s growth has been much faster, but Yahoo! is about 5 years older. Also, Yahoo! has a diversified revenue stream, Google is a one trick pony. Its shareholders are nervous about Google’s lack of diversification.
The point is that Google and Yahoo!’s founders would look at the stock price but I think - and this is 100% guessing - that they will let factors other than stock price dictate the details of the deal. And Lord knows that the devil’s in the details.
More importantly, Yahoo! is stronger in display ads, Google in search ads. Since non-search advertising is set to grow faster than search advertising in the next 5 years, Yahoo! has some leverage over Google here.
Also, when the companies say that Yahoo! is a media company, Google is a technology company, it’s more than rhetoric, it shows that each property is taking a distinct approach and together the sum of the parts could really be a lot more powerful than either one could individually.
Oh, both companies do consider MSFT to be a threat: Yahoo! in the sense that MSN.com is a direct competitor of Yahoo.com; Google in the sense that MSFT’s search is gunning for Google. But while Yahoo! has played it coy by not taking MSFT on directly, Google has decided to fight fire with fire. This, in fact, could be a potential deal breaker if and when Google and Yahoo! talk… but the fact of the matter is that a combined Google and Yahoo! would be the most formidable machine in new or old media, content or technology industries.
Of course, because the stock market is the determing factor in the financial engineering, this deal will probably not take place because as it stands now:
Google’s market cap = $120 billion
Yahoo! market cap = $40 billion
Combined value = $160 billion
(It would not be this straightforward, there are cost savings to account for, overlaps, synergies etc., I am watching France vs. Togo so if the numbers are off and this seems over-simplified, please forgive me),
Combined 2005 Revenues: $6.1 + $5.2 = $11.3 billion
Combined 2005 Income = $1.465 + $1.9 = 3.265 billion.
Off a value of $160 billion, assuming this company has about $15 billion in cash and thus an enterprise value of $145 billion, that means a Price/Sales ratio of 14 and a Price/Earnings ratio of 50… rich mind you, but for that kind of an entity, shareholders would pay quite a bit.
The question is: would everyone’s egos at Yahoo! allow them to earn 25% in the new company while Google’s shareholders own 75%?
And… would the government allow one company to control 48% + 28% = 76% of all searches?
Who knows… Of course, we’re just speculating…
Note I own shares of Yahoo! and MSFT.
Someone give me Merrill Lynch analyst Justin Post’s address, I’d like to send him a gift basket. Today, the analyst came out and encouraged MSFT to buy Yahoo!, or depending on how you look at it, told Yahoo! to sell to MSFT. It’s not the first time someone has brought such a deal up, last year when Google bought 5% of AOL.com, many talked about MSFT and Yahoo! hooking up as well.
I want to thank Mr. Post because as Yahoo!’s shares have slid 20% this year, I’ve been loading up on shares in my portfolio; since his comments today pushed Yahoo! up by 3%, certainly I owe him some thanks.
Please note that I own shares in both Yahoo! and MSFT, though for different reasons. Both are undervalued in my own opinion because they lack sex appeal. I like MSFT because it is extremely disliked by the street, which means that it’s the best time to buy the stock. I like Yahoo! because it is the best positioned company in the internet advertising space and because if the market attrributes a value of $120 billion to Google, then in my eyes, Yahoo! is severly undervalued at $40 billion.
There are so many ways to look at it, but if online advertising is roughly a $20 billion a year industry (I know much of that goes to search, where Google dominates) and Yahoo! has relationships with the Top 200 advertisers, how much do you think Yahoo!’s business will grow over the next few years?
It is this undervalued state that Mr. Post uses as one argument why MSFT should buy it. I do not know Mr. Post, either personally or professionally, but while there is some ‘business school mindset rationale’ for the argument (in other words, sounds great in theory but might not be practical in real life), I do not see Yahoo! co-founders Jerry Yang or David Filo - or for that matter, Yahoo! CEO Terry Semel - ever considering such a deal. First off, why would Yahoo! sell when their stock has been stuck in a rut. Second, why would MSFT blow its entire cash hoard - and go into debt - on one deal. I know they are desperate in Redmond, but not that desperate. Their cash hoard is their salvation (yes, that last sentence is loaded with sarcasm and irony, click here to find out why).
I also think, like the Marketwatch article I read today suggests, that Yahoo! would go through such a talent exodus that the deal would not take place. What on earth would the new entity be called anyway? Microo! Yasoft?
Nonetheless, thanks Mr. Post, that 3% spike today was a welcome relief to Yahoo! shareholders. But ask yourself: if MSFT was incapable of buying a stake in AOL, how can anyone expect it to outright acquire Yahoo! That does not make sense.
Culture matters folks, especially when the company name is Yahoo! and the company color is purple!
