Some time ago, Yahoo! bought Flickr. When it did so, Yahoo! initially “encouraged” Flickr users to sign up through Yahoo!’s traditional login. Immediately, the venerable Flickr community cried outrage, Yahoo! balked. After that, Yahoo! softened its style. When it bought Del.icio.us, it made almost no changes. The idea was: “we’ve changed, we’re not going to impose our style on companies we acquire.”
Of course, Del.icio.us’ founder is now sitting in a cubicle somewhere within Yahoo!’s HQ. But I think he wanted that, seriously…
Anyway, the irony of it all is that when IGN Entertainment acquired my old company, their VPs would talk a lot about how they would not - like Yahoo! - come in, slap purple plaint on the walls, change the company name to Yahoo! once the deal closed… Yahoo! no longer does that, especially after the Flickr community reaction.
But… sit down for this folks: many people today wonder why Yahoo! did not encourage Flickr to develop a similar service akin to their picture/photo/image file sharing service for video.
Who is right? Who is wrong?
All I know, as much as Google should lay off YouTube and let it develop and grow… the fact remains, Google should point to (and then some…) opportunities that YouTube should look at. After all, Google itself - those Gods of innovation - technically were late to the video party, so much so that they had to fork out $1.65 billion to acquire a company that was launched in the Spring of 2005!
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WatchMojo NewsletterWhen you think about it, sure, YouTube’s price tag was not cheap by any stretch of the imagination… but the fact remains that a $1.65 billion price tag for what some have called the best thing to happen to the Web by the company with the strongest currency hardly spells bubble. It’s nice to see that both management of Google and YouTube exercised restraint.
That’s why it’s so ironic that some analysts and media lost their heads.
Want an example: the rumors that Microsoft would enter the bidding process. Think of that folks: MSFT! What kind of irony would that have been: for MSFT - the kind of lawsuits - to acquire a company that is such a target of litigation over copyright issues… MSFT was never going to buy YouTube, neither was Yahoo! While we’re at it, Viacom thought about it, but they bought iFilm last year for $49 million… that’s a tiny drop on the bucket next to the $1.65 billion YouTube got. Sure, iFilm is no YouTube, but to Viacom, it’ll do. And News Corp.? Well, I think Rupert Murdoch’s ambition got ahead of everything else, when the number crunchers looked at the deal, the smart thing (and they deserve credit for this) is to push MySpace Video.
Of course, when you consider that MySpace has tripled in size since the News Corp. deal, News Corp.’s FIM’s management weren’t the only ones who made the smart decision: even if YouTube fizzles (it won’t), Google made the smart decision by acquiring YouTube.
I was looking for a claim by former Infospace CEO Naveen Jain that Infospace would one day become a trillion dollar company, when I read something that today would a lot like Google today, when you consider that it commands 50% market share in search and drives more e-commerce transactions than anyone else, eBay and Amazon included.
> Is InfoSpace Bigger Than the Internet?
> By Cory Johnson, Editor-at-Large, TheStreet.Com, 3/13/00 12:25 AM ET
>
> SNOWBIRD, Utah — InfoSpace.com (INSP:Nasdaq - news - boards) CEO Naveen
> Jain lives in a world somewhere between being tightly wound and having a
> screw loose. If nothing else, he can be counted on to deliver a
> pulpit-thumping presentation.
>
> “There are two kinds of people in this world, right? Nonbelievers and
> believers,” the animated Jain said to his audience at the Chase H&Q
> plaNET.wall.street Internet conference last week. “In other words, those
> who don’t believe in God, and those who believe in God and InfoSpace.
> That’s OK — the nonbelievers will be converted when we become a
> trillion-dollar company.”
>
> The Redmond, Wash.-based InfoSpace.com has seen its share price rise
> more than 16 times in the last year, 136% this year alone, bucking the
> downward trend of so many e-commerce companies. Amazon.com (AMZN:Nasdaq
> - news - boards), for example, is off 16% this millennium. eToys
> (ETYS:Nasdaq - news - boards), once as beloved as a Furby to Net
> investors, has fallen 49% this year.
>
> But after the VeriSign (VRSN:Nasdaq - news - boards)-Network Solutions
> (NSOL:Nasdaq - news - boards) deal — and the America Online (AOL:NYSE -
> news - boards)-Time Warner (TWX:NYSE - news - boards) merger —
> investors are looking for some new math to value companies. E-tailers,
> suddenly, are not delivering. Specifically, investors are interested in
> InfoSpace.com as a cash-flow machine.
>
> Jain’s company isn’t the easiest to understand. Too often, it’s been
> dismissed with the description “the Internet Yellow Pages.” But it’s a
> lot more than that.
>
> Essentially, InfoSpace.com is something like an e-commerce tax. At the
> heart of it, InfoSpace.com matches likely buyers with likely sellers and
> takes its cut in many ways. For example, if a consumer sees an online
> ad, then later buys from the advertiser, InfoSpace.com gets a fee —
> anywhere from 2% to 25% of the purchase. If a consumer performs a search
> on a site affiliated with InfoSpace.com — 87% of the Web, according to
> the company — InfoSpace.com gets a cut.
>
> “Every time you go to NBCi (NBCI:Nasdaq - news - boards) looking for a
> plumber, we get paid. Every time you go to Go Network looking for a
> phone number, we get paid. We have 2,500 paying partners,” says Jain.
> “We are probably the only partner to both Disney (DIS:NYSE - news -
> boards) and Playboy (PLA:NYSE - news - boards) at the same time.”
>
> And its business isn’t just with online merchants. InfoSpace.com is
> focused on the much bigger offline services economy as well.
> InfoSpace.com is the bridge between online listings and offline service
> merchants. Services, it’s important to remember, represent two-thirds of
> U.S. gross domestic product. InfoSpace.com’s quarterly revenue has
> grown 1,314% in just two years.
>
> “Nine months ago, I said that most e-tailers will go out of business,
> and I still say that,” says Jain. “E-tailers will never have more than
> 10% of commerce. E-tailing is nothing but a glorified catalog. And
> catalogs have never had more than 6% of the market. So how do you help
> the bricks-and-mortar companies drive their businesses online? What
> about the dry cleaners, the plumbers, the people who cannot put their
> businesses on the Internet? That’s what we’re doing.”
>
> But most intriguing is InfoSpace.com’s rapid move into wireless. On Dec.
> 6, the company announced the acquisition of two wireless technology
> companies, Saraide.com and Prio, acquired for some $760 million in
> stock. Suddenly, InfoSpace.com has a robust wireless e-commerce
> capability and deals with all of the five regional Bell operating
> carriers.
>
> Globally, 25 companies use InfoSpace’s wireless services, including AT&T
> (T:NYSE - news - boards), Vodafone Airtouch (VOD:NYSE ADR - news -
> boards), GTE (GTE:NYSE - news - boards), U S West (USW:NYSE - news -
> boards), Bell Atlantic (BEL:NYSE - news - boards), British Telecom
> Cellnet and Japan’s J-Phone.
>
> One of InfoSpace.com’s largest shareholders is F. Quint Slattery, a fund
> manager whose Pilgrim Baxter New Opportunities fund is up 829% (!) in
> the last year, and whose Select Equity fund is up 357%. Slattery has
> loaded up on the stock, with 722,200 shares in his two funds. But
> despite his sizable gains, he says he’s holding on for a wireless
> payoff, seeing InfoSpace.com as the killer application for wireless.
>
> “Imagine I’m on my way to Joni’s house to take her out on a date, but I
> forgot to get flowers,” says Slattery, referencing Joni Hanson,
> InfoSpace.com’s investor-relations vice president. “If I show up without
> flowers, I’m out. So I dial up flowers on my phone, and it points me to
> Joe’s Store near her house in Redmond.
>
> “Now this is the Yahoo! (YHOO:Nasdaq - news - boards) killer, because if
> Joe’s doesn’t have ‘flowers’ in its name, Yahoo! won’t find it. But
> InfoSpace.com will. InfoSpace gets paid for that search. When I buy
> the flowers, InfoSpace gets a piece of that sale. And InfoSpace might
> tell me that the store next door to Joe’s will give me a 10% discount,
> which would mean that InfoSpace gets a bigger cut, and I save some
> money. That’s the power of this thing — revenue every step of the way
> and convenience for the customer. I get the flowers, go to Joni’s and
> — bam! — I’m in!”
>
> Leaving Joni aside, the pitch is persuasive. And the transformation to
> wireless has been dramatic. According to Jain, more than 300,000 people
> already are using InfoSpace’s wireless services. This year, he says,
> 40% of the company’s revenue will come from wireless.
>
> To be sure, by any traditional metrics, the stock is a holy terror. The
> company did not turn a profit last quarter. It’s trading at 659 times
> trailing annual revenue. By comparison, the S&P 500 average is trading
> at five times revenue.
>
> And yet some of the wiser money managers on the Street can’t get enough
> of this story — or this guy. By the time Jain’s presentation ended
> Tuesday, the room was packed, and as soon as he finished speaking, a mob
> of fund managers flocked to the stage to glean more investable
> information. He spent the rest of the day in one-on-one meetings with
> big-time money managers.
>
> From the looks of things, a few may have found a new religion.
Sounds familiar? Yikes…
If you want a sense of how quickly things change on the Web, consider this:
Back in the day, then InfoSpace CEO Naveen Jain was calling InfoSpace the first Trillion Dollar Company. Check it out here.
Suffice to say Jain was a legendary self-promoter, but the point remains that some people would have been crazy to dispute his claim. InfoSpace was once worth over $20 billion. Yes, I know, that was during the bubble days.
Today, it’s market cap is $642 million, it has, however, some $405 million in cash. Its enterprise value is less than $240 million folks… $240 million!
Anyway, because of that low enterprise value, you should note that I own shares in the company. Check out their restructuring plan here, laying off 40% of its 600-employee staff…
One thing that made Google so appealing to YouTube was the fact that Google had computer engineering prowess that YouTube could tap in. But as far as analysts are concerned, on D-Day (D being Deal), it was Google’s financial engineering prowess that stood out.
YouTube accepted an all stock deal, $1.65 Billion worth of it… Incidentally, when both the Wall Street Journal and TechCrunch’s Michael Arrington leaked the story on Friday, the stock market had a chance to reflect on the deal, giving Google an opportunity to see what the reaction would be.
On Friday morning, Google opened in the low teens. By Monday of the announcement, the stock had risen to nearly $430 per share, adding a cool $2 billion to Google’s already frothy market capitalization. After the market close, Google made it it official, the stock was up by a small amount.
The gains held up for most of the day on Tuesday, and even though the stock closed a few bucks below its open, at $426 per share, Wall Street had not only rewarded Google by ”giving its investment back” on the $1.65 billion deal but it had gotten the stock market’s two thumbs up for its bold move.
I’ve been calling for outdoors/billboards business to take off in 2007, largely due to that going digital. Here is something I wrote back in March 2006. You can see here News Corp. is tying up its content with Panasonic’s technology and placement. One company I expect to be able to go in alone on this kind of initiative is Viacom, between Viacom’s outdoor business and all of its content.
Check out what the deal is all about here.
Yesterday, when news of Google’s $1.65 billion acquisition of YouTube was made official, friends and family were quick to ask me what it meant for our company, WatchMojo.com. To most people outside of the Web industry, it might be easy to lump all Internet companies together, let alone online video companies. But the video segment on the Web entails many different, far-flung companies. I am sure different people have different breakdowns, but roughly, online companies tend to fall under the following categories:
1 - content management system (CMS) platform technology companies (Brightcove)
2 - advertising creation and management companies (Klipmart)
3 - content aggregation and distribution (ROO)
4 - video file hosting and sharing (YouTube)
5 - video content editing (Adobe’s Macromedia/Flash)
6 - content producers (Our own WatchMojo.com)
7 - content delivery network, or CDNs (Limelight, Akamai)
Indeed, online video has been growing quite a bit. Online advertising estimates have been snowballing, in just a few months, estimated projections for online ads grew from $1 billion by 2009 to $2.3 billion in 2010.
Yesterday, the largest video file sharing site Youtube was scooped up for a cool $1.65 billion. This a [presumably] profitless company, less than 2 years old, with 67 employees that went from 0 to $1.65 billion in 18 months!
I give them all of the credit in the world, but the bigger question is:
What Does It Say for YouTube’s competitors?
Note that when friends and family asked me what it directly meant for WatchMojo.com, I was not lying when I said ”not much.” I did not get into the nuances, but the fact is: YouTube’s acquisition had 51% to do with social networking and 49% with video. All right, it could be 51% video and 49% social networking, but you get the idea: Google was - relaive to YouTube - weak in one and non-existent in the other.
With analysts coming out and calling for more professionally-made videos and content always being in demand, I could not help but find myself thinking more about YouTube’s competition than about our company; call me an altruistic idealistic SOB I guess.
What About the Competition?
There are nearly 200 file sharing sites. For most of them, this must suck in some ways. I’ll explain why.
Indeed, at first glance, people expect Google’s competitors to rush in and buy YouTube’s competitors.
Don’t count on it.
The problem with that hypothesis is that Google did not acquire YouTube for the technology. It bought YouTube for the traffic and mainly, for the momentum. Google is not a top traffic player in video despite an equal or superior technology.
YouTube is Now Unstoppable
So, since the largest online video file sharing property is already scooped up, it’s not like the second (distant) player holds much value, now does it? It might, for its technology. But the bargaining power of that company might have gone down, not up, because underneath Google, YouTube is unstoppable. Before the Google deal, I believed that it was possible for someone to catch up YouTube, someone being Google perhaps…
Who Wants to Be #3 in Online Video?
Also, one of the most competitive competitors in this context is Google partner Fox Interactive Media’s MySpace. Fueled by Rupert Murdoch’s ambitions and billions, FIM decided to stop heavily promoting YouTube and push MySpace Video, properrling it atop the online video space. The problem for the other video file sharing sites is that there already is a #1 and #2 in online video: YouTube/Google and MySpace Video. What did Jack Welch say about being #3 in a market? Oh, that’s right, do not bother.
Yahoo!: Off The Radar
Yahoo! has its own video platform and is making small bets in online video, but as a media company it might not really need or welcome its “anything goes” file sharing service like YouTube. Yahoo! will slowly but surely benefit from online video. In fact, as a media company with advertising relationships in place with the largest advertisers and ad agencies, the irony of it all is that Yahoo! stands to benefit from the boom in online ads whereas under their current denominations, neither YouTube or Google does/can. Even MySpace, who does sell video advertising, cannot fully monetize its inventory for advertisers tend to balk at user generated content…
What’s That Loud Sucking Noise?
But there is more to suggest that this deal might be bad news for YouTube competitors like Veoh, Revver and the 200 others?
Remember we’re not talking now about product benefits and user experience. I think that all of the video platform companies have something worth talking about, but if I am a VC who invested in a service that sought to displace YouTube, seeing YouTube being acquired by Google for $1.65 billion stirs up mixed feelings and represents a double-edged sword.
Immediately, a VC might be happy thinking that his or her investment will see a profitable exit, but on the flip side, think of what happened to the stock prices of most of Google’s competitors after Google’s IPO?
A major sucking noise! That’s what happened… for better or worse, either as a result of correlation or causality or simply, coincidence, once high-flyers Infospace, Ask Jeeves (subsequently acquired by IACI), and even Yahoo! all saw shareholders begin to pass on their stocks and opt for Google.
The same could technically happen to YouTube’s competitors? How do they expect to compete in the marketplace with a YouTube/Google competitor? Some time ago I wrote that Google was well on its way to becoming the 21st century’s version of a monopoly. I did not say that in a bad way, rather, I pointed out that search’s position and Google’s leadership position in search make Google far more important than MSFT or anyone else in this century.
Yesterday’s acquisition only bolster Google’s dominance in all thing online. What I suspect will happen is that all of the great file sharing platforms that play off social networking will find it harder to gain traction in their respective markets.
Disclaimer: Of the companies mentioned, at the time of writing, I own shares in INSP and YHOO.
Here is the video message from the boys themselves… you’d think that after a $1.65 billion sale they would have produced something more professional, just kidding.
Good for them, a leader in video in 18 months, hats off to them! What a ride… just hope for you two that Google’s stock keeps rising…
p.s. Is that a TGIF in the background? Well, the Google guys went to Burger King on special occasions, so fitting indeed…
A little bit less than 24 hours ago, CNN Money wrote a shockingly bubble-esque article calling for YouTube’s final price tag to settle somewhere between $3-5 billion, because, as conventional widsom would suggest, others would get in on the bidding and push up the price from the reported $1.6 billion. We already covered why that did not make sense, why Google was uniquely positioned financially, strategically and legally to make a push for onlin video.
Today, CNN Money comes out with another gem, this time asking if YouTube’s sale to Google marks a bubble.
Industry insiders blame iconic music retailer Tower Records’ demise on its failure to compete with the Internet and big-box discount stores, and its decision to keep opening new stores in the face of a consumer switch toward online music downloads.
Great American Group’s purchase of the chain, which has 89 stores in 20 states, was approved Friday by a federal bankruptcy judge. Great American plans to liquidate the chain, and going-out-of-business sales are under way. About 3,000 Tower employees will eventually lose their jobs.
After almost 30 hours of what attorneys described as “robust” and “vigorous” bidding, Great American won with a bid of $134.3 million, beating Trans World Entertainment, which had hoped to continue operating at least some Tower stores, by a single bid increment of $500,000. Peter Gurfein, an attorney representing Tower, said the company will be sold for an aggregate of $150 million, including the sale of leases and properties. Among them is the company’s signature store on Sunset Boulevard in Los Angeles, which is expected to fetch $12 million.
“It’s a sad day for the music business, and I feel badly for all Tower employees,” Jim Urie, the president of Universal Music Group Distribution, told Billboard.biz. “Tower was probably the greatest brand that will ever exist in music retail.”
Read more.
