Eventually, the sale price will come out… but in the meantime, everyone is guessing that Conde Net paid anywhere from $10M to $65M for the Boston-based company.
All right, let’s get one thing straight: if CondeNet paid $65M for the company, I am shorting every single Web stock out there (starting with Google) cause indeed we are in a bubble and things will tank inevitably.
Of course, I do not think we’re in a bubble (let’s not get into that now), so I highly doubt Reddit sold for anything that high.
There are two schools of thought:
- The first one is that CondeNet feels pretty desperate to inject some life into its growth potential and would overpay for an online asset like Reddit. In this scenario it is not inconceivable that indeed, Reddit sold for top dollar, but, top dollar would not be $65 million.
(Some background: I was a member of the team that took on CondeNet head on when I was a VP in charge of ad sales, strategy, PR for an online men’s magazine. We competed with GQ and to a lesser extent, Vanity Fair. Eventually it put some resources behing Men.Style.com and trust me, it did not seem like a company that was even remotely desperate, it acted like a cool, calm and collected company that knew that it had missed the Web’s first round but knew that the game was in the first inning).
- The second school of thought is that Reddit realized that Digg had a large enough lead, AOL Time Warner was going all out in trying to catch up to Digg with Netscape. These realities only made things harder for Reddit - even though their growth (after launching in 2005 and being backed by $100,000) is impressive and deserves considerable credit.
But, let’s be realistic for a second, CondeNet has enough firepower thanks to its income statement that if they were desperate, they could have made a major acquisition: we’re talking CNET folks. Of course, CNET - despite its rush to be more lifestyle oriented - would not mesh with Conde Nast’s more sophisticated positioning. And, my gut says that Conde Nast is so bullish on the quality of its content that most web-only content it sees is of low quality. This is why they never made an offer for my old company, our content was a negative in their eyes. What Conde Net is looking for, I presume, is technology and tech know-how to organize their content and funnel traffic to it.
At the risk of sounding holier-than-thou, sometimes us folks on the Web forget the magnitude and strength of our offline brethren. The same applies to newspapers, yes, they are in some tough terrain right now, but all they need is one or two key investments and they are going to come back strong in 2007 and beyond. But that’s a separate post.
Here is CondeNast - CondeNet’s parent - description according to Hoover’s:
While being Wired may hold a certain Allure, traditional publishing will always be in Vogue at Condé Nast Publications. Owned by newspaper publisher Advance Publications, the company publishes one of the most recognizable magazine portfolios in the industry, including fashion magazines Allure and Vogue, as well as cybermag Wired. It also produces newsstand stalwarts Glamour, GQ, The New Yorker, and Vanity Fair and newcomers like the popular Lucky (clothes and shopping). It runs Web sites through its CondéNet unit, including Epicurious (food and fine dining) and Concierge (travel). The company also produces publications aimed at Spanish speakers through Condé Nast Americas.
CondeNet’s parent Conde Nast’s sales for 2005 were $1.5 billion. Conde Nast’s parent Advance Publications generated revenue of $5.9 billion. That is as much as Google sold in 2005 and more than Yahoo!
Sure, I know, margins and growth are different; but cash is king and Advance has enough of the green stuff to make a serious run at most companies if it were desperate. It’s not.
Translation: there is no way Reddit would get $65 million, or even $50 million. After all, if you are willing to fork over $50-65 million for Reddit, why not go all the way and pay $150 million for market darling and leader Digg (who according to Tech Crunch was asking that much in a potential sale). Going for Digg for $150M and not Reddit for $50-65M only makes more sense if Digg claims 20M uniques per month while Reddit’s logs say 70K uniques per day.
So, what did CondeNet pay for Reddit?
True, Reddit’s little icons have grown to be ubiquitous online, but so have links by Del.icio.us, Digg, Blogmarks, co.mments, fark, furl, linksagogo, newsvine, shadows, spurl and Yahoo! Oh, Google also got into the fray recently with… hmm… Google Base? No, that was something else.
Point of the story is that in some markets, when all you have is technology and an audience, a founder realizes that the technology is not defensible (’twas quoted that Google would have “only” paid $100 million for YouTube’s technology), its audience is fickle and hard to grow, and it lacks any content.
Ah yes, content. I firmly believe that content is king, distribution is queen but either one represents a monarchy and monarchies tend to be bloody and messy. CondeNet/Conde Nast/Advance Publications has content galore but no way to really create an ecosystem for the content to flourish and jive together. Enter Reddit. CondeNast probably approached Digg too, but if they want $150M, there was no need to have that conversation go anywhere.
(When I set up the multi-branded network of Mojo Supreme (XMojo, YMojo, ZMojo, etc), I partially inspired myself from Conde Nast’s vast arsenal of brands… but online, this is trying to build an empire by building on a foundation that is 100 miles by 100 miles; you are better off building on a foundation that is 1 mile by 1 mile and you will be amazed at how fast you can build the tallest skyscraper in the world).
So my rationale is that Conde Net’s management saw a lean team (4 people) at Reddit who had secured enough seed money to get to where they are now, but faced a larger leader (Digg) and a hungry and somewhat desperate media conglomerate (Netscape of Time Warner).
What CondeNet offers the Reddit guys is to actually leverage their technology, content management know-how and traffic patterns and apply to Advance Publications’ content (which they are a member of) instead of content they do not own the rights to.
This might not be the strategy. Clearly these people are all smarter than I am. But if they did not intend to do this, please make a note to thyself: do so, please.
The lesson in Web 2.0’s current go-go days is that we are seeing a recycling and rehashing of content but there is little proprietary content to actually build a defensive audience around. YouTube sold to Google because it did not own any of the content and it knew that giving in to media companies’ request to take down the copyrighted content would make it vulnerable to a massive flight of its audience (to other still renegade social network video sites that kept the media companies’ content up on their site).
Digg is probably finding it harder to find new diggers; especially since Netscape is paying Digg contributors to do for $500 what they were doing for free. Whatever you think of Netscape’s GM Jason Calacanis’ “strategy,” economic determinism suggests it will work. If it does not, it’s because clearly Netscape tried too hard and Digg found more willing newcomers to its ecosystem than it lost through a churn rate.
Alas, what I think Reddit sold for is a function of three deals:
1- Delicious sale to Yahoo! (direct comparable)
2- MySpace sale to News Corp. (indirect comparable)
3- YouTube sale to Google (indirect comparable)
1 - Delicious probably sold for $17.5 million, tops, and this is using Om Malik and John Battelle’s estimates. I could be wrong, but these two gentlemen appear to know every single thing and person on the web; what they do not know, Michael Arrington knows
($10-15 million range source; $17-$19 million range source; Wikipedia pegs it at $10-$30 million but come on, that ain’t no range!).
2 - Myspace’s parent Intermix sold to News Corp. for $580 million.
3 - YouTube sold to Google for $1.65 billion, or 2-3 times as much as MySpace sold to YouTube, but… YouTube was a leader in the red hot video space and had become the leader. Furthermore, since the MySpace sale, MySpace went on to grow 300%…
Investors, bankers, lawyers, entrepreneurs, founders, management teams are a funny bunch. Great people. I have been involved in a handful of financing, M&A deals and trust me, everyone pretends that it’s a science, it’s not. Warning: Cliche coming up, dealmaking is an art as much as it’s a science.
But like I outlined here, there is certainly - at least subconsciously - a relationship between YouTube’s price tag with that of MySpace; don’t kid yourself: Steve Chen and Chad Hurley did not want to sell too quickly so they integrated this potential growth rate in the sale price.
Similarly, Reddit probably benchmarked itself to Delicious, but there is one major difference in the valuation model: Reddit was not a leader in its space and with Netscape in the mix, it had two competitors (more if you count flip, flop and flap listed above…)
Delicious was an early player in the social bookmarking space. Reddit (and Digg) are not Delicious clones but they are related in the sense that all three compete in organizing content online.
Also, Reddit does not generate revenue and it boasts 70,000 uniques and 700,000 pageviews.
Tally all of these factors and you can estimate that Reddit probably sold for $10-25 million. I’d narrow the range further and say that it was probably something akin to what Delicious got, so $15-20 million.
In other words, Delicious’ early lead offsets the fact that the Reddit is not a leader (unique, unsystematic factor) but the overall market has risen (market, systematic factor). These two things balance out. You can bring in lawyers and accountants to make you feel like this is all a science.
If the Reddit guys got anything more, great for them. They’re now a part of a major media company that will look to them for leadership online, hopefully the management and bureaucracy (assume one exists) does not drive them nuts.
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WatchMojo NewsletterInteresting to see Michael Arrington of Tech Crunch mention that the Reddit founders claim traffic of 70k uniques & 700k page views per day… while Alexa ranks the site at 942.
I worked for a site whose internal log stats pegged its traffic at 500,000 uniques per day and some 1.5M pageviews… and it was ranked at 900-1000 according to Alexa. The catch is that Reddit draws a tech crowd while my former employer served a more mainstream audience, less early adopter, etc.
This isn’t anything we do not know, but it is just a bit surprising to see so many educated people in the industry put so much weight on Alexa to make serious decisions with their and their client’s money.
I was thinking of writing this tomorrow with full stats from October and all, but today is the last day of October (that explains the costumes…) and writing about this in November is not my style. It’s nice to celebrate for a moment and then set greater goals for November and December.
Besides, it’s not like we’ve accomplished anything too worthy of a celebration anyway.
But the fact remains: it’s somewhat fitting that on the last day of a month where we will set records amongst all important metrics, we’re experiencing once again our best day ever today, traffic wise.
Some highlights and accomplishments:
Traffic in October grew 70% in terms of unique users and 50% in terms of pageviews. Our ad impressions grew 30% (we don’t blast ads on all pages, if we did, these would have grown proportionally with pageviews).
Better yet:
We have yet to run a single pre-roll ad on WatchMojo.com despite considerable demand from clients to do so… I am not certainly not saying we never will, just not now. WatchMojo.com now has well over 2,500 original clips.
October was also the month where we finally launched our proprietary search index and crawler on MetaMojo.com. We just signed our first monetization partner, which will roll out soon…
The citizen journalism platform and media professional news service BloggerMojo.com published its 3,600th post this month, in just nine months since launching - that’s 400 stories or news items per month (or 13 per day).
StreetMojo.com will publish its 4,000th contest anyday now…
October, 2006 will go down as the month where the Mojo Supreme business plan came together.
Best of all:
We’ve accomplished all of this with no outside financing: no angel investors, no venture capitalists; just hard work.
Whatever comes our way, we’ll adapt, survive and win.
Third time’s the charm. Mark my words.
Fascinating to see how much competition helps innovation and quality. Here is what MSFT is doing to strike back at Google who is trying to fight MSFT on its turf.
The legend that was Napster, written by someone who was there in 2000.
When you think M&A, think one thing: In the hands of the right parent, any acquired company can harm its larger competitor. Obviously, it’s also true that in the hands of the wrong parent, a market leader can lose to a second place competitor.
CondeNet just bought Reddit, the price is not being disclosed (for our estimate, click here). Boston-based Reddit launched in 2005 and has gotten a lot less ink in the press than its twin (or cousin maybe) Digg. Digg runs ads and thanks in large part to Kevin Rose’s PR savvy and superstar status has grown to lead the market. News Corp. was said rumored to want to acquire Digg, but Rose et al. insisted on a $150M price tag.
For sure, CondeNet did not pay anything close to $150M for Reddit, they probably did not even pay 1/10th of that. Of course, Reddit has no ads but unlike many M&A deals when the buyer is a technology company (think Google buying YouTube) does not buy a company for technology but rather buys traffic and the audience, in this case, it is highly likely that CondeNet paid for the technology and know-how to navigate online.
According to the free but skewed Alexa: Digg is the 87th largest website in the world (Alexa skews for tech types, an audience that Digg has cornered), while Reddit comes in at #942. The real gap between the two is probably less than those numbers suggest.
Companies like CondeNet have a wealth of great content, much of it offline, some of it online. This is was one reason why we launched MetaMojo.com, to (pardon the pun) dig up content from magazines that does not appear in the first results page (or anywhere near the first page) of the major search engines.
But even the content from magazines that is online is not always indexed by major search engines. Reddit - and the brains behind it - allow CondeNet to think of radically new ways to compete in the space.
This could have far greater repercussions for Digg than the purchase becoming a comparable/footnate in Digg’s eventual sale.
In the hands of the right parent, any acquired company can harm its larger competitor. Obviously, it’s also true that in the hands of the wrong parent, a market leader can lose to a second place competitor.
For our estimate, click here.
Acquiring Jotspot makes a lot of sense for a company that is trying to both build up its lead in search and catch up Microsoft in productivity systems. Offering browsers an opportunity to collaborate on Word documents and Excel spreadsheets is an important way to get people to turn off MSFT and tune out Office, but offering Wikis to boot is an important next step in Google’s evolution.
Read more.
I came across an interesting stat that Wikipedia pops up amongst the Top 10 results on:
- Google 81% of the time;
- Yahoo’s 77% of the time;
- MSN’s just 38% of the time.
In our earlier analysis on Wikipedia.org’s potential valuation if it were a for-profit, ad-supported entity, we outlined that Wikipedia.org gets a lot of incoming links by virtue of being a non-profit. Web site operators are notoriously stingy with outbound links, that’s a sad state of affairs. When Google launched, Ad Sense did not exist (obviously) and as such, traffic in itself had little value. Today, with Ad Sense, traffic is automatically equal to revenue, so website operators tend to hesitate before linking to a website. As such, Google’s Pagerank tends to emphasize either a site like Wikipedia.org that is not at all commercial or pages on amazon.com whose affiliate program allows the linking website to get a cut of the potential transaction. This has been my number one concern for traffic flow on the Web since I began to work in the search engine industry in 2000.
Because Google’s Pagerank technology puts a heavy emphasis on inbound links, Wikipedia.org gets a lot more “votes” than any other site. The instant Wikipedia.org becomes a money making machine, other sites would be less inclined to link to it. Note that Craigslist.org for example links to Wikipedia.org’s respective city entry off each page, now ask yourself: what is the chance of that happening if Wikipedia.org ran ads?
Exactly, none.
Yahoo!’s algorithm puts less emphasis on inbound links and as such, Wikipedia.org pops up less frequently on the main page.
And what about MSN Search? Why does Wikipedia.org pop up much less frequently on the main page? I am no software engineer or computer programmer but based on my not-so-scientific analysis, I have noticed that MSN Search is a search engine whose algorithm puts much less emphasis on metadata as well inbound links. This is a good thing and one reason why I think MSN Search is a very good search engine.
Everytime I launch a new site:
- I try different amounts of metadata on each site;
- I test each search engine to see how quickly each one indexes the new websites.
MSN Search is far and away the best at indexing content regardless of metadata and how long a site’s been up.
Note one thing, Google might index a site quasi-instantly, but because its algorithm looks at inbound links (and getting such inbound links takes time if not done by a so-called “black hat” online marketing agency) then it takes a lot of time for Google to index a page on its first page of results. Google’s first results page is more of a reference results page: a page listing which websites are linked to for a given query term.
In this context, MSN clearly gets the edge when it comes to which search engine quickly retrieves the best results no matter how many or little other websites link to.
Google commands 50% of the market share in the search space compared to MSN who gets less than 10%. Between the two is Yahoo! at 30% (I own shares in Yahoo!).
It’s no wonder that Google wants MSFT to ensure computer users and browsers are not automatically sent to MSN Search when they turn on their PCs and laptops:
The search engine company Google wants Microsoft to make sure users can easily choose Internet search engines in future products.
But Mountain View-based Google won’t say if changes Microsoft has already made to its upcoming operating system, Vista, have gone far enough.
David C. Drummond — Google’s senior vice president of corporate development — spoke to reporters after meeting with European Union antitrust regulators but refused to give details on those talks.
Read more.
But look ahead a few years when computers are always on and always connected to the Web. In that world, people first see Google.com (since search is the most used method to find websites and Google commands 50% market share) first and will probably have to go through Google to get to other sites, including MSN Live which hosts MSFT’s online Office applications.
Will Google first send people to its documents service before allowing them to access MSFT Office (online or offline)? Time will tell.
- MSFT/Google saga continues, here.
- Will Google surpass MSFT’s market cap, here.
- Will Google be the 21st century monopoly? here.
