The $100M price tag that Answers.com paid for Lexico - owner of Dictionary.com and Thesarus.com - translates to:
- 35 times earnings
- 15 times revenues
- $9 per unique
Not too shabby. Read our previous post on the logic of the deal.
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WatchMojo NewsletterAnswers.com, a company with a market cap of $100M and an enterprise value of $93M, today bought Lexico, the parent of Dictionary.com for $100M.
Where did Answers.com get this cash? I’ll investigate, but fow now, is this an oddball move or does it make sense?
When I saw the news and began to write this post, I was flabbergasted and thought it was an oddball move. But when you think in the context of a game of chess, tragically it all makes sense.
Answers.com is one of those companies that has a unique product. It has the potential to be a leading reference website online, but its a rich price based on earnings alone. In fact, Answers.com also announced that its revenue would be weaker than expected, so the stock is down $1.50.
I own shares in the company and right now, and initially I was going to get out of the stock because this seemed reckless. But as I thought of the rationale, at least one reason hit me (perhaps I am reading too much into this and giving the company too much credit).
A cynic would wonder:
Why on earth would Answers.com make this acquisition? It already trumped Dictionary.com’s much valued real estate on the upper right section of Google’s results page. It’s one thing if someone bought Answers.com to inherit that real estate (though there’s no guarantee that Google would not bounce it), but why would anyone by Dictionary.com?
Then it hit me. By buying Dictionary.com, Answers.com does two things:
- It consolidates the dictionary / reference market. Dictionary.com probably gets a lot, and I mean a lot of organic traffic from results pages regarding standard definitions and even generic one word queries, which could be in the billions per month.
- More importantly, Answers.com needed an antidote to Google’s moodswings. In other words, to the best of my knowledge, there is nothing in writing securing Answers.com’s slot in Google’s result page. Any given day, Google could bump off Answers.com for someone else (after all, Google itself bumped off Dictionary.com for Answers.com).
But by buying Dictionary.com, Answers.com ends up winnin regardless of whether Google uses it or Dictionary.com. Of course, Google could also replace Answers.com with its own product, but then that would only make Answers.com more attractive as a target M&A, in my humble opinion.
In fact, one of the main dark clouds hanging over Answers.com is the argument that no company would want to buy it because they would risk Google bumping them off, something that would cause a massive loss of traffic. So this is not only a hedge, but ultimately, it strengthens the company quite a bit…
Disclaimer: long Answers.com
Om Malik’s GigaOmniMEdia launched its latest blog, covering companies focused on all things green: It’s called Clean2Tech.com and here it is.
In his words: it’s “a site devoted to the business of clean technologies, its innovations and everything else. While there are many sites that help consumers live “greener,” we are focusing our energies on the business of clean and green.”
Definitely a smart addition to his blog empire. By the way, what do you call a blog mogul? A Blogul?
Not a day goes by where I don’t get a pitch via email from a video services company. Today, it was no different. But once in a while, I wonder: “did the sales guy check out the site?” or ”are we not being clear about not being a user-generated content site?”
Congratulations on the progress with Watchmojo.com, it is a great user generated content portal.
Only problem? We’re not a freaking UGC site. We actually produce the content. Yep, all of it. Maybe that sales guy was being sloppy, or maybe by checking out our main page, it’s not clear. But then again, today’s main page carried a somewhat high-quality, very professional video profile of Chicago.
I don’t know… but some days I want to climb the tallest mountain in the world and shout that out…
Still a lot of uncertainty and hope (hype) surrounding online video. I think in many ways, video is a better fit with display ads whereas video ads work better with text content.
But a new report by eMarketer, as seen on Business Week, released July 16, suggests Web surfers ain’t seen nothing yet. Video ad sales are expected to grow from an estimated $775 million this year to $3.1 billion in 2010 and then to $4.3 billion in 2011. That’s up from a November projection in which eMarketer estimated 2010’s video ad sales at less than $3 billion (see BusinessWeek.com, 11/7/06, “Up Next: Online Video Ad Boom?”).
Though the numbers sound large, the expected activity over the next four years suggests that advertisers will be merely experimenting with the medium. Even at $4.3 billion, spending on video ads would account for just $1 of every $10 of Internet advertising.
Read more.
When Guba’s CEO resigned, he said that YouTube had won the game in online video… we said that the times would get harder for second tier sites because Google would not be able to make YouTube even stronger. VC activity in the space slowed down, as exits became less obvious. Today we’re seeing the fragmentation of online video file sharing services: Veoh is moving into one area and Sony becomes the latest to carve a niche:
Sony is trying to edge into Internet videos with a Web site to be introduced today called Crackle that will feature short segments by aspiring filmmakers, many of whom Sony paid for their productions.
Crackle is the latest incarnation of Grouper, a Web site that began as a way for people to share music, photos and videos with friends. It transformed itself into a YouTube clone and was bought last August by Sony Pictures Entertainment for $65 million. At the time, Sony said Grouper would be focused mainly on user-created video, which it hoped would spur the use of its home video equipment.
But this approach had little traction in the market. There was a lot of competition, especially from Google’s YouTube, which has become the center of user-created videos. Moreover, Sony found that advertisers did not find user video very appealing.
So it decided that higher-quality videos would enable it to stand out in the market and attract advertisers as well. “We have been moving away from YouTvand toward higher-quality content,” said Josh Feltzer, the founder of Grouper who is now co-president of Crackle, “by rewarding the aspiring producer versus the person who wants to share a video of a wedding or of someone jumping off a roof.”
We wish Sony well, but having paid $65M for Grouper which is a rounding error for the Japanese-based giant, Sony has a lot of wiggle room. The writing on the wall for smaller, privately held assets is less rosy: Revver too sought to be a place for aspiring filmmakers, even offering to share in the ad revenue it generated.
We’re not sure how much traction Revver had, as manifested by the management shakedown late in 2006, and since YouTube has begun paying its content owners too, I doubt many content owners will find a need to be on Revver, Crackle, etc., because market leaders tend to offer more upside to content owners alone than the sum of laggards do in aggregate. Of course, YouTube does not ask for exclusivity, so there is nothing stopping a content owner to allow both Revver, Crackle and YouTube to host their videos in exchange for content.
But as we can see, the time to invest in platforms and infrastructure is long over, for sure the contest continues, but to win, you need content. That’s the next great area of focus… we at WatchMojo.com sort of saw this coming a year ago and that is why we invested aggressively in building a library of high quality, low cost video clips. We syndicate our content across a plethora of distrubution points… but over time, as we too have to manage our resources, it’s natural to think that the only file sharing sites that will get content are those who yield solid returns: be it in audience or in revenue. Branding doesn’t pay the bills, of course, but it does build brand equity which over time is required to generate advertising revenue on our site. So if you follow that rationale, ultimately the file sharing sites that will be relevant will be those who can generate ad revenue for their content partners.
For services like Grouper/Crackle and YouTube, that are now part of a larger entitry, this gives them an edge in that devoid of such revenues, they can survive and thrive to some extent.
But, I do anticipate a further shakedown for independent and privately held file sharing sites that need to start showing their investors a glimpse of a path to profitablity, let alone an exit strategy.
Facebook was launched as a tool to allow students to connect, today it’s becoming increasingly a social networking tool for all, with people swearing off LinkedIn and MySpace in favor of Mark Zuckerberg’s creation. And then, of course, there’s still the cloud overhanging that matter: a lawsuit that questions how much of it was inspired and allegedly stolen from ConnectU.com.
With increasing talk about Facebook’s exit strategy, one needs to ask: besides the challenge to monetize social networking sites, perhaps the greater questions are:
- what is the shelf life of a social network?
- what happens to secondary social networks if one does amalgamate the market for online profiles?
We’re seeing sites in the video file sharing space branch off to remain relevant in a world where YouTube is becoming the de facto monopoly… will the same thing happen in social networking?
