HitWise reports that Jason Calacanis‘ new venture, Mahalo.com, garnered 0.02% market share in the search market.
Jason - whose previous ventures include Silicon Alley Ventures and Weblogs Inc. - raised $16M on a $100M post-money valuation round earlier this year.
VCs historically like to get at least 5x or ideally 10x on their investments. Sure, they all want more, but bravado aside, most VCs just want their money back and their track record as a group is so woeful that, well, as they say, beggars can’t be choosers.
All to say, if you believe that target return range, then Mahalo.com would have to grow to $500M to $1B in an exit to make the VCs happy. Is that possible? You tell me. I’m no clairvoyant.
What does that translate in market share? If you believe MSFT’s VP of Emerging Businesses Don Dodge, who published a great post saying that 1% market share in search = $1B in market cap, then Mahalo.com needs to grow 25 to 50x to hit that.
Will it? I don’t know. 25 to 50x might not seem like much, but Google, Yahoo!, MSN.com, Ask.com and AOL.com command over 99% market share, so Mahalo.com would have to grow to be as large as all of the other players combined… which is not obvious. But give him credit for trying in a cut-throat and competitive space like search.
One thing however is obvious: with the valuation that Jason managed to snag, the pressure is on. I think Jason can make it happen, despite what some will say (note the shock that he is growing traffic), he has the drive and smarts to pull any reasonably sane project off.
Read Write Web’s Marshall Kirkpatrick mentions that Mahalo gets a lot of searches off search engines. Not all such traffic is created equally, however. Take for example how I landed on Mahalo tonight: I read about former Jakob Lodwick’s latest venture, Normatist, on Valleywag.
Then, to learn more, I searched for it in Google.
The first result? Normatist.com itself.
Second result? Valleywag.
Third result? Mahalo. But the result was less than impressive… and created by Jason himself. I am actually commending his entrepreneurial ways, but the page was a placeholder for Normatist with no actual content (mind you, it shows how Calacanis recognizes an opportunity… which is more important frankly than the idea itself).
Technically, I registered as a visitor from Google… but the question is: will I go back?
Not sure. In fact, Jason proves his point: human-powered search can create pages quickly… but the really impressive thing is that Google - a computer-powered search engine - indexed all of those three pages even though they were created within the past 24 hours. I alluded to this before.
Search is really competitive and ultimately, it is Google’s universe. Not to take anything away from Jason and the team he’s built at Mahalo, but the biggest thing Jason has got going for himself is the A-list cadre of investors (including Sequoia) who will find a way to make the exit worthwhile.
Disclaimer: Mojo Supreme owns MetaMojo.com, a domain-specific vertical search engine and video meta search engine. I am sure, and hope, that some of WatchMojo.com’s great videos appear in the Mahalo 7.
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WatchMojo NewsletterYesterday at 6pm EST, I was speaking with a successful entrepreneur who mentioned that the sale of his company ranked in the Top Internet deals of all time. I didn’t say anything, but had the gentlemen known that I was obsessed with deals and dealmaking, I had written a couple of posts on the matter, like the Top 10 Web M&A deals of all time, or a comprehensive post on 2007’s deals in new media and tech. Anyway, when we hung up, I asked, what are the top m&a deals of all time. So as I began to wander the Web I began to compile a list - far from complete mind you - of big mergers and acquisitions in technology, media, health, finance, energy, etc. Here it is.
But that is not the point of this post. Let’s back up some more in time.
Importance of Natural Language Search
Yesterday morning, Nitin Karandikar, who pens the Software Abstractions blog emailed me a post he published on Powerset. In it, he chronicled the merits of natural language search. I didn’t read it initially at the time he sent it to me, but went back to it today and agree in general that natural language search has its place. Whether or not it will be a killer app of sorts remains to be seen, largely because natural language search is akin to the better mouse trap syndrome. It’s a nice to have, not a need to have… and the few times you need it, a normal search engine like Google would suffice.
Opportunities for Niche Search Engines
Bear in mind, before I launched WatchMojo.com (video content, syndication & monetization) I invested a bit of money and time in a vertical, domain-specific search engine called MetaMojo.com. I even added a meta video search engine component on top of it. The point is I have put my money where my mouth is: there is a place for niche in search… but I think search is pretty much a done deal unless a massive tectonic shift in the landscape.
How Google Won in Search
Mind you, such changes have occurred, but before search engine advertising was a 40% piece of the global $30B online advertising pie. The main landscape-altering deal was Yahoo! deciding to power its search results with Google. That was a micro event. At the micro event, it was both the portalization trend that all initial search companies embraced in the late 1990s (AltaVista, Lycos, Excite, etc.) combined with the Nasdaq crash and dot com bubble bursting which allowed Google to coast to the finish line. In my humble opinion, the only way for there to be any challenge to Google entails not a better mouse trap but a cataclysmic shift to Google’s obstacles. The only thing I see is a merger of MSN.com/Live.com and Yahoo! and in a separate entity outside of Redmond-based Microsoft (owned 33-45% by Microsoft and 55-67% by Yahoo!’s existing shareholders). But this post is not about that.
This post is more about asking, does natural search engine alone merit a shift in consumer behavior? I do not think so. I think Nitin is right that natural language search is a welcome addition to the landscape, but it is neither tectonic nor cataclysmic. It is evolutionary at best, and not revolutionary.
Speed Kills
Frankly, the most recent revolutionary change in search was when Google [quietly] began to update its index perpetually, or least every 24 hours. Up to 2005 for sure, 2006 probably, and I suspect some time in 2007… Google did not update that quickly. But faced with Technorati’s blog search which did seem to index recently-posted content better, Google stepped it up and now seems to update very quickly. I think this is more important than natural language. Bear in mind, we live in a very different world. Yes a lot of searches are done on timeless topics (who was Alexander the Great?) but a lot more will be done in timely topics (who killed Benazir Bhutto?).
Follow the Audience
As more and more audiences move online, when news breaks, less and less people will turn on their TV to get news. In this context, the search engines who will most quickly connect audiences with content will have a chance to win.
Testing the Top 4 Search Engines
So, since we’re talking about search… why on earth did I start this manuscript with my recent post on largest M&A deals of all time?
I’m glad you asked. Last night I published that post at around 11pm. I continued looking for deals to add this morning… and today continued in between calls, meetings, and the 5 or so posts I published on HipMojo.com.
CONTESTANT #1: GOOGLE.COM
When I did the search this afternoon, I was impressed to see that Google had already indexed my post - less than 24 hours after my post (2nd result):
That being said, given what the searched keywords were, I am surprised my article did not come out #1. The reason for this is two-fold, result #1 comes from a high-quality source, probably has a lot of PageRank mojo, and is close enough in content… but not precise, since 2006’s top deals is really not all-time top deals. So Google loses some points.
=> Google Scores: 4.5/5
CONTESTANT #2 - YAHOO!
So I continued my search. Did Yahoo! index the content, too? As you can see, sort of, it picked up the tags of categories that the post was listed under, but not the actual post’s URL.
All in all, they still score high because at the time a user searches for it and clicks on it, they would fall on that tag, and thus post, unless the publisher would have published more posts under that tag, at which point the user would not get the article or story in question. It is very important for Yahoo! to score high in terms of speed for one simple reason: it’s a portal, people are already on Yahoo! pages so if they search for something timely and do not get what they are looking for, they will go elsewhere, likely to a place like Google.
=> Yahoo! Scores: 4/5
CONTESTANT #3 - MSN.COM
What about #3 MSN.com?
MSN.com actually missed my post (but its results were fine). A friendly suggestion to MSN Search, if you are trying to fight for market share, updating the index is something you might want to do). Similarly to Yahoo! though, since MSN is a portal, that means they have an existing audience firing off searches. If a user does not find the most timely of information, they too will bolt, probably once again to Google.
=> MSN Scores: 3/5
CONTESTANT #4 - Ask.com
Last but not least, IAC’s Ask.com:
Ask.com did not pick up the post at all, but it did index a previous post I had on M&A, so I can’t say anything too negative about them (I’m kidding).
At the risk of being a smart ass, I will say this: IAC spent $100M on an advertising campaign that was ineffective, touting some algorithm.
Maybe, I’d invest $75M of that in servers and index the Web more frequently… and then take the $25M to buy up keywords on larger search engines such as Google, Yahoo! and MSN.com to tout the fact that Ask.com has the latest results… of course, for that to happen, they actually need the algorithm to do that.
Now that would be a helluva [mouse] trap to steer away users.
=> Ask.com Scores: 2/5
So, what does this all say?
This is a very small test to show why Google is winning in search. My post went up 24 hours ago and it was technically the only search engine to pick it up.
Cliches aside, online, 24 hours is a long time… if search engines want to become the default choice for users, as more and more users turn to the Web for news and information, then I would think timeliness and speed of indexing new content is as important - if not more - that natural language search.
Lastly, I know what you’re thinking: what about Searching off the News Tab, which indexes more recent material. Well, that is pretty niche. We think that ultimately, the future of the Web is closer to Universal Search than niche search…
Google does not understand people. There, I said it. I’ve been trying to come up with a reason why I occasionally lash out at Google, only to come back and love and defend them, and I think it’s that from my vantage point, Google, the company we’ve all come to love and admire is just not very good with people.
Will Google Miss the Big Video Advertising Opportunity?
Google has an opportunity to be bigger in video than it is in search. No small feat given how dominant it is in search. This is the single most important opportunity for Google: eventually, video advertising will surpass search advertising, especially as web advertising surpasses TV advertising.
But, Google might miss out on the video holy grail - despite buying YouTube - for the same reason it seems to mess up acquisition integration after acquisition integration…
Google has created so much shareholder value that who cares what I say, but here goes:
Obsessed with Machines, Focused on Automation, Hellbent on Scale
Google wants everything to be automated by machines and scalable. This, they think, is the only way that networks effects can create revenue streams that would make a material impact on their $15B annual sales. This is ironic because Google’s stratospheric rise began by making pennies per click and across very few monetized keywords. Of course, like all companies do, once you get big, you lose your ways.
Why This Worked With Web Search
This strategy worked in search because spiders indexed web pages and parsed that data to return search results. This was not a manual job and as a result as the pace of additional websites was too rapid for any directory to manage. Google’s luck and good fortunes continued because in search advertising, it acquired Applied Semantics, a company that allowed it to match the context of the content on a page and match it with advertisers’ desired keywords. Up to this point, automation did not create a barrier to success, it fostered success.
But the world is changing, fast. Google understood this, so it bought YouTube.
Will Google Be Able to Profit From YouTube?
The Web has grown so much, that success now boils down to winning in the trenches, gaining inches here and there… using judgment. Relying blindly on machines is insane in that insanity is defined as repeating the same thing but expecting a different result. And this takes us to their acquisitions. Apart from YouTube, which ones have really done well?
YouTube has continued to grow rapidly, yes, but largely because Google has not done much to it. WatchMojo.com is a partner of YouTube. So let me be clear: we want YouTube to grow, prosper and profit… Google is the largest online advertising ecosystem out there… but YouTube being a video property entails a different mindset from Google’s initial one in order to attain success.
Video advertising will not be propelled by small and medium sized business who are happy to insert credit card, choose keywords, and turn on the Google traffic machine.
Video advertising will be powered by ad agencies, global advertisers and Chief Marketing Officers who fancy a conversation over an online form.
Online is a Drop in an Ocean of Offline Advertising
Google does not get that. They want to impose their hegemony over a subset of the population that controls about a quarter of a trillion of dollars. That is right: Google is a behemoth online, with $15B in sales. But advertising across all media is a $300B industry in the US alone. Google isn’t exactly expecting Google Enterprise Search to add to sales, it is betting on more of the same: more advertising sales from radio, newspapers, magazines, and television. But, it wants it to be automated and scalable overnight, and from the get-go. That will never, ever happen and oddly enough, it did not even happen in search. It seems like Google has forgotten about Google Ad Words’ early ways. I was probably one of the first Google Ad Words clients (and even used GoTo.com and other pay per click models) and the automation and massive scale came after some time and tinkering… the same will have to happen in video for Google to duplicate success.
Yet, how does Google seek to duplicate that feat?
Was Doubleclick the Smartest Move?
Google’s big bet was to buy Doubleclick thinking that the world’s biggest ad server could simply connect to Google’s ecosystem and allow it to move into display/banners and video advertising.
Wrong!
Since the acquisition of Doublelick last year for $3.1B - which has yet to be approved everywhere, but should - a handful of companies have moved to Doubleclick competitor aQuantive’s AtlasDMT, namely IAC (whose Ask.com search unit competes with Google’s search operations). Viacom jumped on Microsoft’s bandwagon, too. MSFT bought aQuantive. The list goes on and on.
Google’s strong-arming is causing many companies to run towards the arms of not just Microsoft, but Yahoo! too (disclaimer: I own shares in YHOO). Look at the number of newspapers that joined Yahoo!’s consortium. That is nothing to sneeze at as local advertising grows.
A Checkered Acquisition History
Ultimately, I respectfully doubt that Google understands people. The same DNA that would lead someone to barge in a negotiating room and tell red-hot VOIP startup Skype that “we’ll beat any competing offer by 10%” is the same DNA that will frustrate hot startups such as Feedburner and Jaiku. Let’s not mention Dodgeball and dMarc.
Are these really isolated incidents or a trend? I think it’s the latter.
Recall what I asked above about CMOs?
When dMarc founders took their $102M payouts and left the potential $1.3B payday, they said:
dMarc and Google apparently differed over the need for a “human touch” in the sales process. Although dMarc was a pioneer in automated radio ad sales, the company still employed human beings to explain the dMarc system to prospective customers and tutor those who signed up. As Google began integrating dMarc’s system into Google AdWords, it pushed to limit the number of product reps. dMarc executives in turn blamed this policy for their sluggish revenue results.
Google’s headcount has swelled in a Yahoo-esque fashion, from less than 5,000 people to 15,000 as of January 1 2008.
Communication Breakdown
The bigger danger, frankly, is not even that Google cannot seem to communicate with outsiders… it’s that Google’s traditional employee profile - an engineer or computer programmer - will probably start to clash with Google’s new hire profile: a marketer from a media organization that is trying to get Google to better understand the needs of content companies, marketing organizations and advertisers.
Culture Clash
In this context, you then wonder: if Google fails to communicate and better understand their new media-oriented employees (who understand machines alone won’t solve problems), then how does it expect to dominate in the outside marketing world?
Say what you want, but Google at $200B in market cap is way past priced for perfection. As we look for things that could derail the Google express, we rarely think about the human equation, but unless Google becomes more humane with people, then maybe 2008 will mark the beginning of Google’s slowdown.
That title might be misleading - don’t get us wrong: Facebook might very well continue to grow ferociously in 2008, but I think that Facebook and MySpace will ultimately diverge considerably in their raison d’etre.
MySpace - partially due to its pedigree (Intermix, and how it blew up via musicians using it as a promotional tool) is a media company and a promotional platform. It’s also a very public platform. Don’t get me wrong, a lot of people choose to set their MySpace profiles to private… but as MySpace continues to grow, I suspect a lot of people looking for a personal social network will indeed turn to Facebook and people looking for attention will rely on MySpace.
This does not mean that every person will use Facebook and every one looking for attention will turn to MySpace. A lot of creative types might find Facebook too shackling… and alternatively, a lot of organizations might prefer the stoic Facebook look and feel over the cacophony over at MySpace.
Today’s announcement that MySpace was launching MySpace Celebrity is a testament to this:
MySpace, the world’s most popular social network, today announced the launch of MySpace Celebrity, a content channel focused on entertainment culture and related news, blogs, videos, and events. The new hub will be the premier online destination for celebrities to communicate directly with their fans and for the MySpace community to interact with their favorite stars. Today’s announcement unveils more than 300 official celebrity MySpace profiles housed within the new channel including actors, musicians, athletes, comedians and socialites.
“MySpace Celebrity is Hollywood’s new home page. Celebrities have been using MySpace since the site’s launch and it’s a natural extension for us to now offer them an aggregated channel where they can be in control of their own image,” said MySpace President and Co-Founder Tom Anderson. “We want MySpace users to connect with celebrities in the same way that they do with musicians.”
Of course, this raises two major issues:
As MySpace (and all social networking sites including Facebook, Bebo, etc.) continue to launch channels and try to target communities within communities, they run the risk of launching these initiatives and then forgetting about them after the press release has gone out. This gives an advantage to niche and targeted stand alone social networks who focus on one demographic. I think niche social networking is one area that has a chance of excelling for this reason: focus.
The flip side, of course, is that this serves as a reminder that social networking giants such as Facebook and MySpace are always a press release away from entering a niche and dominating. They will not win in all sub-categories, but with their sheer size and resources (MySpace is part of Fox Interactive Media and Facebook is backed by Microsoft with $340M in total funding to date) they stand a chance.
Disclaimer: WatchMojo.com is a content provider to MySpace TV - with eight, count ‘em eight video channels on the world’s largest social networking site.
At 2:16pm EST yesterday, Yahoo! hit $21.42, inches above its 52-week low of $21.37. With 1.34B shares outstanding, that translates to a market capitalization of $28B. Yesterday’s low had a lot to do with the systematic fear in the marketplace… mind you, which explains why Yahoo! - and most of the stock market - reversed early losses and rose back to close a mere $0.05 down for the day. It closed the day valued at $30B or so.
I’ve bought, sold and bought many stocks (Electronic Arts, aQuantive to name two). But for reason, I’ve never sold any Yahoo! stock… I’ve only added to my position over time. I don’t know why that is. Maybe like Warren Buffett, I have subconsciously made Yahoo! a lifetime holding. I doubt it. But yesterday, at 2:16pm I was in a meeting, otherwise I would have added some more… in fact, I would have added at any point in the morning.
Why?
Yahoo! is the world’s largest web-based media property. A lot of the short-sellers (and there are many) and the long time bulls really get granular with Yahoo!, and usually, this is wise. But Yahoo! is ultimately a play on the web. In fact, it is a diversified play on the Web. If you want search, buy Google. I regret not buying Google at $100 (let alone the $85 IPO price… but Google technically never traded at $85, opening up at roughly $98 if my memory is right) but despite that, I still maintain that I much rather own Yahoo! at $30B than Google at $200B. It’s all about having a margin of safety, to quote legendary investor Warren Buffett.
Today, a day after Microsoft’s chief dealmaker resigns, the NY Post reports (for the 3rd time in less than a year, mind you) that Microsoft is mulling making its offer for Yahoo! public. Yahoo! has historically plateaued at $34 in the past 12 months… first in large part to a rumor that Microsoft was mulling making a $40/share offer for Yahoo! (or $50B when measured in market cap) and then again over Alibaba euphoria. After the Alibaba peak, the stock crumbled back down to the low $20s.
The stock is now up 5% - yesterday it was down 5% - so is 24 hours it has swung 10% on no news but a lot of hype. That’s the stock market, I guess.
Will Microsoft buy Yahoo! I don’t know. I think Microsoft will ultimately sell MSN.com/Live.com to Yahoo! and get about 35% of the merged company as I suggested here, and John Battelle did here and Henry Blodget did here.
One thing Yahoo!’s got is options, they are:
- status quo
- merger with eBay
- acquisition by/merger with Microsoft
- taken private
- can Google buy Yahoo!
Ultimately, Yahoo! is a very moody stock to own. The swings over the past 12 months have been pretty clear:
January 2006 - October 2006 (10 months): Downward swing from $40 to $22
October 2006 - May 2007 (8 months): Upward swing from $22 to $34
May 2007 to September 2007 (4 months): Downward swing from $34 to $23
September 2007 to November 2007 (2 months): Upward swing from $23 to $34
November 2007 to January 2008 (2 months): Downward swing from $34 to $21.42
So, if you were a betting man - which, let’s face it, the stock market totally is - what direction and at what velocity will Yahoo! swing in and to next?
One thing is sure, even if MSFT buys Yahoo!, it won’t be the biggest web media merger of all time. For a comprehensive industry-wide look at some of the largest M&A’s of all time, click here.
Disclaimer: Long Yahoo!
I found the following graph from Paul Kedrosky’s blog around the holidays. Drunk off wine and loaded on turkey, I never penned anything, but if you want to better understand what the brouhaha over the writers’ strike is, that graph says it all:
Actually, that graph is half the story. The numbers are simple:
TV remains a huge market, but it is increasingly fragmented:
If Broadcast (CBS, ABC, NBC) are seeing a shrinking audience, why do they still command a considerable majority of ad dollars? That is what marketers are asking themselves…
Marketers understand that the future of all media and advertising is web-based. This does not mean that all advertising will be placed online, but a majority of it will, and all non-web based advertising will be conducted electronically. Who the winners of this titanic shift will be remains to be determined, but the fact that will happen is pre-determined.
The fact that audiences are continuing to shift online and video content is gathering more and more steam is just a manifestation of all of these trends. The strike is just accelerating this trend and forcing media companies to shuffle their cards… but one reason why greater audiences are shifting online is that the concept of prime time TV is dead. We want the content we are looking for when we want it. Just imagine the day when search engines’ technology catches up with video content… then it’s lights out for TV companies.
It certainly is an exciting time to be in digital media, and video in particular.
