] HipMojo.com » Did Google Overpay for Fox Interactive Media’s Search Business?

Did Google Overpay for Fox Interactive Media’s Search Business?

In the wake of the Google/Myspace $900 million deal where Google would be paying FIM $900 million over 40 months, and Merrill Lynch coming out saying that the deal would get Google $225M back, I was asked by a few readers to rejig the original value of MySpace’s search business analysis.

Note that the $900 price tag is for all of FIM, at least the areas that matter, including sites like IGN, whereas this analysis is for MySpace only.

I decided to update the figures with MySpace’s most recent number and even include the contextual ad revenue, that is ads that are plastered on sites, they get much, much lower CTRs and average CPCs are much less, but on a garganthuan site like MySpace, it can add up. The thing is that over time, if the results are not up to par, advertisers opt out and that portion will reduce.

I could be wrong, but my guess is that despite News Corp.’s bravado, Yahoo! did the numbers and realized that over time, MySpace’s traffic is simply not all that profitable. People do not go there to search, so the “propensity to search” is low, and, the contextual ads are simply not clicked on.

Of course, I still give kudos to News Corp.’s team for getting Google to commit to such a staggeringly high number, even though per month, it’s only $22.5 month, a joke for a company with Google’s deep pockets and need to defend their position as search king.

[Disclosure: I own shares in Yahoo!]

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Posted By: Ashkan Karbasfrooshan | Aug 8th

9 Responses to “Did Google Overpay for Fox Interactive Media’s Search Business?”

  1. HipMojo.com - IT, Video, Web, Technology, Gadgets » What if MySpace had a search engine? Technically, MySpace is a search engine… Says:
    August 22nd, 2006 at 1:39 pm

    […] - FIM’s Search Strategy Soul-Searching - Is MySpace a Fad? It is according to CNN/Money.com - How much is MySpace’s search business worth, anyway? Part 1 - Did Google Overpay for Fox Interactive Media’s Search Business? Part 2 - Crazy idea of the Day: Should News Corp. spin off Myspace and IGN? […]

  2. HipMojo.com - IT, Video, Web, Technology, Gadgets » YouTube IS Wildly Profitable - No Doubts About It Says:
    October 3rd, 2006 at 4:54 pm

    […] Note that not surprisingly, YouTube stopped running Google or Yahoo’s text ads, which suggests that on social network and file sharing sites, CPC style ads do not make sense (and why Google probably overpaid by shelling out $900M for News Corp’s FIM’s properties, though that was a defensive move to counter MSFT and Yahoo’s aspirations in search). […]

  3. Dossy Shiobara Says:
    October 4th, 2006 at 8:32 am

    froosh: If we believe the figure cited here:

    http://www.techcrunch.com/2006/08/08/bebo-passes-myspace-in-the-uk/

    It’s citing MySpace has 70M+ uniques and “nearly” 30B monthly page views. Naively ignoring “spiky” traffic, grossly oversimplifying, we can guesstimate that to mean ~1B PV’s daily.

    I’d take a wild-ass guess and say that only 1-3% of their daily traffic are searches: so between 10M-30M PV’s. (You estimate 20M, so we’re close.) You use a 10% CTR, but I’m guessing a 4% CTR is closer to reality: on 20M searches, that means 800K clicks, not 2M. (Continue the rest of the math if you want.)

    I’m speculating here, but I’d bet Google’s strategy isn’t about the short-term money earned off MySpace user searches. Google is reinforcing their brand, by exposing the FIM audience to it. Folks have to realize that people will eventually outgrow MySpace, but wherever they go to hang out next, Google wants them to still use Google for their web searches. The FIM deal helps Google build brand loyalty with users of web search. That’s something much harder to value, and apparently Google’s valuation is $900M.

    To build brand loyalty with FIM’s audience to Google’s search for an entire generation of teens and tweens … that could very well be worth $900M. That’s only $45M/year for the next 20 years … and the value of that audience is worth much more than $45M/year.

  4. HipMojo.com - IT, Video, Web, Technology, Gadgets » Where Will 2007 Take Google’s Stock? Says:
    October 9th, 2006 at 4:28 pm

    […] - a deal to secure real estate on MySpace, one of the fastest growing websites, guaranteeing $900 million over three years, paid by Google to News Corp., who bought MySpace for $580 million in 2005. […]

  5. HipMojo.com - IT, Video, Web, Technology, Gadgets » Why the Web Kicks Ass, Fark Rocks, YouTube Won the Video Game, and Why YouTube Might Go Down Says:
    October 12th, 2006 at 9:36 pm

    […] I usually pontificate over multiple-thousand posts, for those, check these out: YouTube’s potential revenues http://www.watchmojo.com/web/blog/?p=500 Did Google Overpay for FIM’s Search Business? http://www.watchmojo.com/web/blog/?p=317 The Domain Name Ecosystem http://www.watchmojo.com/web/blog/?p=285 How News Corp. Tried to Sue me and Totally Lost http://www.watchmojo.com/web/blog/?p=150 Anyway, I’ll keep this one short: To show you why YouTube totally kicks ass: […]

  6. HipMojo.com - IT, Video, Web, Technology, Gadgets » How Much Revenue Can Google’s AdSense Generate on YouTube? Says:
    October 13th, 2006 at 1:01 pm

    […] Google made this acquisition because it saw MySpace triple in size after News Corporation’s Fox Interactive Media (FIM) bought it, and to protect its bread and butter against Yahoo! and MSFT, it went out and paid $900 million to FIM for the rights to power search and serve contextual ads on MySpace.  Here are my comments on why and how Google overpaid there in a defensive move. […]

  7. HipMojo.com - IT, Video, Web, Technology, Gadgets » What is Wikipedia.org’s Valuation? Says:
    October 26th, 2006 at 5:25 pm

    […] - when Google could surpass Microsoft in market captalization here; - what Google could generate from YouTube by adding Ad Sense on the social networking video site here; - what YouTube’s pre-Google acquisition revenues could be here; - what MySpace’s search business was worth to a partner here. […]

  8. HipMojo.com - IT, Video, Web, Technology, Gadgets » Rupert Murdoch’s Worst Nightmare Happening Before His Eyes Says:
    October 29th, 2006 at 12:39 pm

    […] I doubt this will happen, MySpace is here to stay.  But let’s just say it’s a good thing that FIM struck that $900 million deal with Google to recoup News Corp.’s investments in IGN and MySpace (IGN, for it’s part, will only grow at a steady clip over time and generate more and more revenues for News Corp., though we shall see if it turns a profit when News Corp. releases Q3 reports in early November). […]

  9. HipMojo.com - Main Street Meets Madison Avenue, Wall Street and Silicon Valley » Should Yahoo!’s Terry Semel Go? Says:
    November 14th, 2006 at 11:47 am

    […] But, when you’re also a writer of a website that questions what Wikipedia should be worth as a for-profit, if Google can overtake MSFT in market cap, whether Google overpaid for News Corp.’s search business or if it’s the 21st century version of Standard Oil or Microsoft, you can’t help but ask the question: […]

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