9 digital media exits: who bought them and why

Each year from 2002 to 2007, over 300 venture backed start-ups had exits (peaking at 465 in 2007).  Steve Ballmer just mentioned that Microsoft plans to continue making 20 acquisitions a year, most for under $100M. Over the last twelve months, Dun & Bradstreet, which is 1/20 the size of Microsoft by market cap, bought four technology and media businesses each for likely under $100M. If a company raises $5M and exits for $35M, lots of employees and investors are happy. I analyzed 9 recent deals. Specifically, those of CNET, shopping.com, Daily Candy, Farecast, Kaboodle, Delicious, Sphere, Reddit, and DPReview. The goal was to find out why these firms were bought.

Buyers appeared to be looking for just one of three things in digital media businesses:

  1. Shopping content, ideally with a loyal following and good organic, unpaid search rankings for low cost traffic acquisition
  2. A network of partners or publishers
  3. A technology relevant to the buyer’s audience

Here is a summary chart (thanks to GigaOM and TechCrunch for much of the data):

digitial media exits

Of course, there are supposed to be synergies in these areas. Having a big audience of consumers was not enough. Buyers want to know that a better mousetrap will not come along and simply steal the entire audience away (e.g., Friendster and Facebook in the U.S.; Techmeme and Technorati). And technologies need to be very complementary to a growth areas of a buyer’s lines of business.

In these deals, the buyers of the web applications seemed to fall into a few buckets.

  • Media firms, like CBS and Hearst.
  • eCommerce transaction facilitators, like Amazon and eBay.
  • Search firms with advertising businesses, like Microsoft and Yahoo!

While a severe recession will certainly impact the bottom line of these businesses, its hard to imagine a scenario that significantly impacts the debt-free, cash generation engines of Amazon, Microsoft and Google (each throws off greater than $1B in cash flow from operations annually).

An overview of the successes:

Sphere was bought by AOL for its network of partners who allow a pop up with AOL’s content featured. I put a deal like YouTube in this category because the network of publishers putting content on YouTube, and promoting it to their friends and readers, was difficult to replace.

Reddit was bought by CondeNast for its technology which could be given to audiences across CondeNast’s properties. It fits with CondeNast’s desire to do more online with communities. It was also far cheaper than Digg. Delicious was bought by Yahoo! for its technology to potentially improve search results and enable Yahoo!Buzz. Farecast has price prediction technology that fits with Microsofts push into eCommerce search. Skype was bought by eBay because it was thought that its technology would facilitate transactions in areas like autos where a conversation is helpful.

CNET, Daily Candy, Kaboodle, and DPReview have original content related to what people buy. These businesses often have a loyal following, email lists, and great organic search rankings. When buyers look for synergies, these business can provide existing content to new platforms or drive traffic to existing eCommerce sites or advertisers.  Also, they have loyal followings to strong brands that are unlikely to leave anytime soon.

What do you think?  Are there any other major things that buyers look for in a digital media business?

And stay tuned for Part II:  Why no one is buying Digg, even though its valued at $175 million.

Did you like this? Share it:

The Win-Win-Win-Win: Google’s billion dollar AdSense Business and the Future of Advertising

In business, the “win-win” opportunity is sought after like gold in the mountains and is as common as rocks.* Purchases, marketing agreements, and employee contracts are always structured for two parties to benefit. Figure 1 depicts these relationships.

But while the win-win is common, the win-win-win is less common. Three way trades in sports come to mind. Other examples can be seen in Figure 2.

One of the more amazing things is the win-win-win-win. Google generated $1.66 billion in revenue from this model in the second quarter of 2008. This represents 31% of Google’s total revenues. Over $5 billion in annual revenue. If it has just a 10% profit margin due to payments to Content Providers, that is still $500 million in annual profits. And I’m guessing that in most cases advertisers pay Google early while content publishers receive funds late due to minimum payouts. Figure 3 depicts the Google AdSense win-win-win-win. I’ve included the flow of dollars and advertisements for clarity.

In advertising, the win-win-win-win works where (a) knowledge about what a user will respond to improves targeting; and, (b) many options are available for what can be shown the user. Amazon leverages the model with its affiliate program. It uses knowledge about what consumers bought to show relevant products (the 4 parties are Affiliates, Amazon, Merchants and Customers). LinkedIN is now trying the model by using knowledge about where people work to show relevant job postings and advertisements (the 4 parties are Affiliates, LinkedIN, Employers/Advertisers, and Job Seekers/Professionals).

Looking forwards, I’m sure we’ll see this model influence advertising on our TV and Cell Phone. Its interesting to think about what knowledge about a user will be most important.  For TV advertising, is it what products your friends on Facebook just bought? For the Cell Phone, is it where you are geographically? What do you think is the most valuable knowledge for advertisers on these mediums?


*Given current market conditions, it should be noted that not all transactions are win-win. In financial markets, there are losers in trades. But when the trade was first put on the books and capital was put at risk, it was not intended to lose money for the firm. The exit of a trade at a loss is still desired by the losing party.  And  it should be noted that not every firm can negotiate a win-win. When running out of cash, a firm loses the power to capture most, or sometimes any, of the value created by a win-win partnership.

Did you like this? Share it:

I’m not writing an obituary for the professional critic

I’m a huge fan of some of my friends’ blogsmulti platform blogs, and websites that rely on the wisdom of their users.

As many blogs and community sites feature reviews, some say the professional critic is dying.  For example, in The New York Times, Professor Randall Stross writes:

“Like others, I used to rely on professional critics for guidance in many domains — restaurants, movies, books……sites that welcome customer reviews have evolved significantly….dedicated reviewers produce work that, in quantity and quality, increasingly approaches that of their professional forebears….”

I certainly agree with Professor Stross that professionals will never produce the same quantity of content as a community.  Wikipedia has millions more entries than other encyclopedias.  And having some reviews available for the local sandwich shop is better than none, so there is value in quantity.

But the increasing availability of great content online does not mean the decline of the professional critic.

Before the internet, how many people were reading Ruth Reichl’s restaurant reviews in the New York Times print edition, and how many are now reading Frank Bruni’s print reviews and online blog?  How many people used to read or watch Siskel and Ebert, and how many now read or watch or post online to Ebert?

Continue reading

Did you like this? Share it:

Watch out, Founders! Early decisions lead to awful user generated content

Online communities have a tough time getting started. There is a chicken and egg problem. Who wants to join a community that doesn’t exist? To solve this dilemma, Yelp’s CEO openly admits that early on the company decided to pay reviewers and now pays “community managers” in major cities. A second founding decision was to focus on getting the most reviews possible with its user rewards system.

Yelp’s founding community in any city is those who are willing to contribute reviews for low pay (i’m assuming rates did not attract top writers and bloggers…because it didn’t). For example, for many moderate and expensive restaurants, reviews often cite discounted Restaurant Week specials. Yelp is now challenged with broadening its set of active contributors in order to get broadly applicable content for the larger audience it is attracting.

The second original decision founders made was to encourage the community to review often. Online Karma awards are given for Firsts, and users compete to see who can have the most reviews or Firsts. As the community prefers to be heard rather than rated, Yelp accepts reviews about old meals or reviews that focus on the circumstances of the meal. Sadly, this has led to a proliferation of low quality reviews for restaurants, a category where one size does NOT fit all.

I think Yelp has a lot of potential (17 million unique visitors a month is already impressive), but right now the main feature that helps me is the mashup of google maps, yellow pages, and pictures.

Did you like this? Share it:

How useless information makes great deals

Everything at Amazon.com is marked down from some higher price. But is that marked down price a good deal? In a Washington Post article by Michael Rosenwald, behavioral economists note that we have a tough time knowing how to value the utility we will get from most of the stuff we buy. We struggle to figure out the real “value to me” of an iPhone or movie.

Retailers like us to think the value of a deal is measured by the difference between the “original price” and the “current price”. Instead, we should look at the difference between the “value to me” and the “current price”.

Given this difficulty we have setting prices, its hard to believe a perfect exists. Or if it does exist, its based on imperfect prices.

Did you like this? Share it: