Thursday, December 28, 2006

Addicted to Netvibes

For the last couple of months I've become increasingly addicted to the Netvibes service. If you haven't experienced it yet, I highly recommend the site.

Netvibes is one of the best designed, most user-friendly and intuitive Web 2.0 sites I have seen. It's so intuituve, in fact, that there's no welcome screen or instructions - it just pops you right into a fully customizable home page. On the page you can read RSS feeds from your favorite blogs, check email from numerous accounts, keep track of your MySpace page - pretty much anything that requires you to keep up with new information can be tracked from your Netvibes page. I find myself checking my Netvibes page throughout the day.

While other companies like Yahoo and Google offer similar home page functionality, I prefer Netvibes for its ultra-clean interface and easy customization. Try moving around a module on your Netvibes page by dragging it across the screen and see how intuitive it feels - this is a great use of Ajax.

There's no advertising and I'm not sure I see what their business model is yet, though I have some ideas of what they might do down the road. Netvibes has been growing rapidly via word of mouth and it's easy to see why.

Sunday, December 10, 2006

Top 10 Best Internet Acquisitions Ever

Well, the list of the Top Ten Worst Internet Acquisitions Ever certainly generated a lot of buzz. There's bound to be disagreements on what constitutes a horrible or a great acquisition, but the point of such lists is to get people in the industry to stop and think for a moment before hurtling headlong into the next bungle.

My thoroughly subjective list of the top 10 internet acquisitions took much longer to compile than the worst 10, and maybe that says something about the quality of buyouts over the last 10 years. Some folks have beaten me to the punch with their own top 10 acquisition lists, so here's my take:

10. Shopzilla - acquired by Scripps in June 2005 for $525 million. This is a rare example of a traditional media company buying an Internet service that actually makes both entities better. Shopzilla is a comparison pricing engine and Scripps has been able to plug in their existing advertiser base, making the Shopzilla service not only better but more profitable. In the year and a half since the acquisition Scripps was able to double Shopzilla's revenues and more than triple profits.

9. Network Solutions - acquired by SAIC in 1995 for $4.5 million. This isn't an acquisition that created a great strategic fit or allowed the acquiring company to change its position in the market. This is an acquisition that just plain made money. After SAIC acquired Network Solutions, the domain name registrar, for a paltry sum in 1995, the company was later sold to VeriSign in 2000 for - wait for it - yes, $21 billion. I'm not going to even try to calculate a rate of return for that one.

8. YouTube - acquired by Google earlier this year for $1.65 billion. Heard about this one? :-) I realize this is a brand new acquisition and I'm also aware that this might be considered one of the 10 worst by some people, but here's why it makes number eight on my list: video advertising. The next phase in Internet advertising will undoubtedly be video-based and many think this market will be several times larger than the text-based ads that are Google's current bread and butter. Google Video was not a market leader - YouTube is. If this acquisition gets Google even a little closer to dominating the video ad market as it has the text ad market, it will pay for itself many times over.

7. ZiffDavis - acquired by CNET for $1.6 billion in 2000. ZiffDavis was the parent company of ZDNet, at the time CNET's fiercest competitor. Since the acquisition ZDNet has been (in my view necessarily) severely downsized and repositioned - so why is this in the top 10? Because with one move CNET was able to eliminate its closest competitor, cementing its position as the top place to turn for tech-related information. While CNET may have issues that it's grappling with now, imagine the position it would be in if Yahoo! had bought ZDNet back in 2000.

6. Overture - acquired by Yahoo! in July 2003 for $1.63 billion. Yahoo! was smart enough to realize quickly the implications of Google's acquisition of Applied Semantics (see below). At the time of the acquisition Overture accounted for 20% of Yahoo!'s revenues and I would imagine that share has gone way up over the last 3 years. Even though Yahoo! currently is developing its Panama system to replace the Overture technology, this acquisition allowed Yahoo! managed to stay in the search game, at least until now.

5. - acquired by AOL in June 2004 for $435 million. AOL wisely decided that having a closed network and being in the Internet access business was not the right direction to go. The acquisition of, an interactive ad firm, became a centerpiece for AOL's focus on generating advertising revenue to replace the connection fees it had traditionally relied upon. The very strong quarter that AOL last announced indicates this was exactly the right move to make.

4. Four11 - Acquired by Yahoo! for $92 million in 1997. Four11's Rocketmail service became Yahoo! Mail and Yahoo! was one of the first portals to offer a free email service. Unlike Microsoft's acquisition of Hotmail later that year, Yahoo! did a great job of integrating the email service with the rest of its offerings. Over the last 10 years, web-based email has been one of the absolute most sticky applications that Yahoo! has. For less than $100 million Yahoo! was able to leapfrog its portal-wannabe competitors and create a service that millions of its users still rely upon to this day.

3. Applied Semantics - acquired by Google in April 2003. Applied Semantics originally developed the AdSense technology that delivers text advertisements to web pages based on keyword relevance to the page. This has become the cornerstone for Google's dominance and is responsible for generating billions upon billions in profits for the company. Before this acquisition Google was a great search engine. After this acquisition Google became a great search engine that mints money.

2. PayPal - acquired by eBay in 2002 for $1.5 billion. This was an obvious acquisition for eBay, but one that nonetheless has helped fueled its growth. After trying to compete with PayPal by offering its own payment transaction system, eBay smartly realized that it was too late - PayPal had already become the default payment system for the vast majority of eBay auctions. Rather than sticking to its guns and trying to outlast PayPal, eBay listened to its users. PayPal is now integrated into every aspect of eBay and accounts for a huge amount of its revenues.

1. mySpace - acquired by News Corp. in July 2005 for $580 million. While mySpace may some day be remembered as nothing more than an annoying assortment of ugly web pages, the News Corporation's acquisition of Intermix, mySpace's corporate parent, immediately vaulted the company to a leading position on the Internet. Contrary to many predictions, mySpace has continued to grow like crazy since the acquisition and the News Corp. has wisely left it largely alone. MySpace gives the News Corp. an enormous platform to distribute music, videos, and anything else it can think of to an audience of millions of young people. It's not surprising that a year after the acquisition, New Corp. now claims that mySpace is worth more than 10 times what it originally paid for the company.

Like any list there were some close calls that didn't quite make it (such as AOL acquiring Mirabilis) and perhaps others that didn't even occur to me. But lists like this one are meant to generate discussion, not to serve as an official accounting. So go ahead, tell me what I missed or what you agree with.

Disclosure: I am long on CNET. I don't own shares in any of the other companies mentioned.

Monday, November 20, 2006

Top 10 Worst Internet Acquisitions Ever

As the market for acquiring fledgling Internet companies heats up, it's worth taking a look at all those acquisitions that didn't quite work out. For every Internet acquisition that's successful there seems to be dozens that die on the vine.

So what makes for a really bad Internet acquisition? First, it has to be expensive. No one's going to rake a company over the coals over a few blown $50 million acquisitions. That might sound like a lot of money to you and me, but that's a rounding error to Google.

Second, for an acquisition to be lousy it has to contribute little or no long term growth to the acquiring company. An acquisition that doesn't fit with a company's long term strategy and that is quickly forgotten - that's a bad buy.

So, here is my highly subjective list of the 10 worst Internet acquisitions of all time:

10. Hotmail - acquired by Microsoft in 1998 for about $400 million. Hotmail was a second-tier free email service when Microsoft bought it and the acquisition did little to improve Microsoft's internet portal ambitions.

9. Skype - acquired by eBay in September 2005 for $2.6 billion. While it's early to call this one an absolute dud, eBay does not seem to have a plan - or at least a plan that would justify the acquisition price - for how to integrate Skype's calling service with the core auction business.

8. MySimon - acquired by CNET in 1999 for $700. The price comparison site mySimon was supposed to launch CNET into lots of non-tech verticals - not a bad idea at the time. Unfortunately CNET had no idea how to effectively integrate mySimon and it's now withering away, surpassed by newer, shinier price comparison engines.

7. - acquired by Excite@Home in 1999. $780 million for an online greeting card site. 'Nuff said.

6. Lycos - acquired by Terra Networks for $4.6 billion in 2000. Yeah, I never heard of Terra either. The warning bells should have gone off when the deal was originally announced in May 2000 at a value of $12.5 billion, only to fall by more than 50% by the time it closed in October of that year because each company's stock price was plummeting.

5. Netscape - acquired by AOL in 1998 for $4.2 billion. To be fair, this was a mercy acquisition. By the time AOL bought the company, Netscape had been humbled by Microsoft's free Internet Explorer browser. AOL clearly had no plans for Netscape and as a result the once pioneering company is now an afterthought.

4. GeoCities - acquired by Yahoo! in 1999 for $3.56 billion. When was the last time you visited a site with a domain? I can't remember either. Shortly after the acquisition, innovation on GeoCities appears to have ground to a halt. GeoCities could have been mySpace, but the entire social networking revolution passed them right by.

3. Excite - acquired by @Home in 1999 for $6.7 billion. Remember Remember how it was the #2 or 3 portal for awhile? Well, a whole year and a half after the cable company @Home acquired Excite (for $394 per user!) in January 1999, the combined entity filed for bankruptcy never to be heard from again. Classically disastrous.

2. AOL - merged with TimeWarner in 2000. This one is obvious. While Time Warner finally seems to be turning things around at AOL six years after the fact, this merger was doomed from the start. Shortly after the merger AOL's business started falling apart fast, with TimeWarner holding the bag. There was never a coherent integration plan and all that talk of synergy is - thankfully - dead and gone.

1. - acquired by Yahoo! in 1999 for $5 billion. Yahoo! paid a mind-boggling $710 per user back in the hey day of the bubble. But why does this rank higher than the AOL boondoggle? Two words: Mark Cuban. Yahoo's ludicrous overpayment for gave Cuban the money to go out and buy the Dallas Mavericks basketball team and permanently implant himself on the American psyche. Unforgivable.

So did I miss any duds?

Next up: the 10 best Internet acquisitions. That'll be a littler harder.

Sunday, November 12, 2006

YouTube Wins Senate for the Democrats

With Virginia Senator George Allen Jr.'s concession last week, the Democrats regained control of the Senate for the first time in 12 years. But as much as the Dems should thank Jim Webb, Allen's opponent, the real victor in this campaign was YouTube.

Months before the election Allen was riding high in the polls and was even touted as a potential Presidential candidate for '08. Then came the notorious "Macaca" video in which Allen made fun of an Indian member of the audience, which happened to be captured on video. In elections past this video might have been shared among a few people for laughs, but 2006 marked the "YouTube-ization" of American politics.

Within days of the video being posted to YouTube, tens of thousands of people around the country had viewed it, and the buzz started to build. A week later the video was picked up by The Daily Show with Jon Stewart, then by the mainstream media, and soon everyone knew of Senator Macaca.

Allen's campaign began to implode, culminating in his concession on Wednesday, handing the Senate to the Democrats. A sea change in American politics was brought about by one short video posted to one website and then broadcast to millions.

Tuesday, October 24, 2006

How Yahoo! Can Beat Google

The recent quarterly earnings announcements from Yahoo! and Google show just how far Google has come. Google's market cap is now a mind-bending $144B at last glance - 4 1/2 times that of Yahoo! Google seems to go from strength to strength while Yahoo! - once the darling of the web - now looks lost.

Can Yahoo ever regain its pre-eminent position on the Internet? Not if it continues to compete head to head with Google. Google has the financial and intellectual firepower to outgun just about any company that goes at it head-on. Instead, Yahoo! needs to focus its relatively limited resources in a few key areas and make some difficult strategic decisions:
  • Concede search to Google. It may sound heretical for Yahoo! back off on search, but the fact is that Google has won the search battle and the sooner Yahoo! realizes this the better off they will be. Yahoo! is plowing untold resources into its long-delayed Panama project in an effort to catch up with Google's extraordinary search and advertising platform. But it seems unlikely that Yahoo! will ever reach parity in this area and the company could redirect those resources into areas where it can win.
  • Go vertical. It's easy to forget that Yahoo! is still the most visited site in the world and the way it got there is through strength in applications like email and depth in vertical areas like finance, shopping, etc. Google's attempts at breaking into vertical areas has been their one notable mis-step. With one or two exceptions, Google's entries into verticals like video, finance, email have not been barn burners. Yahoo owns vertical and it needs to extend its lead in this area by making sure all of its categories - from autos to yellow pages - are best of breed. This is a core competency that Yahoo! has and must build on.
  • Tap into blog power. Blogs are huge and only getting bigger - 75,000 new ones surface every day - but neither Yahoo! or Google owns this area. Yahoo! should buy Technorati, which has become the default blog search engine. Combining Technorati with Yahoo's recently acquired social bookmarking site could be the start of a blog portal. Yahoo! started life as a directory of web sites (a quaint notion that you could actually list and categorize all the web sites in the world, back when there were 50 or so), so it knows how to organize information. This is different than searching - with searching you find what you're looking for. By organizing blogs, Yahoo! could help people find what they didn't know they were looking for.
  • Power up video ads. With Google's acquisition of YouTube, it's a foregone conclusion that video will be the next - and possibly most lucrative - form of Internet advertising. Yahoo! needs to recognize this trend and get in front of it. Yahoo! should actively work with its advertisers to start deploying video ads throughout its sites. This is an area that Yahoo! must choose to expend resources in a very visible way. Even with the YouTube acquisition, there won't be a clear winner in video ads for some time. Yahoo has lost the battle of text ads - it can't lose the battle of video ads.
Most of all, Yahoo! needs to recognize that the landscape has changed forever and that it needs to start being proactive about forging its future. There's still a good chance that Yahoo! can compete with Google, but the time to start is now.

Monday, October 23, 2006

CNET's Results: Some Positive Signs

This afternoon CNET released its quarterly results (although it only released revenues and not earnings due to the ongoing stock options investigation). CNET is clearly in a challenging environment, but I found some positive takeaways:
  • While page views declined, visitors were up. This supports my earlier analysis that CNET's page redesigns were responsible for the page view decline, not an overall drop in visitors. It's also worth noting that CNET's page views declined only 13% year-over-year, not the 50% that was being bandied about the blogosphere last week.
  • CNET continues to efficiently monetize its traffic. The company's revenues increased 13% year-over-year even though its page views dropped by the same amount. This indicates that CNET is pumping out more sales leads per page view to its participating merchants - in other words it's getting more efficient in converting readers to buyers.
  • CNET is broadening its footprint. In the last quarter CNET launched sites on food and television, further cementing the company's recent move out of the tech sphere. I think this is a smart stategy, although I don't yet see how CNET is tying all of these sites together - in fact there's no link to any of the non-tech sites from CNET's home page.
  • CNET is poised for the oncoming onslaught of branded advertising. A recent study indicated that brand advertising on the Internet will grow much more quickly over the next few years than the direct-response type of text ads Google has grown fat off of. Over the last 10 years CNET has pioneered the development of online branding opportunities for marketers and I believe this work will be rewarded in the coming quarters.
To be fair, not everything is looking up for CNET. The company has to resolve the stock options issues quickly and definitively before the stock will go anywhere. CNET also has to get its debt rating up, which will hopefuly happen if the company pays off its $125 million in notes with the cash it has on hand.

With new leadership in place at CNET there will likely be a transition period during which the company finds its feet. But I believe once it does, the company has shown its ability to execute which will put it in a good position as tech advertising bounces back.

Full disclosure: I am long on CNET. I used to work at CNET several years ago, but have no inside knowledge of the company at this point.

Wednesday, October 18, 2006

CNET's Traffic Decline: An Alternate Explanation

There has been a lot of buzz recently about how CNET's traffic numbers are way down year-over-year. By some reports, CNET's traffic has been cut in half in just the last year. By any measure that's a big decline and certainly CNET should be worried, but I'm not yet writing off a company who has stuck around since the earliest days of the web.

CNET's traffic decline has been widely attributed to the upsurge of tech-related bloggers, though no one has given any evidence whatsoever that this is the true cause. Yes, there are more blogs than ever, and yes CNET's traffic has declined, but this doesn't mean one caused the other.

In fact, although CNET's page views have declined in the last year, I have not seen any data that suggests unique users have declined. So the same number of users are viewing fewer pages. Is this cause for worry? Probably not and here's why: CNET is getting more efficient at serving users.

What has been widely overlooked is that CNET's pages have been redesigned, for the better, over the last year. Each of CNET's product reviews - the heart of CNET's business - are now on one page rather than spread over 4 or 5 pages. So the user who goes to CNET researching digital cameras may have been generating 4 or 5 pages views last year, but is now generating one.

Here's why this is actually a good thing:
  • CNET holds on to the user. Keeping all the product review info on one page makes it less likely to lose the user along the way and more likely that a user will click to buy the product from one of the merchant's who advertises on CNET. CNET is a sales lead generating machine and making it faster and easier for users to click through to merchants is only a good thing.
  • A decline in page views does not necessarily mean a decline in revenue. Like almost all online media companies, CNET sells only a fraction of its overall page views at high CPM rates. The rest is excess inventory which is monetized by ad networks and other remnant ads with much, much lower CPMs. I don't know what CNET's advertising sell out rate is, but I would be surprised if it were more than 50% for all their sites combined. So lopping off 50% of CNET's page views only cuts out the remnant ads - not the high CPMs, for which CNET gets some of the highest rates in the industry.
CNET reports quarterly results on October 23. This will be a good opportunity to see how much, if any, declining page views have had on the company's top line. CNET has a lot of challenges ahead of it, but I think it's premature to write off the company's prospects on just one piece of potentially misleading data like page views.

Full disclosure: I am long on CNET. I used to work at CNET several years ago, but have no inside knowledge of the company at this point.

Monday, October 16, 2006

Selling art on the Internet

I come out of both the Internet and art worlds. In '99 I sold my Internet company to CNET. After that I opened an art gallery, first in San Francisco and then in New York.

For quite awhile I've been thinking about why fine art has not taken off as a product category on the Internet. I should specify that by "art" I am referring specifically to contemporary art in a variety of mediums: painting, drawing, sculpture, photography, video, installation, etc., and not to posters or other mass-produced art-related products.

On the face of it, art seems like an ideal candidate for selling via the web:
  • art is a visual medium, making it easy to be displayed on a screen
  • buying art requires a large amount of background information in order to properly value and appreciate it, for which the web is well suited
  • maintaining a retail space is often the single largest cost for a gallery. Certainly galleries would be economically motivated to move their operations out of a brick and morter retail context.
However, after being in the business of selling art (or, more specifically, trying to sell art) for three years, I now have some insights on why art doesn't sell on the Internet:
  • buying art is a social process. Most collectors buy art not for purely aesthetic reasons, but rather for social ones: which artist is "hot"? which artwork did their friend buy? which piece of art will provide the most prestige or avant-garde edge? This may sound cynical, but for many of the biggest collectors there is definitely some social component to why they buy art, and this can't be replicated over the Internet.
  • a gallery provides a necessary context that the Internet cannot. The way a gallery looks, where it is located, what press it has received - all these play into how much a piece of art that the gallery exhibits is valued. With so few widely accepted standards for judging and valuing contemporary art, the physical presence of the gallery becomes paramount. This is why so many dealers go to so much trouble to maintain an aura of exclusivity - it's the only way to make buyers perceive the art as being valuable.
So the very strengths of the Internet - transparency, full information, levelling of the playing field - are what works against it when attempting to sell art.

We'll see if anyone figures out how to bridge this gap and make the Internet a viable way to sell art.

GigaOM picks up on Google/YouTube analysis

GigaOM today published an analysis of Google's acquisition of YouTube that concurs with the article posted here last Thursday, namely that the increase in Google's stock price following announcement of the sale basically paid for the acquisition. I agree. :-)

Friday, October 13, 2006

LoopNet: the anti-Zillow

By this point, nearly everyone with even a passing familiarity with real estate websites has heard of or visited Zillow. The folks who brought you Expedia are behind Zillow and, in addition to creating great buzz for the site, have collected around $57 million in venture capital (though obviously the $57m and the buzz are not entirely unrelated). At Zillow, users can get an automated valuation of almost any home in the U.S. - a very neat trick that involves the intake of countless different types of sales data from counties across the country.

I think Zillow is a technical marvel and I like their clean interface. But I see two problems with their business model: 1) The site isn't sticky. While users may go there once or twice to see the value of their home, or more likely their neighbor's home, there's not much that would keep an average user coming back week after week. 2) Zillow has competition. Several automated valuation services have sprung up in the wake of Zillow, perhaps most notably RealEstateABC (horrible name and it's interface could be cleaner, but it works well).

In contrast to the buzz surrounding Zillow, LoopNet is a real estate website that has largely flown under the radar. LoopNet went public earlier this year and currently has a market cap around $500 million. One reason why you may never have heard of LoopNet is that the site caters exclusively to commercial real estate - apartment buildings, shopping centers, industrial warehouses. LoopNet has basically created a multiple listings service for commercial real estate - a central place where both brokers and buyer go to look at investment property. Before LoopNet, this information was all on the local level.

Unlike Zillow, whose business model I question, LoopNet is in an enviable position for the following reasons:

  • It is rapidly creating a network effect (a la eBay) - the more brokers list properties, the more buyers turn to LoopNet to find a property, which then encourages more brokers to list more properties, etc.
  • With the value of commercial properties often starting at $500,000 and going up into multi-million dollars, LoopNet can charge both brokers and users hefty fees. The value to an investor of finding the right property more than outweighs the monthly fees you have to pay to become a "premium member".
  • Unlike residential real estate, commercial real estate shows no signs of slowing down. Investors increasingly view commercial properties as safe havens which provide good returns.
I don't own any LoopNet stock and I have not followed their financial performance since their IPO. But I think the contrast between a company with a lot of buzz and an uncertain business plan, and a company that has kept a low profile and built a very nice business, is an interesting one.

Thursday, October 12, 2006

Is Google the new Yahoo?

There was a time from around 1998 through 2001 that Yahoo was the undisputed leader on the Internet. Other portals (remember those?) followed Yahoo's every move. If Yahoo acquired a web calendar company, the other portals followed suit. A slew of acquisitions ensued: email companies, calendaring companies, personal website companies, online store building companies, etc. etc. This was a very good time to be an Internet entrepreneur. You could almost predict which area would get hot by looking at the path of Yahoo's acquisitions.

With the acquisition of YouTube is Google now setting the pace? Will Yahoo feel the pressure to go out and acquire a video sharing company? There's already a lot of talk about Yahoo needing to move quickly on an acquisition of Facebook, just to show it can be decisive and keep up with Google's moves. Will this translate into other areas as the big 3 (Google, Yahoo, MSN) try to one-up each other? It didn't seem like Google was playing this game, but with the YouTube acquisition, something may have changed.

We'll see how Yahoo and other companies respond to Google's move. But it looks like once again it may be a good time to be an Internet entrepreneur.

It's good to be Google: What some people missed about the YouTube acquisition

Now that the hubbub surrounding Google's acquisition of YouTube is starting (maybe?) to die down, it's time to take a closer look at how this move changes the Internet landscape.

First off, let's look at Google's stock price since Friday when rumors of the acquisition started flying around the web (props to TechCrunch for breaking the story). On Friday Oct. 6, GOOG closed at 420.50. On Monday Oct. 9, when pretty much everyone knew the acquisition was going to be announced, GOOG closed at 429 - an increase of about 2%. Doesn't sound like much until you look at Google's market cap of $130 billion. A 2% increase equates to $2.6 billion - a full $1 billion more than Google paid for YouTube. One could then argue that Google's acquisition of the biggest web phenomnenon since MySpace was essentially free. It's good to be Google.

Next up: Google as the next Yahoo.