Why CNET Loses From AOL's Acquisition of Weblogs Inc (TWX, CNET, YHOO, NYT)

Two noteworthy points about Weblogs Inc, which Time Warner (ticker: TWX) just announced it would acquire, and the competitive implications for CNET (ticker: CNET):

1. A disproportionate number of Weblogs Inc.'s blogs are technology related

Weblogs Inc. divides its blogs into groups. (You can see this division in the sidebar of any one of the blogs.) The groups are: consumer, technology, wireless, video games, media and entertainment, business, life sciences, personal, and events. The technology group is the largest, but in reality all the wireless blogs are also technology related, as are a chunk of the consumer blogs and video game blogs ("consumer technology"?).

The preponderance of technology related content isn't a coincidence. There are two reasons for it. First, technology users tend to spend more time in front of computers, tend to have broadband connections, are comfortable reading content on a screen, and are therefore a natural first-mover audience for Web-based content. And second, in the words of MoneyMakingBlogs "the blog network owners target high-paying niches like gadgets (cell phones, digital cameras and other electronic toys are popular ones), tech and also potentially high traffic topics like celebrity gossip".

2. Most of Weblogs Inc.'s traffic is to its technology content

The most popular Weblogs Inc. blog, by a long way, is Engadget. According to this analysis, for example, about a third of all incoming links to Weblogs Inc.'s blogs are to Engadget and its foreign language versions. (It's no co-incidence that Engadget and its rival Gizmodo are among the first blogs to be translated into multiple languages.)

That data point is corroborated by publicly available traffic statistics, for example from Alexa. CEO of rival blog network Gawker Media Nick Denton has taunted Weblogs Inc. CEO Jason Calacanis on precisely this point -- that none of his sites get significant traffic other than Engadget.

The conclusion: AOL just purchased a technology media property. Sure, Weblogs Inc. is scalable to other content categories, and AOL was no doubt interested in Weblogs Inc. as a platform, not just a collection of current media properties. But at the end of the day, Weblogs Inc. right now is about technology content.

Stock implications:

• CNET (ticker: CNET) is arguably the key loser from this acquisition. AOL will drive traffic to Weblogs' niche technology blogs, which offer greater depth on their particular topics that CNET does. And AOL will build Engadget into one of the pre-eminent tech sites on the Internet.

• As a result, AOL's acquisition of Weblogs makes CNET a less attractive acquisition target for other media and Internet companies. AOL's resources behind Weblogs' technology content will increase the competitive pressure on CNET. The Weblogs acquisition also reaffirms that leading Web and media companies don't need to buy traffic; they need to fill holes in content, and they need a scalable "Web 2.0" platform. Weblogs Inc. accomplishes that for AOL for $25 million. It's hard to see how leading Web and media companies would be excited about paying $800-million-plus for CNET.

• The Weblogs acquisition puts Nick Denton's Gawker Media in play (despite his denial). Gawker's traffic is more balanced that Weblogs'. But Gizmodo, its technology site, gets more traffic than any other Gawker site. If Yahoo buys Gawker, for example, two Internet companies with deep pockets will then be competing with CNET's technology content. And if the newspaper companies such as the NY Times (ticker: NYT) decide to reverse their pull-back from technology content and continue their push into Web publishing, it makes more sense for them to buy a cheap network of tech blogs than CNET.

Full disclosure: short CNET at the time of writing.

Related:

• AOL Acquires Weblogs Inc: Details, Reactions and Timing (TWX)
• CNET for sale, says the NY Post; but will it sell?
• Technology Coverage and the WSJ, NY Times and Washington Post (DJ, NYT, WPO)
• The Impact of Blogs on Online Media Companies
• Rise in blog readership threatens online media stocks
• Citigroup downgrades CNET (August 10th)
• CNET’s Traffic Disconnect?
• CNET Discusses Growth Without Webshots (2Q05 CNET Conf Call Quotes)
• CNET beats consensus, stock rises (CNET 2Q05 earnings)
• Citigroup initiates on CNET with Buy
• Yahoo preparing competitor to CNET (YHOO, CNET)
• Avalon Research Chairman Michael Margolies: CNET Networks Worth Only $6
• CNET ducks a question on its conf call (1Q05 conf call quotes)
• Competition and The Long Tail

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