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Key Query for Internet Dealmakers: Author, Author? by Eric J. Savitz

Summary: Given the recent spat of acquisitions of internet advertisers (Google Inc. (GOOG) buys DoubleClick for $3.1B, Yahoo! Inc. (YHOO) buys the remaining 80% of Right Media for $680M, WPP Group plc (WPPGY) buys 24/7 Real Media Inc. (TFSM) for $650M, and Microsoft Corp. (MSFT) takes out aQuantive Inc. (AQNT) for $6B), Tech Trader author Eric Savitz wonders: Why are we not seen any takeouts of internet content providers? His thesis: Buyers want user-generated content, not paid-content creators. Internet giants will gladly pay a premium to invest in tools that help users create content for fellow users (a-la MySpace, Photobucket, YouTube [all already gone] and FaceBook). Deep-rooted social networks keep users coming back to hear what their friends have to say -- and to socialize -- with a Social Network 10 06 2007stickiness factor paid-content sites can't reproduce. Cisco Systems (CSCO) VP Dan Scheinman recently said that online community is rapidly becoming a more important source of information than search engines. And in a research note last week, Bear Stearns analyst Spencer Wang told readers that traffic to the six most-popular user-generated sites (MySpace, Facebook, YouTube, Wikipedia, Blogger and Digg) already accounts for 13% of all U.S. internet traffic, up from 7% last year and under-1% in 2004. So, despite rumors to the contrary, paid-content providers will not be the next wave of acquisition targets. "We have met the content," Savitz says, "and it is us". Many of the content stocks also face additional challenges: WebMD (WBMD) is trading at 100x 2007e earnings, CNET (CNET) faces competition from niche tech sites, TheStreet.com (TSCM) is overdependent on Jim Cramer, PlanetOut (LGBT) is close to insolvency, Answers.com (ANSW) generates scant revenue, and The Knot's (KNOT) wedding-related info may not be near the top of anyone's acquisition list.

Related Links: Mainstream Media's Problems Lie WithinCisco's Quest to Conquer the Networking WorldBig Media vs. Blogs: Longing for the Good Ol' DaysDespite Conservative Grumbling, Blogs Are Here to StayWill Microsoft Turn Its Sights On Facebook?

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This article has 5 comments:

  •  
    Eric Savitz is right. TSCM was trying to sell itself for over a year, and nobody bit. Rumors that CNET was for sale also came to nothing.

    But isn't this also bearish for Barron's itself, and exactly the sort of work Eric does?
    2007 Jun 10 12:46 PM | Link | Reply
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    The key for the traditional content providers is whether they can increase the amount of user-generated content on their sites. TheStreet.com acquired Stockpikr for this reason, and it seems to be going reasonably well.

    Not sure it's right to view The Knot as a traditional player -- I thought a lot of their content was user-generated.
    2007 Jun 10 03:26 PM | Link | Reply
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    I agree with Frank. Acquirers should be looking at properties that have the best of both worlds. A loyal user base with proven monetization combined with user generated content. Stokpikr is an interesting application for The Street. User generated content is more valuable if there are already users...
    2007 Jun 11 02:03 PM | Link | Reply
  •  
    This is a ridiculous thesis. There are plenty of deals being done at big multiples for paid content companies. See the list at alacrablog.com.
    2007 Jun 12 03:32 PM | Link | Reply
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    Answers Tips should be industry standard(or should have been for a long time now). Anyone private and business should want it. But I bet no one knows what it is.
    2008 Apr 11 07:24 PM | Link | Reply