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 stickiness 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.
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