Six Reasons Why Yahoo Should Buy Joost

In light of last week's events, when Jerry Yang replaced Terry Semel as Yahoo's (YHOO) CEO, the company needs to go for some big bets if it wants to stay as relevant in the future as it is now.

Google (GOOG) has already won the overall search war by grabbing 56% market share, compared to Yahoo's 21%. Google has also made an smart move by buying YouTube, as video has clearly exploded in the last 12-18 months. But YouTube is still the wild-wild west of videos, so Yahoo has a great opportunity to legitimizing internet video by buying the emerging online video company Joost.

Here are the top reasons why Yahoo should buy Joost:

1) Joost has already developed an important market position and buzz behind its mantra of "TV anywhere, anytime." It has signed contracts with a whole host of major content providers to stream content on its platform.

2) Joost was started by Niklas Zennstrøm and Janus Friis (Skype and Kaaza founders). These two have enviable track records in building web 2.0 companies

3) Yahoo Videos is going nowhere (compared to YouTube). Yahoo can jumpstart its video story by buying Joost, in a similar manner to what Google did by buying YouTube

4) Joost is in its early stages and is therefore still in beta. As soon as it's available for all, its membership will grow exponentially. Yahoo may be able to buy it now for less than a billion dollars, whereas in 12 months it may have to pony up a much larger sum. (Yahoo lost in not buying Facebook early on.)

5) This move will not only prevent AT&T (T) or Comcast (CMCSA) from buying Joost; it will make Yahoo itself a much more attractive target for AT&T or Comcast, or even for Microsoft (MSFT).

6) By many accounts, Jerry Yang is filling the CEO chair only on a temporary basis, until Yahoo finds a professional CEO. By buying Joost, Yahoo will also acquire Joost CEO Mike Volpi, who has developed his CEO type skills in running large divisions of Cisco.

Disclosure: none

Comments

[Jeff Molander_:]

Shyam:
While I agree with you strongly on #1 IMO your 4 contradicts 3 in that, indeed, Joost has nowhere near the user base. Youtube without the user base would never have even been considered by Google as I see it nor should YHOO consider Joost at this time -- even with the alliances and founders w/ track record. Just my two cents.

Your #5 is dead-on target and quite insightful!

2007 Jun 25 09:46 AM

[atultulshi:]

Great post! It might be premature for the Joost guys to sell right now though.

Since they don't know how popular they will be, they also won't know how much would be a good price right now. They sold Skype for up to $2.6b so I'm sure they're hoping for a lot more this time around.

2007 Jun 25 01:00 PM

[Off the Rad...:]

Have any of you ever taken a look at Modavox, MDVX?

This is a company that I strongly believe Yahoo would be well served to acquire before Google or one of its others competitiors do so. If nothing else, they should immediately be licensing the technology while they can.

The company recently announced they received an additional patent in advertising and streaming media delivery market.

"Internet broadcasting pioneer and holder of several patented technologies, today announced it has received an official communication from the U.S. Patent and Trademark Office (USPTO) announcing the allowance of a new patent arising from the company's proprietary Internet technology. In this communication the USPTO also provided a favorable indication toward one or more additional pending patent applications relating to Modavox's core technology, although some interplay with the USPTO remains before Modavox obtains a final approval for any additional patents."

You see, I have a theory having researched their patents and technology very carefully, I believe Google and YouTube are both infringing on these patents as well as are other major players in the internet space.

Note the comments of their lead council who took the case on contingency, "Dr. Daniel F. Coughlin, Partner, Fox Rothschild, LLP, stated, "The latest decision by the USPTO on Modavox's patented inventions is a further affirmation, in the context of a rigorous technical examination, of the pre-eminence of the company's technology, both legally, and in the marketplace. With an expanding arsenal of intellectual property rights, Modavox will now be better equipped than ever to not only deliver marketplace solutions for their clients and customers, but also to secure richly-deserved recognition for its pioneering inventions in this technical space. The issued and newly allowed patents, along with their pending patent applications, will undoubtedly prove to be key components to bring Modavox's proprietary technology to the broadest possible base of clients and licensees. In my view, it will be only a matter of time before the industry will universally recognize Modavox for its technical advances in this field."

Now I did a little research into this guy and guess what, he appears to have used to work for a firm called Drier LLP and guess what some digging into their clients revealed? Let's just say the exclamation YAHOO!!! soon followed.

So the lead council for Modavox recently left a firm that represented Yahoo. Did he leave because of a firm conflict in representing both assuming Yahoo was also an infringer on Modavox's technology, one must wonder.

Also, it's worth noting that the company owns the worlds largest online talk radio network including Voice America and World Talk Radio. Between the two, they produce over 240 hours of weekly owned content and they have over 300 hosts. Importantly, they reach over 5 million unique visitors a month perfectly suited for target and niche online advertising. If you apply a YouTube valuation, just this division of the company alone is worth a likely multiple of it's current nominal $65 million price tag.

Did I also mention the company is already profitable and has no debt with 75% of their revenue growth falling straight to net income because of their substantial margins yielding huge earnings leverage.

Might be worth looking at them. If the companies I believe to be infringing on their patents are in fact infringing, Yahoo could gain some well needed leverage by adding this company to it's team. If Google and YouTube are infringing, Modavox could provide Yahoo with a silver bullet.

2007 Jun 25 03:13 PM

[Drew Robertson:]

I really don't see how YHOO shareolders benefit from a Joost acquisition. Certainly EBAY's acquisition of Skype was a disaster. Given that precedent, why should Yahoo pay a premium for an untested company with an untested business model. Joost (as in toast) is advertiser-supported. They say they will offer television programming with an adload of about 3 minutes per hour compared to 16 minutes on traditional TV. There is no conceivable way they can match the revenues the networks and production companies now get from traditional TV. To be sure they can wreck the existing broadcast/cable model by luring viewers away from heavily advertised programs on TV. This imbalance will become apparent to the networks sooner not later. It will be especially clear to CBS (an investor in Joost.) Do you think NBCU, FOX and Disney ABS are going to help Yahoo and CBS recover it's investment? Not a chance.

Everything has a price. However Joost's initial $45m. already sets the likely takeout price well above it's real value to Yahoo or anyone else.

2007 Jun 26 09:26 AM