An M&A Bubble 2.0?
With Google gulping down YouTube for a mere $1.65-billion, how does this affect the competitive landscape? The New York Times takes a look at Yahoo, which apparently made a bid for YouTube and has an interest in acquiring Facebook to get a bigger foothold in the social networking market. The NYT articles suggests Yahoo has to do something because it has fallen out of favour with investors and “losing its initiative” in rolling out new services in areas such as video and social networking. To be honest, this “critique” is a bit of a reach and illustrates how Google has captured the imagination of the media and investors with every single little move it makes (see the buzz over the launch of Google Docs today). That said, with YouTube becoming part of Google's arsenal, it will be interesting to see how Yahoo, Microsoft, AOL and News Corp. respond. Maybe there will be an M&A frenzy as the major players scramble to make sure they have the properties they need to attract traffic and advertising. (Check out CNNMoney's story on the potential M&A activity) Part of the challenge making deals is the Web landscape is constantly shifting. A red-hot company today such as Facebook could be worth $1-billion today but $150-million tomorrow if new players enter the market and start to attract a following. Do not be surprised if there is growing pressure on online executives to do something aggressive. I would suggest any site/service with large amounts of traffic has become a takeover candidate. Of course, this means there will be mistakes made as panic-stricken executives massively over-pay for acquisitions - much like we saw during the dot-com boom.
Update: TechDirt has an intriguing post looking at whether the lack of the lack of an IPO market is hurting innovation. It also raises the point that IPOs during the dot-com boom did little to promote innovation but, instead, shifted the investment risk from VCs to the public. As well, Blogging Stocks has a post on whether Yahoo needs to buy something. Among those mentioned is Dabble (a TV guide for online video) and Heavy.com.
October 13th, 2006 at 9:49 am
You make an interesting point, it seems like everything that Google does is magic according to the media (even if it is not).
A friend pointed me to YouTube for a recent SouthPark episode (World of Warcraft). It was on the site 6 or 7 times, available to anyone who wanted to download it. Which brings us to the biggest challenge that Google, Microsoft or other large corporation was facing with YouTube: rights.
Putting Southpark up there is a clear infringement of copyright laws (It is not different than hawking copied DVDs on the corner) … so the quesiton becomes, when does the 'napster like' hammer come down on YouTube?
And then it is all over. As soon as they need to start controlling the content, then people flee (As Napster saw).
Google, a legitimate entity, bought an entity that is skirting the law. As the company that bought Napster found out, in the end that probably won't translate into value (other than keeping the asset away from the hands of competitors, which is an expensive defense strategy).
The other interesting thing is the power of the internet. What Google, Yahoo and Microsoft have seen is that it not about having an asset, it is about what the consumer decides on as the asset of choice.
For example, Google owns search, Yahoo is the highest use portal, Microsoft owns IM and mail. But, if you look at video, Google, Yahoo and Microsoft had assets to do that before YouTube, but YouTube beat them all. Another example is Craigslist for online classifieds, everyone has that asset but the market chooses Craigslist.
It will be interesting to see how Google will expand past their core competency. It is not as easy as it sounds and takes many years to make profitable.
PS: For disclosure purposes, I work for MS.