Internet Outsider

Oxygen Tries CPR on eBay's Ad Exchange

eBay's much-ridiculed online advertising exchange is not quite dead yet, according to the WSJ.  The exchange, which was dissed at release and recently rejected by the Cable Television Advertising Bureau, has recently attracted Oxygen Media as a participant, and Microsoft is apparently considering using it to buy some TV time. 

The TV ad sales model is in desperate need of restructuring and disintermediation, so the concept here is sound.  Given the initial reaction to eBay's Exchange, it seems doubtful that this particular effort can be rescuscitated, but anything's possible.

Dear Zod: Yahoo's Tech Guru and Group Head Quits

I suppose it's possible he was pushed (anyone know?), but as John Battelle observes, his departure means that only one of Yahoo's three new organizational groups has a leader.  Given that the re-org was designed to streamline the company, reduce bureaucratic stagnation, and light a fire under the place, it's hard to imagine how these vacuums help.

Perhaps Valleywag is right and Yahoo insider Jeff Weiner will get the "Audience" job.  That will take care of one of the two vacancies.  But unless a strong successor to Zod Nazem is immediately forthcoming, one of Yahoo's biggest problems--constant turnover in the tech ranks--will be even farther from being solved.

Map Wars: Google and Microsoft Tussle Over Coolest Map Apps

At the Where 2.0 conference in San Jose--which, like every other web-related conference these days, is jammed.  "Geospatial" content and tool companies have developed into their own micro-economy, and Where is the center of it.

The big fight, here as elsewhere, is between Google and Microsoft, over who can produce the coolest 2D and 3D global mapping platforms.  The startling news is that, in this arena, Microsoft appears to be holding its own.  Google's new "block view" feature is cool (put yourself on map, look at buildings around you, walk down street, etc.), but Microsoft's new "Virtual Earth" project is even cooler.  The latter is powered by high-res photos taken from low-flying planes, and the reported $150 million the company is spending on geospatial content is paying off (at least in the "wow" department). 

As with many of the companies here, Google Earth and "Virtual Earth" appear to be cooler than they are commercial, at least for now.  The most obvious source of revenue on the consumer side of the geospatial business would seem to be local advertising and logo/placement, but if this opportunity is producing meaningful numbers, no one is discussing them.  The CEO of Platial, for example, Di-Ann Eisnor, raved about how much money there was to be made in made in mash-ups, but offered exactly zero details.  The same went for a company that provides "soundscapes" (click on a place, listen to what it sounds like) and Garmin, which has some cool "make your own trail maps with your GPS device" technology that mountain-bikers and joggers are reportedly bananas about. Garmin's model is obvious--sell units--but the gravy train that will eventually have to support the rest of this exploding industry is still unclear.

Search Share: Google Gains, Everyone Else Loses (Again)

Bob Peck of Bear Stearns offers a detailed analysis of Comscore's domestic search share numbers for April.  Search is by far the largest category of online advertising, and number of queries is the primary revenue driver.  So query share is crucial. 

Bob's full note is available at Searchblog.  Here are the key points:

• Google's share of US queries jumped another 140 basis points to nearly 50%, up 27% year over year.  This is a continued deceleration of the y/y growth rate, but it's still impressive--especially relative to the rest of the industry.

• Yahoo lost 70 basis points to 27% and grew only 6% year over year.  Yahoo is doing better than the other major players, but this ain't saying much.  It is important to note that Panama, even if wildly successful, won't help increase query share.

• MSN dropped 60 basis points to 10%.  Given how much time, effort, and money Microsoft has invested in search over the years, this is, in a word, pathetic. (But not surprising).  Importantly, the $6 billion Microsoft is spending on aQuantive won't help this trend.

• Ask Network was flat at about 5% and Ask.com was flat at a dismal 2%.  Search is not TV, and Ask's massive advertising push has had no effect on the site's market share.  There is no reason to expect this will ever change.

 

Why Did Google Invest in Sergey's Wife's Start-Up?

TechCrunch, AP, et al, are reporting that Google just invested $3.9 million in a biotech start-up run by Sergey Brin's wife.  The company, 23andMe, immediately used this money to pay back a $2.6 million loan Sergey had personally extended to the company. For several reasons, this transaction is bizarre.

First, given the obvious conflicts of interest (perceived or otherwise), why would Google do this?  As far as I know, Google is not normally in the business of investing in start-ups, especially biotech ones.  So what's the strategic imperative here?  What Google business logic could possibly offset the scrutiny that such an investment would receive?  Even if a Google investment makes all the business sense in the world (and if it does, I need some help understanding why), it looks terrible, and Google obviously knows that.  So what gives?

Second, why didn't Sergey just make this investment himself?  Yes, $3.9 million is chicken feed for Google, but it's also chicken feed for Sergey (the AP reports his current net worth at $16 billion).  Sergey could fund 1,000 such start-ups before breakfast and never miss the money.  Sergey's idol, Warren Buffett, would NEVER let Berkshire Hathaway invest in his wife's start-up.  So, again, what gives?

I understand that Google is "a different kind of company," but, in this case, I'd like it to be different by explaining more about why this investment was made, who approved it (the Audit Committee, apparently--but why?), and why Sergey didn't conclude that it wouldn't be better for all involved if he just made the investment himself.  Inquiring minds want to know.

UPDATE:

NYT has more detail, including the names of a couple of other start-ups Google has invested in.  The decision still sounds strange, but better than it did initially.  The situation could have been helped with clearer upfront communication.

(Hat tip to Rick Stratton)

 

Amazon $400!

Yes, yes, I know, it took 7 years to get back there again (split-adjusted $67).  Better late than never?

Instant Gratification: Microsoft Buys aQuantive

Always nice to make a good call, and Jason Jones made a great one yesterday--that aQuantive would be one of the next digital advertising companies to go in the panicked land-grab of the web elephants.  Even Jason probably didn't imagine that he'd be so right so soon, but we're proud of him.

Sick of forever being outbid and then having to mumble about "expensive" amid the Google-Yahoo celebrations, Microsoft made a preemptive offer on this one.  At 2% of Microsoft's market value, the acquisition is still a tuck-in, but it's the biggest one in Microsoft's history.  aQuantive won't solve all of Microsoft's web problems, but it will solve some of them.  Most importantly, it will mean that Microsoft's web business must--at least temporarily--be taken seriously again.   

M&A in the Digital Ad Sector is Smoking Hot; Here's Your Handy Future-Take-Out List

Jason Jones: The digital advertising industry consolidation continues.  Interestingly, most of the acquisitions have been cash deals.  Why aren't the big guys using their pricey stocks?  Maybe the acquirees have negotiating leverage.  (Or maybe the acquirors are hallucinating that their stocks are undervalued).

A list of recent M&A in the sector is below.  But first, here are the single folks still waiting to be scooped up:

Acquantive, Valueclick, Burst Media, and AdPepper, the latter two of which trade on London's AIM.  How much might the U.S. ones go for?  AQNT is worth $44 if you use the TFSM take-out multiple (23x), $60 if you use the DCLK multiple (33x), and $75 if you use the Right Media multiple (10x EV/Revs).  VCLK is worth $44 if you use the TFSM multiple, $66 if you use DCLK, $70 if you use Right Media.  And then of course there are all the private beauties: Blue Lithium, Tacoda, Efficient Frontier, Did-It, etc.  Go to it, bankers!

Recent Digital Advertising M&A

Google for Doubleclick: $3.1b cash (32x '07 EBITDA - my estimate) - ad serving, SEM, affiliate network

Publicis for Digitas (DTAS): $1.3b cash (16x '07 EBITDA) - digital ad agency

Yahoo for 80% Right Media: $680m cash & stock - implied value = $850m (10x revs - rumored value) - ad media exchange

WPP for 24/7 Real Media (TFSM):  $649m cash (23x '07 EBITDA) - media network, ad serving, SEM

Aquantive for Accipiter: $30m - publisher side ad server

Aquantive for Duke Digital Marketing:  $8m + earnout - European digital ad agency

AOL for AdTech: terms undisclosed - European ad server

Aegis for Trigger Communications: terms undisclosed - digital ad agency

Fox Interactive Media for Strategic Data Corp: terms undisclosed - publisher side ad server and site optimization

Doubleclick for Falk eSolutions: terms undisclosed - European ad server

Aquantive for DNA (UK), e-Crusade (Hong Kong/Shanghai), Amnesia (Australia),  Neue Digitale (Germany)

VCs Cry Boo-Hoo, Refuse to Pay Income Tax

As Adam Lashinsky reports, a collective whine is rising from comfy VC offices as Congress contemplates the possibility of--horrors--making venture capitalists live by the same tax code as everyone else.

The issue?  Thanks to the mountains of money private-equity firms have made in recent years, the industry has been attracting scrutiny, and someone noticed that private-equity firms, VC firms, and other "alternative" investment entities have for years enjoyed a sweetheart tax deal: The firms' performance-based fees (often 20% of profits) are taxed at long-term capital gains rates rather than ordinary income rates.  The logic behind this treatment is flimsy at best, but it was probably made possible by the genius who labeled such fees a "carry" instead of "fees."

In any case, Congress is now considering making VC and PE firms pay regular old income taxes, a move that makes perfect sense to everyone except the VCs.  The VCs, meanwhile, are trying several tactics to preserve their dream rates, including hiring lobbyists, making unctuous arguments that--unlike bloodsucking PE firms--they develop businesses and create jobs (so do working stiffs), and declaring that their performance-based fees are actually capital gains.  Some VCs have even suggested that, if the tax-treatment is changed, the economy will suffer and they'll quit the business.  (This last sentiment is particularly absurd: What are they going to do when they quit--go work in other, less-interesting, lower-paid businesses where people already pay income taxes?)

According to Adam, the VCs make two basic arguments about why their fees are actually capital gains:

1. The fees take a long time to earn.
2. The fees are performance-based.

Well, so what.  Incentive comp is still comp.  In the real tax world, meanwhile, it doesn't matter whether you provide your services for one day or ten years.  A contractor who gets a lump-sum payment after a decade-long construction project pays income taxes, not capital gains.  Employees who exercise and sell incentive stock options pay income taxes, no matter how long they've held the options.  Etc.

The one argument not made about the tax treatment is the only one that would be valid: That VCs actually put their capital at risk.  VCs don't put their capital at risk--they get paid to put other people's capital at risk.  (A new law would presumably not affect the tax treatment of capital that partners have invested in their own funds--which would be capital gains).

VCs have enjoyed favorable tax rates for years, and no one can blame them for hoping the gravy train will continue.  There's a difference between quietly hoping and making embarrassing, self-serving arguments, however--especially when VCs can lock in great tax rates forever just by investing in their own funds.

Rip-Van-Amazon Awakes, Opens Music Store

For us old-timers, it's great to see Amazon innovating intelligently again.  The company should have launched a digital music store seven years ago, of course, before Apple ran off with the market, but better late than never.

The good news (for Amazon shareholders): This isn't a Bezos pipe-dream.  Amazon's existing music store, which has always been one of the best on the web, provides a marvelous platform from which to launch music downloads.  The company is also selling only un-copy-protected music, thus maintaining its religious commitment to customer satisfaction. Lastly, since the company is a neutral third-party not about to corner the digital music business forever (like Apple), record labels and musicians should rush to embrace Amazon's new store.  Labels hate Apple's chokehold on digital music, and Amazon may finally represent a viable competitor.