Trends Report – Following the Money, an Investment Recap, Part Two

Part One of Trends Report recapped six major investments, including five content driven sites totaling more than $2 billion in transaction prices. Four of those deals occurred in a span of less than four months. Yet, as impressive as that number sounds, it’s only the tip of the iceberg, one that contains industry stalwart DoubleClick taken private in a $670 million deal, Adobe buying Macromedia in a $3.4 billion stock deal, and the purchases of Slate.com, Snapfish, Flickr, Atomz, Bloglines, not to mention investments into news aggregator Topix.net, and uber-listings site Craigslist. And these are the ones that we won’t be covering this time around. With so much left to cover, we will not have time to explore Google’s being ahead of the curve yet again as they were with Pyra Labs’ Blogger purchase in 2003 and now with their recent mobile focused acquisitions of Dodgeball and Android. No, for the conclusion of Following the Money, we’ll keep the purchases closer to home, starting with Ask.com.

On the first day of spring, before MTV Networks’ purchased Neopets, Barry Diller’s IAC, the company behind fan-favorite but financial dud Citysearch.com, as well as leading online dating site Match.com and monopolistic Ticketmaster.com, purchased Ask.com for $1.85 billion. Ask joins a suite of sweet offline and online brands including Entertainment, Home Shopping Network, and the newly spun Expedia.com. Having acquired the Integrated Web Holdings 14 months earlier for a mere $300 million, Ask saw a healthy return on that investment, one that boosted the company’s earnings by double. Not bad for a butler with a diverse product offering and yet only a single digit share of the search market.

Two of Ask’s major advertisers, Shopping.com and Shopzilla, also benefited from the capital markets and others’ interests in online advertising. Comparison shopping sites have long held the interest of investors, and ValueClick, as mentioned in Part One helped set the stage with their acquisition of Pricerunner. On June 1st of this year, eBay announced its intention to acquire Shopping.com for $620 million. Analysts saw it as a means for eBay to inject growth into its sluggish first quarter results and as a step towards taking on Google and Yahoo for commercial search. In addition to Shopping.com, Shopzilla saw its fortunes improved when offline giant Scripps, the company behind HGTV and the Food Network, decided to purchase the company formerly known as BizRate.com. That deal netted the shareholders a price close to their larger rival, one around $525 million. Both companies earn more than $130 million annually and are believed to have margins around 30%.

eBay, like News Corp’s Fox Interactive, didn’t settle for only one major investment. Ten days ago, they surprised just about everyone when they decided to purchase internet chat provider Skype, founded by a pair of one-time notorious P2P pioneers, for more than $2 billion. With their acquisitions this year of Webclients.net, E-babylon, and Fastclick, ValueClick illustrates two of three acquisition trends – consolidation and multiple acquisitions. The company paid $141 million for Web Clients, $15 million for E-babylon, and approximately $200 million for Fastclick. As for the three significant acquisition trends we reference, they are, 1) offline media / content companies making large plays online, 2) consolidation in some of the major traffic and marketing verticals; and, 3) companies making multiple online acquisitions.

Webclients.net/ValueClick wasn’t the only ad aggregator receiving attention. This year also saw the funding into direct response leader Azoogle Ads, who in February received $48 million. LinkShare, the last of the established, independent affiliate networks agreed to a $425 million purchase by Rakuten of Japan. Affiliate Fuel, based in Southern California whose model fits in between Azoogle’s and LinkShare’s was also a beneficiary of Boom 2.0. They sold to data giant Experian who picked up ClassesUSA shortly thereafter to bolster their budding online education business. Experian, also falls into the third group of companies as one that has made multiple purchases. They surprised everyone and yet remained under the radar after they scooped up LowerMyBills.com, one of the internet’s most prolific advertisers, for approximately $380 million. Its purchases give Experian a competitive advantage in two of the largest and most established lead generation verticals.

Smaller companies too jumped on the acquisition bandwagon, including Traffix with its purchase of PPC arbitrage specialists Hot Rocket Marketing, and lead generation company Reply receiving $15 million in early stage funding. Even Claria almost got in on the action; they couldn’t quite come to terms with Microsoft who offered in the neighborhood of $500 million. That’s OK though, as the money and interest in our space has yet to abate. These articles alone have mentioned almost $9 billion in acquisitions and Google only supported that belief by raising $4 billion more. The big question on many people’s minds is who is next? Looking back on what people have bought, certain companies come to mind. I might look prescient in suggesting that little known but highly profitable LeadClick will be next. Regardless if they do, their area of expertise, lead generation, is one area that still can shrink through growth.

The lead generation space has ,as mentioned, seen many successful companies such as LowerMyBills.com. Quinstreet and NexTag, a company that does more business in mortgage than comparison shopping, are both potential targets if they would accept a price in the $500 million to $700 million range. Chances are that ad networks and affiliate network purchases have cooled off, although investment into them probably won’t. The big spenders do not understand the arbitrage game as well as content driven user bases. International expansion by both those looking to enter the US market and US companies looking abroad for growth should also remain strong. Direct navigation acquisition, activity initiated by the under the radar Marchex shows signs of maintaining its momentum. Finally, the leaders in new markets will continue to benefit such as the two mobile sites purchased by Google. This includes user driven sites like Flickr and MySpace. All of who have made and should continue to make, barring any more disasters, the remainder of this year and next some of the best we’ve seen.