Trens Report – Clash Of The Titans
Another week, another $100 million plus deal – that has certainly been the case the past two months regarding mergers and acquisitions activity in the Internet advertising related space. This week’s deal? Viacom, the parent company to MTV Networks, announced the purchase of Neopets, the self described “greatest virtual pet site on the internet.” By adult standards, the site hardly looks worth the price, but Viacom didn’t buy it for its looks. They purchased Neopets for its 25 million member user base and the hours those viewers spend on the site, enough to create five billion impressions monthly and enough to land the site among the top ten for time spent per user. Being rolled under the MTV Networks brands puts Neopets in the company of such mega-youth powerhouses as SpongeBob Square Pants and Rugrats. It also opens the way for video games and movie deals.
The purchase and size of the buy fall nothing short of amazing, especially considering that those in our space most likely have never heard of it. If they have, chances are they avoid the site, not because of anything against virtual pets but because the average audience can’t participate in the offers. Credit cards simply aren’t popular with 10 year olds, and vice versa. As exciting of a deal as it was, another story received significantly more attention than the sale of Neopets, and it didn’t involve a nine-figure transaction. In fact, it did not involve a monetary transaction at all. Saying it didn’t involve a monetary transaction, though, is only partially correct. The news that captured much attention this week involves many future monetary transactions, the sum of which will undoubtedly exceed the $160 million dollar price tag Viacom paid for Neopets.
The big news this week involved Google’s announcement that it will offer an electronic-payment service, an area currently dominated by eBay’s PayPal. Specifics of the service remain unknown, but many suspect that it will offer similar abilities to make and accept payments. Those covering the story see the service as a means for Google to diversify its revenue stream away from advertising which accounted for 95%+ of it’s $3.2 billion in revenues in 2004. PayPal for instance generated more than $200 million in revenue in the first quarter of this year, accounting for approximately 23% of eBay’s first quarter revenue. Certainly not a one-way street, 71% of PayPal’s revenues came from buyers and sellers on eBay.
Google’s entry into the online payment services area could mean many things. It might suggest Google will soon challenge eBay with auctions.google.com. They might avoid the auctions mess and simply offer a modified listings service – Googlelist. Then again, such a service does not mean they need to venture into new businesses. Google’s current ad supported search business and even more so their comparison-shopping site Froogle help explain a reason for entering the online payment market. At the end of the day, Google’s web search and Froogle, similar to eBay, both exist to connect buyers and sellers of goods. Up until this point, be it through web search or the vertically focused Froogle, Google’s role ends at the point of matching the two parties together. This is to say that outside of the click revenue Google profits little from the billions in transaction dollars they initiate. A payment service would allow Google the opportunity to earn not just a finders fee for matching the two together but an additional bounty for something they do already, facilitating transactions.
Google is not entering the online payment services arena to take on PayPal, i.e., they do not enter markets simply to take on an incumbent. They enter if it helps them do what they do best, organize information. To date that manifesto focused on aggregating content. The online payment service involves information too, users’ personal information. The popularity of which depends ultimately on whether users and merchants will join. From the merchant perspective, most cannot afford not to accept it. One can easily imagine a scenario that, if faced between two seemingly equal options, users will choose the one that Google has approved as part of its payment program – the Google brand acting as the deciding factor whether a user will purchase from their site. Google doesn’t need to take on a giant; they do however, have every reason to increase the touch points in which they operate and benefit from it.
By entering the online payment space Google can grab a bigger piece of the pie they help bake. Regardless of the transaction revenue, they get more of what they crave, information. By understanding ultimate conversion rates, Google can better match users with what they seek. They can show not just contextually relevant ads but ones that other users have converted on. The payment functionality opens up the way for them to explore new product lines and take on more business directly. It’s the same as any of those in our space coming out with their own lead generation sites, incentive promotion sites, or platforms. At some point, companies want to own more of the chain. Despite their, at times, selfless appearance Google is no different.
