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The Week in Geek – Oct. 16, 2007

What in the Web Are They Thinking?
(also see the Slide Show).  The values being kicked around are pretty frothy, although none of these deals is done yet. Facebook is rumored to be seeking a $10 billion valuation, Facebook widget maker RockYou is talking half a billion, and at least one website claims TechCrunch is worth $100 million. The rapid rise of these new firms should not be discounted. TechCrunch brings in $200,000 a month without dead-tree or broadcast products, and Michael Arrington is both star and star-promoter of current-gen web businesses. And the rise of Facebook and faster rise of Facebook widgets, while still without a killer-app, is nonetheless stunning. BusinessWeek writes that while these numbers have a lot of realists squirming, the “bubble chatter misses the point“. This is about plotting strategy through uncertainty and risky bets by cash/stock-rich firms in growth-threatened positions should be tolerated. The current crop of firms promise to engage valuable consumers who are losing their appetite for TV and print media.

Commentary: The figures above seem to me to be too big, but eventual acquirers are making portfolio hedges for the future and it should be clear that not all will work out – any writer who doesn’t understand this was probably an english student, not a business major. While Yahoo’s early burns on GeoCities and may have soured the firm’s post-bubble acquisition tolerance, that arguably gave opportunity for Google’s rise – a result far more threatening than any of its earlier bad bets. The almost non-effect of eBay’s Skype write-down shows that the market still tolerates calculated risk. Perhaps the most-true to this portfolio-approach religion is Amazon. Many of its bets have gone south, but the firm continues to leverage lessons learned to become more customer-centric and more profitable through various iterations of doubting analysts. Microsoft is also a relentless and often eventually-successful experimenter (enabled by over $20 billion in cash). In this environment, action can be risky, but inaction can sometimes be riskier.

Google Defends DoubleClick Deal
With a 60% share of search, and 75% of search ad revenues, Google towers above all others in this space. Advertisers pay Google for each click-through on text ads appearing in its search results (adWords) and on third-party sites like this one (adSense). That’s a big market – so big that last quarter Google was more profitable than Disney. To expand its market, Google wants to shell out $3.1 billion (nearly 2x what it paid for YouTube) for display-ad king DoubleClick. DoubleClick knows who you are if you’ve visited its partner sites – everyone from AOL to Sports Illustrated to MTV. You’re tagged with an identifier (a cookie), and if you visit other DoubleClick partner sites, the firm sees you’re there, builds a profile, and can use this to target ads it thinks you’ll respond to. DoubleClick was taken private by private equity firm Hellman & Friedman for $1.1 billion about a year before the Google deal was announced. Hellman sold off chucks of the DoubleClick business for $525 million (among the deals BC grad Mike Iaccarino’s Epsilon bought DoubleClick’s catalog marketing database, Abacus, for $435 million). Flipping DoubleClick to Google would be a great return for Hellman, but the government still has the purchase under the microscope. Among the complaints, Microsoft claims Google will have a near monopoly (you know you’re powerful when Microsoft calls you a monopolist). Redmond contends the deal will give Google an 80% share in key online ad sales markets. Privacy advocates say the deal shouldn’t go forward without rules governing how information can be collected and used, and how long it can be kept. With talk of YouTube, Facebook, and Skype it’s easy to lose track of the multi-billion dollar consolidation happening in online ads. Google’s deal led the pack, but the same month Yahoo bought Right Media for $680 million. A month later WPP coughed up $649 million for 24/7 Real Media. Shortly after that, Microsoft spent $6 billion in cash – the biggest acquisition in the firm’s history – for aQuantive (the Avenue A / Razorfish parent). While Redmond is a small-fry in search, remember Microsoft might use its ad breadth in platforms from IPTV (it has a set top box deal several firms, including AT&T & Verizon) to XBox ads (a while back it bought Massive, an in-game ad firm). Balmer recently said within a few years Microsoft may earn as much as a quarter of its revenue via advertising. Estimates of the online ad market are all over the map, but most put online ad sales in 2007 as hitting at least $19.5 billion and growing well north of 20% a year. All this is part of a trend where newspapers are getting crushed and TV ad dollars are fleeing online.

eBay’s Growing Pains
Meg Whitman is in the “Top 3” most powerful women in business for the sixth consecutive year. While eBay is, as she puts it, just a ’12 year old’, this business is maturing, all while she’s raising her 9 year old (PayPal) and 3 year old (Skype). “They act their age” she says. Analysts are starting to shift valuation metrics to traditional retail measures like revenue generation and sales growth from net-cenetric stats like auction listings and new users. This may serve eBay well, since the firm still gushes money, even as auction listings in the US flatten. Despite China woes, eBay’s global growth is still impressive, with more than 50% of revenues (and 30% of employees) outside the US. eBay sits on $3.5 billion in cash, should generate $7.6 billion in revenues this year, and has a market cap of some $54 billion. While the Skype write-down was painful, eBay’s stock was relatively unaffected in the short term after the announcement. The market had already accounted for these results.

I’m Majoring in Facebook – How About You?
Of the 5,000 applications on Facebook, only 4 have snared more than 1 million users. Still, with Facebook & VCs committing funds for app writers, entrepreneurs look at Mark Zuckerberg’s platform as a road to riches, or at least a way to get attention before graduation. So it’s little surprise that B.J. Fogg’s Facebook Development class at Stanford is the most popular C.S. course on campus. In the course, three person teams build two Facebook apps over 10 weeks. Jia Shen, a founder of RockYou, creator of SuperWall and 14 other Facebook apps, teaches a supplementary lab session, and Facebook sends a marketing rep over for encouragement.

Supply Side Economics Fail Music Industry Again
TechCrunch asks “Which would a 19 year old College Student Buy“? A 4GB iPod nano for $149, or a 4GB media player by another firm for $239, but which includes free music for the life of the player. Here’s the idea: the labels add a cost onto every player sold, but in turn, open up their music libraries for the player. The $90 estimate bandied about assumes the labels get the equivalent of $5/month over the 18 month life of a player.

SAP buys BusinessObjects
ERP leader SAP has agreed to buy business intelligence firm BusinessObject for $6.8 billion, uniting firms with German and French roots and proving Europe can be a software powerhouse. The deal proceeded more M&A activity, as Oracle makes an unsolicited $6.7 billion bid for middleware firm BEA.

Data Gets Religion
ComputerWorld profiles the Boston College data center, which was recently moved to the empty St. Clement’s chapel on BC’s new Brighton Campus (the old archdiocese land). The new data digs feature 16 stained-glass windows, including one that depicts St. Isidore (a.k.a. San Ysidro). Isidore of Seville was credited with creating the first encyclopedia, and the Vatican has made him the Web’s saint. A bit of geeky divine inspiration.

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