JayWeintraub.com - Internet Advertising Analysis and Growth Insights

ReachLocal buys DealOn But What Really Should Have Happened Is...

News broke recently of ReachLocal buying daily deal site DealOn. I had picked up a rumor a few days before the announcement that a deal for DealOn was imminent, and I must have thought through 20+ companies that I suspected would end up as the likely acquirer. Where was ReachLocal on that List? It wasn't. Given DealOn's white label offering with Zagat, I guessed that the likely acquirer would be an audience owner or one very good at customer acquisition. They would have been the perfect candidate for an existing performance marketer or cpa network to diversify. Both Perspectiv and IMM Interactive have made this switch.

ReachLocal buying DealOn makes perfect sense, though. If it works, it means they move from obtaining a piece of the ad spend of local businesses to transactions. It also means they can go from relying on payment from small businesses who are hard to sell to and have little cash to paying them. That alone could fundamentally alter their business. It will be really hard, even though they have so many small business relationships.

As with creating an ad network or lead gen aggregator, you have to first overcome the chicken and the egg - getting traffic and getting deals. Traffic without deals doesn't work and deals without being able to deliver the traffic doesn't either, the latter being ReachLocal's challenge. This is why so many deal sites focus on one city - it's manageable - but it's also why so many fail to make it on city or beyond. They just can't figure out how to grow both sides. The best deal sites are amazing aggregators - lots of users and lots of offers, and bringing the two sides together with scale not available through existing channels, e.g., were a restaurant to promote via AdWords.

Speaking of AdWords, what should have happened and what still can happen is for Google to buy ReachLocal. The company's value today is just under $600 million. We've been through Google trying to buy Groupon and now Google working on its own deal platform. Despite its large sales force, Google is not a sales company. They don't have sales dna. ReachLocal, despite its technology, is a sales company. If there is one thing I've heard about them, it is that they know how to attract and train great sales talent. If there is one thing I've heard about Google, it's that they know how to not hire great sales talent because they measure them using the same criteria as their technical, managerial, and product talent. If you're in a bunker, you don't use a putter. 

If Google wants to succeed in the deal space, pick up ReachLocal. They have the relationships and they have a platform that scales - a human capital platform. That alone is worth a premium over their current stock price. It's also how Google will best put its immense traffic platform to good use in the deal space. Self-service deals are a great idea, but curated deals work best today. We will hit a time when there will be a Quality Score for deals and only those with a great quality score succeed. For now, you need the people. ReachLocal has them.

 

What If Acquisitions - Facebook and Meebo

One expects many things from the Wall Street Journal, but reporting on new web sites before they become mainstream is not among them. Yet, it was through an article in the WSJ Online that led me to a site which has become an integral part of my daily computing life - Meebo. It was in 2005, during ad:tech the WSJ Online ran a story about Meebo (cached page). For those that don't know Meebo, the now three-plus year old article still summarizes it well. Meebo lets "anyone with an Internet connection send instant messages via major services, [AIM, YIM, MSN, GChat, etc.] without needing to download the messaging software to their PCs.

Meebo is to instant messaging what Hotmail, Yahoo Mail, or Gmail (among the leaders) are to email. Instead of needing to be at your own computer to check email, you simply need a web browser. It's a such a simple concept and one we take for granted, but that same simplicity had yet to make its way ot instant messaging. Some of the major chat clients offered web based versions, but they were clunky, slow, and not fully featured. And, if you had more than one client, you would need to have more than one window open and flip back and forth.

Just as not everyone has the same email extension, not everyone uses the same instant messaging client, and people routinely would download, and use simultaneously, multiple chat programs. Doing that is just enough of a hassle that it made Trillian such a success. But Trillian was also a download, which added a slight but significant restraint on the use of instant messaging; you had to use a machine that was yours or one that had Trillian or that you could install it with relative comfort. Not so with Meebo. And, it's not just that Meebo created arguably the first web based aggregator, it's that they did it so slickly as to make you not miss a download. That was the key. The gave users no reason to switch back.

Three plus years since reading that article, I continue to use instant messaging daily and Meebo. I've watched as they increase the product suite and look for ways to monetize what they created. Theirs is a classic dilemma - a great product but one that was created and funded on a potential acquisition happening not on it becoming a profitable, stand alone business. Had times not turned so difficult globally, they would probably have been acquired by now. The question, though, was always, by whom. The logical choices are those that Meebo works with. In my opinion, it won't be AOL, Yahoo, or MSN (luckily for Meebo). That leaves a few others - Google, MySpace, and Facebook. 

Perhaps it is because I don't fully understand Twitter or its power that I don't fully understand the appeal or value of a Twitter acquisition by Facebook. It hasn't become essential yet, although the sites that create functionality for Twitter have, as I use Twitter much more than I would were it not for them. Instant messaging on the other hand, I get and can't live without. While, it's decidedly old school, I think that many of the younger generation use it as well. It hasn't been completely replaced by social networking. If that were the case, then social networks wouldn't focus on offering their own versions. In other words, instant messaging and social networking are not mutually exclusive. They are both forms of communication, with instant messaging being more vertical than Facebook which is more horizontal and inclusive of instant messaging.

In my opinion, if Facebook wants to enhance its position, it needs to improve its vertical tools that enable communication, and none is better than instant messaging. In other words, pick up Meebo, who can do what the current Facebook cannot - extend its use when not on Facebook but who without Facebook doesn't offer Facebook users much incentive to use its service. Additionally, Facebook would as a result, create more active users among those that might use other chat programs and have a Facebook account but not use it that much. Now, I'm sure there are some nice holes in this, a definite late night pondering, but any time I find myself switching back and forth between two sites, there seems value in making them one.

Selling Source Acquired

Those in the short-term loan lead space had heard the rumors for a little while, but today the announcement made it official. London Bay Capital (out of San Francisco) "announced today that a newly-formed affiliate of LBC has acquired Selling Source." "Plainfield Asset Management LLC ("Plainfield"). A fund managed by Plainfield provided a significant portion of the first and second-lien indebtedness in the transaction as well as making a significant equity investment alongside London Bay." (see release here).

In a rather surprising move of transparency the release both hinted at the purchase price but more enlightening the companies revenues and profit. For those wondering at the profitability of marketing service companies in the subprime financial space, Selling Source "revenues in 2007 exceeded $125 million with pre-tax income of approximately $21 million, representing an organic growth rate of more than 50% compared to 2006."

There are some well run companies in this space, which people might not assume given the audiences they serves and penchant for Florida and Las Vegas locations. One of my favorites has only been Swish Marketing. As for Selling Source, I remember seeing their amazing booth at the SF DMA show and being surprised. This was 2006, and up until then, I had assumed that those in that space were small shops not business builders, the exact opposite of the image that Selling Source presented given some of the talent they hired from within the industry and the unexpectedly robust product offering.

That said, there are some natural risks, which makes me think it was a smart move by the Selling Source folks. Payday loans aren't going anywhere, but there has been severe margin compression over time for the lead buyers and outside the lead practices that they rely on for their own margin. The FTC will most likely start to put some pressure on the tactics (Mark Meckler will have more on the FTC investigations in next week's DMConfidential.com) and they (not Selling Source per say) have a less diversified traffic mix than some other verticals. Again, feels like a good time to take on a larger partner with deeper pockets, much like AzoogleAds did in 2004.

Online Edu Company Course Advisor Acquired

Unlike mortgage, those in education lead generation have continued to experience strong, and in some cases staggering growth. One of those in the latter is CourseAdvisor, who is set to be acquired by The Washington Post. If like me, you scratched your head trying to understand the connection, The Washington Post owns Kaplan, a business unit that will do more than $2bn in revenues for 2007. While it offers the well known test prep services, Kaplan has over the past several years become a major player in the online education space.

Similar to another online education superstar, Vantage Media (which recently topped Deloitte's Los Angeles Technology Fast 50 ranking) CourseAdvisor generates its leads using sophisticated technology in paid search. Their quality doesn't equal that of organic search leader eLearners.com, but the scale and time frame in which they achieved it is stunning. It's not the first move in the lead generation space for the Post which invested in EducationConnection.com but that company lacked the traffic acquisition prowess of CourseAdvisor.

Price supposedly close to if not slightly exceeding $100 million.

Thanks for the warm welcome

My sincerest thanks to those who commented and/or wrote me regarding this blog's return. One comment in particular struck me. "Seosnafu" wrote, "Can you post any ideas for upcoming posts? Taking requests? :)
"

While it's fun to think of things to share, I enjoy most answering something that I know at least one person wants to read. I encourage anyone who thinks I might have something to add on a topic about which they'd like to read to send it my way. In other words, requests are more than welcome.

Over the past nine months or so that I have not publicly posted, I have written some pieces. I plan on updating the blog with some of them. Below is one discussing a deal announced earlier this month between Apollo Group and Aptimus, a deal that doesn't seem to solve any of Apollo's problems or cover for areas in which Advertising.com (the current exclusive distributor) lacked.

In February of 2006, University of Phoenix shook up the lead generation space by forming an exclusive partnership with Advertising.com.  This meant that any company that produced leads or wanted to produce leads for University of Phoenix had to go through Advertising.com. Most of us first learned of the deal a few days after its closure when parent company Apollo Group's President Brian Mueller announced it as part of a turn around strategy to lower their cost per enrollment. Phoenix wasn't the first for-profit education company to outsource its online marketing. Whole companies exist to offer this service, including Datamark, CUNet, along with agencies such as Avenue A / Razorfish who has for years managed all of Capella's lead buying. Few might have expected University of Phoenix to follow that route given their comfort and early leadership role in the space. Similarly, few would have predicted them to choose Advertising.com or that Advertising.com would even consider such a deal as it required them to stop doing business with all other education companies.

Those inside the lead generation space, namely those generating the leads for institutions such as University of Phoenix, found the deal even more surprising, if not alarming. Some of the larger ones had an idea that Phoenix wanted a unique partnership, but those making the best candidates didn't want to lose 60% to 80% of their existing revenue as Phoenix sought exclusivity; those that could drop everything for Phoenix generally didn't have the technology and expertise to add the value the number one education player wanted. As education wasn't core to Advertising.com's business, they were in a position to make that bet and align themselves with University of Phoenix even at the risk of disappointing their other major spenders such as Career Education Corporations' AIU Online. This explains the logic but not the alarming piece. The deal unsettled those providing the leads because unlike Datamark or the better example, Avenue A / Razorfish, Advertising looked more like a competitor than a vendor management firm.

Unlike Avenue A / Razorfish Advertsing.com had access to inventory, lots of it, along with a skilled media buying team and contacts at every major inventory source. In addition, it had search technology and handled some large clients campaigns, ones that required Advertising.com to maintain certain CPA objectives. If UOP wanted to lower their enrollment costs what better way than to funnel all activity through Advertising.com then allow Advertising.com to purchase media smarter based on the activity of the other lead providers. Fortunately, despite these concerns the past 18 months have hummed along smoothly with no major incidents or breach in trust. From the beginning of the University of Phoenix / Advertising.com deal, though, Advertising.com seemed poised to benefit the most. With last months earnings results, you might (finally) call it equally beneficial and worth continuing, But in an even more surprising turn of events than the original March 2006 exclusive partnership comes the announcement this week that Apollo has struck a deal, this time purchasing an internet advertising firm, namely the publicly traded and not profitable Aptiumus for roughly $48 million.

In the press release announcing the deal, Apollo President Brian Muller said, in a statement not all that different from the Advertising.com announcement, "This acquisition is another step to strategically position the company to best monitor, manage and control our marketing investments and brand," and that "Integrating Aptimus' technology and very experienced team into our current marketing initiatives and service center model will take us to the next level in managing student inquiries and achieving further process and cost efficiencies in new-student enrollments." Later he adds, "While the exclusive management contract with Advertising.com expires over the next several months, Apollo believes that the significant investments it has made in personnel and technology, as well as the acquisition of Aptimus, will enable the Company to efficiently and effectively manage Internet marketing internally, without any disruption." Translation, no more Advertising.com after February 2008.

I've re-read Muller's statements a few times, but I'm still a little confused by the purchase. Last year, we hinted that it might make sense for an institution like Apollo to not just partner but to acquire. From that perspective, it makes sense. But, Aptimus? According to their CEO Rob Wrubel, "This is a significant opportunity to deliver our business vision to one of the most important education companies in the market, improving their ability to reach new students." I guess he speaks of new students via-coregistration as that is Aptimus' business to date. And, if I were to buy a company, I might buy one that actually made money. Aptimus lost money last year, and they earned all of last year what Azoogle earns per month. Not only did they lose money, but they saw no top line growth year over year, most likely attributed to their exiting the incentive space. Perhaps in the end, Apollo will pay close to $50 million for people and tracking. They have eighteen months of information and process expertise from Advertising that they can port over to the Aptimus team. We'll see if this move turns out to be penny wise and pound foolish as it looks like a way to avoid paying commission to Advertising.com, which surely equals about $50 million per year.

All Star Directories Sold

All Star Directories, the five year-old online education lead generation  firm based in Seattle, was purchased recently by Austin Ventures. It is the firms first such acquisition in the interactive lead generation space and from the sounds of it, not the last.

John Cook of the Seattle Post Intelligencer first covered the story after the press embargo ended.

Of the online lead generation companies, All Star Directories is among the larger, more established; the receive their traffic from search, but unlike other major players, they receive mostly organic search traffic rather than engaging in the more common and more scalable paid search arbitrage. This means that their $15 million in revenues as reported in the Seattle P-I had little traffic acquistion costs but with 65 people has some overhead associated with maintaining their thousands of pages of content. Interestingly, All Star Directories started as a pet project of founder Mike Mathieu, an ex-Microsoft exec who was looking for something to do after leaving the world's largest software company.

All Star Directories is not the only successful lead generation firm in that area. World Class Strategy is another group that has ranked in the top 3 or 4 among fastest private companies according the Puget Sound Business Journal and ahead of All Star Directories.

“What If” Acquisitions - Future of Auto Buying/Selling

I think many of us dream about getting a new car; we listen to the radio and will pay attention to the deals and see both the national and regional advertisements. The problem with this is that I believe most people do not buy a car on impulse. It’s great knowing that such and such dealer is having a 48-hour sale, but that will only lure the person in the buying moment. It won’t lure the rest of the people who might even be within 60 days of buying. This approach is more like bobbing for apples; you might get someone, but you will end up wasting so much of that airtime on those you cannot impact.

At the very least someone should create a site that maps the specials by region. Let someone put in their city and they can see a dealer by dealer plot showing their historical sales in order to help people proactively plan the process. Make it collaborative so that others can contribute when they see a deal, and of course allow dealers and auto makers to enter their own. It’s a coupon site for cars, and it’s not too different than an idea that has lurked inside my head for more than a year. I named it CarMaps.net, and I conceptualize it is a meta-search engine for cars that takes in data from local and national sources, from individual sites and from aggregators; then displays it visually.

In some ways, that makes CarMaps.net a quasi-Google mashup like HousingMaps.com. It has also been my opinion that people don’t just search for cars by brand; they search for brand and convenience. Being able to see what is near, to see and feel the landscape would make for a more efficient car buying experience. Coincidentally, it also makes for a rather effective site to monetize. The data could come simply by mining it, and revenue could come without a sales force. People buying a car will invariably want to receive a quote, find out about insurance, and financing. All of these can be readily found in the performance marketing space today. But as much as I like that idea, it’s small change and a mere set up for the idea of this “What If?”

For as much as I like cars, I do not particularly enjoy the car buying experience. For the past four and a half years, I have not had to think about it. I have been happily engaged in my almost paid off automobile that takes me from A to B and makes the weekend trips to C, D, E, and F pleasant. That changed July 4 when I was rear-ended on my way home from watching fireworks, and it was bad enough that the insurance without my influence declared the car a total loss. (To those who are asking in their heads if I am alright, thank you. I walked away.).

With my car gone, I have to look for new transportation. I would enjoy this, except I do not want a payment, which is why I kept and planned on keeping my car. So, for the past several days, I have been immersed in the auto buying experience. Most of my time has been spent on sites like autotrader.com, leasetrader.com, cars.com, along with local dealer listings. For the fist time, I spent some significant time on eBay Motors.

As is the case with other parts of eBay, both private sellers and full-timers, be it individuals or companies, can, and do, leverage the marketplace that eBay provides. Surprisingly, even large ticket items such as cars, nice ones too, get sold every day via the marketplace. I know one guy in the office who has purchased several cars off of it, and I remember from several years ago hearing that smaller car places, especially the used-car, corner lot ones, found it a good way to sell. The auction model can lead to high prices, and that car prices are inherently impossible to fully estimate and often subjective (not like a pound of strawberries) has them sharing necessary qualities with other items that do well.

What the cars section (not parts) does not have are two things. The first is the equivalent of a sales assistant, the way other parts of eBay can leverage third-party sites like “I sold it on eBay!” and Auction Drop. Having places like that could help insure consistency of the product, much like when by focusing on items with SKU’s, Half.com found itself creating a billion dollar gap in eBay. A service like this alone I think would do very well as it increases the selection of items available. With more product, we get more people and together we get a more liquid and efficient marketplace. It’s the next logical step and a bigger purchase price. It also means that the places do not need to carry inventory, which they do today.

A listing service for eBay Motors solves an essential piece, but it does not provide a complete solution. In addition to finding the car, seeing the car, and reading about it in detail, potential buyers want security. This is what makes sellers such as autoworldofspringfield such a success. They provide all of this. The downside to them is that they are but one store. They operate more efficiently than most, but they themselves do not scale easily. What if there was a way to cover 80% of what they offer in scale? I think there is, and it’s called CarMax.

In many ways CarMax and eBay Motors compete. Each tries to be a marketplace for automobiles and offers among the best reach of any other sellers. Separately, they are limited, and CarMax either does not, or is prohibited from bidding on eBay. But, CarMax offers something that eBay itself can’t, and that is certainty. They have developed not only a liquidity model for cars owners looking to sell but a standardization process for car buyers, which provides a feeling of uniformity across a wide range of inventory.

With a combined CarMax/eBay Motors, you have a place where in major markets sellers of cars can drop them off, receive either payment in advance (a reverse buy it now) or have the car on auction and receive an amount less CarMax’s fees, which could be a percentage or flat rate. For buyers, it would mean the greatest selection of cars, and in some markets, local pickup. The major change I would make to the two is to move all buying online so that CarMax interacts with people in one piece of the process, not both. They become the Netflix warehouse in a way, not the Blockbuster store. Like eBay, CarMax deals with physical goods and in a more marketplace like dynamic than any other place. Best yet, at $3.6 billion, they are affordable, for eBay… or maybe for Yahoo. It’s a slightly different paradigm than spending $4 billion for a little piece of chat software.

Direct Response Technologies Acquired

Direct Response Technologies, the company behind DirectTrack affiliate management software acquired by Digital River.

I was informed by a friend and loyal reader that us bloggers were slacking by not covering this sooner. Digital River, the $1.15 billion dollar e-commerce company, announced today their $15 million acquisition of Direct Response.

Direct Response earns most of its revenue from its ASP, turn key affiliate management software. They are the DoubleClick of affiliate management software - helping companies who wish to (for lack of a better word) broker ads - keep track of revenue and payouts. Their business is similar to Commission Junction and Linkshare except they focused less on creating their own marketplace and more enabling other companies, such as CPA Empire, to have their own. They've been a wildly successful choice for those in need of tracking software to manage ads and affiliates, but their $15 million price tags certainly leads me to wonder whether they didn't quite have the business model down. Market leading technology is often not shared with others. Digital River I imagine is most interested in the distribution relationships that Direct Track has access to, even indirectly. The $15 million is a bargain considering the competitive intelligence Digital River now has. A one point increase in their stock price, and they've practically paid for the acquisition.

Outside links:
http://biz.yahoo.com/bw/060125/20060125005692.html?.v=1
http://biz.yahoo.com/bizj/060125/1219967.html?.v=1

AOL - Google

http://aol.google.com - making the rounds on the blogosphere today; the fun of seeing the active subdomain is multiplied by today's logo, a tribute to Louis Braille. Despite rumors to the contrary, it is not some secret Google world domination sign.

Mmm... Tasty

Social bookmarking site Delicious (Del.icio.us) was purchased by Yahoo as announced in this release. According to the article, delicious has 300,000 users. While the price was announced, I'll guess it fell in the $6 million to $20 million range, and here is why. Skype sold for $400 per user, which would put delicious at more than $100 million - unlikely. The true value of the user base is probably $5 per person, but I doubt he and his investors would sell for such a "low" price. The price most likely, as Andrew Chen, mentioned to me, depends on whether the investors were angels or VC's. If it was angel money, then I imagine Yahoo got a reasonable deal between $6 mm and $10 mm. If not, then the price was most likely $15 mm to $20 mm. Any higher price and I'll think Yahoo is irrationally scared of Google.