location-based services – Page 2

nextstop gets Facebooked

July 13, 2010July 13, 2010 1 Comment

After years of building up its platform organically, Facebook has been acquiring like mad this year. The Palo Alto, California-based startup has just purchased its fourth company since January, up from only one in 2009. The latest acquisition is nextstop, a user-generated travel recommendation site. Like earlier buys this year, this one is about adding features to the Facebook platform.

Location features are something Facebook has been promising for some time but has yet to deliver. The sheer growth of sites like Foursquare, Gowalla and SCVNGR has demonstrated widespread demand for location-based services and networks. Twitteradded location features through its Mixer Labs acquisition and Google already has a service called Latitude, in addition to having invested in SCVNGR, a network similar to Foursquare. Facebook has also recognized the attraction of such offerings. It’s rumored that it recently had talks with Foursquare about an acquisition.

However, what check-in-based sites like Foursquare and Gowalla lack is user-generated content. People can interact but there is no way for users to write reviews about locations they visit. It’s likely that with nextstop, Facebook will incorporate user reviews into its forthcoming location offering. Not only will users be able to see where their friends are, they will be able to read what they wrote about places. With these features, Facebook’s location offering will represent the next wave in location. That’s if it ever arrives. We’ll be looking at moves by Facebook and other key technology buyers as well as our outlook for dealmaking in the second half of the year in our midyear webinar on Thursday. Click here to register.

Wayfinder finds its way to a decent exit

March 17, 2010 Brenon Daly

Contact: Brenon Daly

Even in write-offs, it’s not impossible for companies to come out ahead. That’s what we were thinking when we saw the news that Vodafone pulled the shutter down on the Wayfinder Systems business that it acquired a little more than a year ago. Of course, in the year since the second-largest wireless operator picked up the turn-by-turn navigation vendor, a lot has changed in that market. Most notable, it’s gone from a paid service to a free offering, thanks to Google and, more recently, Nokia.

That development has erased hundreds of millions in market cap from the two main suppliers of traditional navigation devices, Garmin and TomTom, and turned them into laggards on Wall Street. (Since Google announced in late October that it was adding free turn-by-turn navigation to a small number of Android devices, Garmin stock has shed 5% and TomTom has flat-lined, while the Nasdaq has posted a 12% gain.) Given the pressure that’s been felt by those two giants – both of which garner more than $1bn in annual revenue – we have to wonder if Wayfinder isn’t pretty content with selling the business back in December 2008.

It isn’t hard to see a scenario in which a tiny company ($14m in trailing revenue) that traded on an obscure stock exchange (the Nordic Growth Market) would have been deeply wounded – even fatally so – by the commoditization of its business. (That’s what happened to Nav4All, for instance.) Instead, Wayfinder managed to sell the business for about $30m, representing a 200% premium and a decent valuation of two times trailing sales. The alternative strikes us as pretty bleak. Had it not done the deal, Wayfinder could very well have been in the process of winding itself down. As it was, Vodafone wound it down, but at least Wayfinder and its backers pocketed a bit of money before that.

No recession for mobile advertising M&A

January 27, 2010

-Contact Thomas Rasmussen

Following Google’s purchase of AdMob in November, we predicted a resurgence in mobile advertising M&A. That’s just what has happened and, we believe, the consolidation is far from having run its course. Apple, which we understand was also vying for AdMob, acquired Quattro Wireless for an estimated $275m at the beginning of the year. At approximately $15m in estimated net revenue, the deal was about as pricey as Google’s shopping trip for its own mobile advertising startup. And just last week, Norwegian company Opera Software stepped into the market as well, acquiring AdMarvel for $8m plus a $15m earnout. We understand that San Mateo, California-based AdMarvel, which is running at an estimated $3m in annual net sales, had been looking to raise money when potential investor Opera suggested an outright acquisition instead.

These transactions underscore the fact that mobile advertising will play a decisive role in shaping the mobile communications business in the coming years. For instance, vendors can now use advertising to offset the costs of providing services (most notably, turn-by-turn directions) that were formerly covered by subscription fees. Just last week, Nokia matched Google’s move from last year by offering free turn-by-turn directions on all of its smartphones. Navigation is only the beginning for ad-based services as mobile devices get more powerful and smarter through localization and personal preferences.

While traditional startups such as Amobee will continue to see interest from players wanting a presence in the space, we believe the next company that could enjoy a high-value exit like AdMob or Quattro will come from the ranks that offer unique location-based mobile advertising such as 1020 Placecast. The San Francisco-based firm, which has raised an estimated $9m in two rounds, is a strategic partner of Nokia’s NavTeq. As such, we would not be surprised to see Nokia follow the lead of its neighbor Opera by reaching across the Atlantic to secure 1020 Placecast for itself.

Navigating a decent exit

December 2, 2009 Brenon Daly

Contact: Brenon Daly

When we last checked in with Networks In Motion (NiM) two weeks ago, we noted that the turn-by-turn navigation vendor had just been stepped on by the not-so-gentle giant, Google. As it turns out, NiM’s valuation got stepped on a bit, too. The Aliso Viejo, California-based company sold itself Tuesday to TeleCommunication Systems for $170m. Terms call for TeleCommunication to hand over $110m in cash and $20m in shares, along with a $40m note. Raymond James & Associates advised TeleCommunication Systems while Jefferies & Co advised NiM on the transaction, which is expected to close by the end of the month.

The offer values NiM at 2.3 times 2009 revenue and 1.7x the company’s projected sales for next year, according to our understanding. NiM’s expectation of $100m in sales in 2010, representing 33% growth, strikes us as a bit aggressive. The reason? Google has started giving away a turn-by-turn navigation product for select Android devices that run on Verizon Wireless, the only network on which NiM currently offers its service. Although the threat of Google completely wiping away NiM’s business is grossly overblown, we suspect that it did put some pressure on the price of the company. NiM’s early focus on feature phones gave competitors such as TeleNav an early lead on smartphones such as BlackBerry and Windows Mobile. According to one rumor, T-Mobile and NiM had been close to a deal earlier this year. Without the ‘Google overhang,’ we could imagine that NiM would be selling for quite a bit more than the $170m that TeleCommunication Systems is slated to pay.

That said, it’s actually a decent exit for seven-year-old NiM. Although it’s getting an admittedly so-so multiple for its business, the company is providing a solid return for its backers, largely because it didn’t raise much money. It drew in a total of less than $20m, with Mission Ventures and Redpoint Ventures as early NiM backers and Sutter Hill Ventures joining in the third – and last – round of NiM funding in March 2006. (There was also some money from unnamed strategic investors.) Unlike rival TeleNav, NiM was unlikely to go public because of concerns about competition from Google. (TeleNav, which put in its IPO paperwork a month ago, isn’t immediately threatened by Google because the latter’s service isn’t yet available on TeleNav’s networks, AT&T and Sprint.) A solid (if not spectacular) trade sale of NiM in the face of growing competition from Google isn’t a bad bit of navigation for the startup at all.

Google, the not-so-gentle giant, steps into mobile apps

November 17, 2009 Brenon Daly

Contact: Brenon Daly, Chris Hazelton

In order to grow and foster broad support, technology platforms need to be open and inclusive. Of course, that’s a sentiment that runs counter to M&A, which by definition is selective and exclusionary. (See our earlier report on how selecting a company to buy often means giving a ring to one while giving the finger to another.) The all-embracing aspect of platforms is one of the main reasons why platform providers (notably Apple and Salesforce.com) have not inked many acquisitions.

We’ve been musing on this in recent days as we’ve tallied up the valuation devastation brought on by Google’s announcement that it will give away free navigation services for certain mobile phones. One of the hardest-hit companies, Garmin, has shed some $1.8bn in market capitalization in the two weeks since Google announced its move. We also noted that Google Maps Navigation is likely to weigh on the IPO of TeleNav, even though the offering won’t hit the market until next spring. And pity poor Networks in Motion (NiM), which has built its business largely on Verizon Wireless, which just happens to be the network that will be the first to offer Google’s free navigation, albeit on a very limited basis. (Although a bit smaller and less profitable than TeleNav, NiM still has a solid business, likely finishing this year at $75m in revenue and hoping to hit $100m in 2010.)

So what does navigation software (whether free or fee) have to do with platforms? Well, remember that Google Maps Navigation is only available (for now at least) on devices that run Android, Google’s mobile OS that effectively serves as the vendor’s mobile platform. So rather than just be a platform provider and let startups develop software on top of that, Google has also stepped into the applications market with its turn-by-turn navigation offering. We would note that this product, which collectively generates hundreds of millions of dollars in fees each year, is one of the few mobile applications that subscribers are willing to pay serious money for.

So in strict economic terms, it’s easy to see why Google is willing to run roughshod over current and potential ISVs as it rolls out its own turn-by-turn navigation offering. Of course, to realize the full potential of the service (where Google infuses ads and paid search results into navigation, as it has done with wild success for Internet searches), the company will need to push it to other mobile platforms.

While most of the focus on Google’s mobile moves has been on that expansion, we can’t help but consider the subtler implications of what it’s already done. The key concern: We wonder whether Google Maps Navigation could undermine the company’s effort to attract other mobile application developers to the Android platform. Not that Google seems particularly worried about throwing elbows in the mobile software development market. After all, coincidentally or not, it timed the announcement of its turn-by-turn navigation product to come just two days before the maker of a rival product filed its IPO paperwork. That’s a curious bit of synchronicity from a vendor that has ‘don’t be evil’ as its informal motto.

Is mobile advertising back?

November 10, 2009

-Contact Thomas Rasmussen

In a clear sign that mobile advertising has grown up, Google spent a whopping $750m in stock on Monday to pick up San Mateo, California-based AdMob in what we hear was a contested process. This transaction goes a long way toward securing control of mobile display advertising for Google and comes just days after the launch of Android 2.0. Although we’ve been projecting dealmaking in the mobile advertising market for quite some time, we’re nonetheless floored by the rich valuation for AdMob, a three-year-old startup that’s raised just shy of $50m. We estimate that the 140-person firm pulled in about $20m in gross revenue in 2008 and was on track to double that figure this year (we surmise that this translates to roughly $20m on a net revenue basis).

The double-digit valuation for AdMob reminds us more than a little bit of the high-multiple online advertising deals that we saw in 2007. Viewed in that context, Google’s purchase of AdMob stands as the third-largest ‘new media’ advertising purchase since 2002. Of course, like many of those transactions, this was not based on revenue, but instead on technology and market extension, which is consistent with Google’s strategy of acquiring big into core adjacencies.

Looking forward, AdMob’s top-dollar exit is sure to have a number of rival mobile advertising startups excited. One competitor that’s preparing to raise an additional sizable round of funding quipped at the near-perfect timing of this transaction. This is an industry that has seen its ups and downs over the past few years. When we first wrote about AdMob back in May it was in the backdrop of fire sales and failed rounds of funding. If nothing else, this deal will dramatically change that.

Microsoft has been actively playing catch-up to Google in advertising and search, and is sure to follow it onto the mobile device. As are many other niche advertising shoppers such as Yahoo, Nokia, AdKnowledge, Adobe-Omniture and traditional media conglomerates such as Cox. AOL has already made its move, reaching for Third Screen Media two years ago. (We would note that AOL’s $105m purchase of Third Screen is a rare case of that company actually being ahead of the market.)

Startups that could benefit from this increasing focus on the sector include AdMarvel, Amobee, InMobi, and Velti’s Ad Infuse. However, we suspect that some of the major advances – and consequently the most promising targets – are likely to come from players that are just now getting started, with fresh and profitable approaches to location-based mobile advertising.

Some recent mobile advertising deals

Date announced	Acquirer	Target	Deal value	Target TTM revenue
November 9, 2009	Google	AdMob	$750m	$20m*
September 14, 2009	Nokia	Acuity Mobile	Not disclosed	Not disclosed
August 27, 2009	AdMob	AdWhirl	Not disclosed	Not disclosed
May 21, 2009	Limelight Networks	Kiptronic	$1m	$2m*
May 12, 2009	Velti	Ad Infuse	<$1m*	$1.3m*
March 11, 2008	Qualcomm	Xiam Technologies	$32m	Not disclosed
August 21, 2007	Yahoo	Actionality	Not disclosed	Not disclosed
May 15, 2007	AOL	Third Screen Media	$105m	$3m*

Source: The 451 M&A KnowledgeBase *451 Group estimate

Navigating for relevance in a changing landscape

June 23, 2009

-Email Thomas Rasmussen

It’s becoming increasingly evident that once-dominant makers of personal navigation devices, such as Garmin and TomTom, have lost their way. They have seen billions of dollars in market capitalization erased as smartphone manufacturers have encroached on their sector, largely through M&A. Consider the most-recent example of this trend: Research in Motion’s acquisition of startup Dash Navigation earlier this month.

RIM’s buy is more of a catch-up move than anything else. Rival Nokia has already spent the last few years – and several billion dollars – acquiring and building a dominant presence in the location-based-services (LBS) market. And let’s not forget about the omnipresent Google. Starting with its tiny 2005 purchase of Where2, the search giant has quietly grown into a LBS powerhouse that we suspect keeps even the larger players up at night.

The Dash Navigation sale may well signal the start of some overdue consolidation, a trend we outlined last year. Specifically, we wonder about the continued independence of TeleNav, Telmap and Networks in Motion. TeleNav, for instance, is the exclusive mapping provider for the hyped Palm Pre through Sprint Navigation. But with the trend for open devices, we wonder how long that will be the case.

Back to basics for PE

June 8, 2009June 8, 2009

-Contact Thomas Rasmussen, Brenon Daly

Coming off a dealmaking binge fueled by cheap credit, private equity (PE) shops have been investing much more soberly since the debt market collapsed late last summer. Highly leveraged multibillion-dollar buyouts have gone the way of the collateralized derivatives. As financing has become much more expensive, PE shops have in turn become more price sensitive. Deals are much smaller and generally done with equity these days. The heyday of the PE buyout boom saw dollars spent on deals balloon from $56bn in 2005 to $98bn in 2006 before peaking at $118bn in 2007. Last year saw a drastic ‘normalization,’ with disclosed spending by PE firms falling three-quarters to just $26bn. Spending on buyouts has plummeted this year, with just $3bn worth of deals through the first five months of 2009.

Even as the aggregate value of LBOs has declined sharply, we would note that the volume remains steady. (The 90 PE deals announced so far this year is roughly in line with the totals for the same period in three of the past four years.) We might suggest that this indicates a return to basics for PE firms. Instead of bidding against each other in multibillion-dollar takeouts of smoothly running public companies, buyout firms are returning to more traditional targets: unloved, overlooked public companies as well as underperforming divisions of companies.

In terms of recent take-privates, we would point to Thoma Bravo’s pending $114m acquisition of Entrust, which valued the company at less than 1x sales. And looking at divestitures, we would highlight the recent buyout and subsequent sale of Autodesk’s struggling location-services business. Hale Capital Partners acquired the assets in February for a very small down payment and what we understand was a $10m backstop in case things went awry. New York City-based Hale Capital put the acquired property through a pretty serious restructuring. (The moves got the division running at what we understand was an EBITDA run-rate of $5m on approximately $20m in trailing sales.) Hale then sold the assets for $25m in cash and stock in mid-May to Telecommunications Systems following a competitive bidding process. Through the terms of the divestiture, Autodesk also had a small windfall in the sale of its former unit, pocketing an estimated $5m.

PE spending falls of a cliff

Year	Average deal size (total known values/total deals)
2005	$218m
2006	$305m
2007	$395m
2008	$106m
2009	$26m

Source: The 451 M&A KnowledgeBase

Companies venture lightly into investments

February 27, 2009 Brenon Daly

Contact: Brenon Daly

A little more than a half-year after striking an initial partnership, Concur Technologies recently led the second round of a $4.6m funding for RideCharge, a startup that allows users to book and pay for taxis over mobile phones. John Torrey, Concur’s head of business development, told us the company, which provides an on-demand employee spending management offering, isn’t interested in being in the content business, so an acquisition wouldn’t have made sense. Concur, which holds some $210m in cash, has done three acquisitions but has been out of the market since mid-2007.

Concur’s investment comes despite a sharp tail-off in corporate VC in the years since the Bubble era. While several tech giants have continued to support their venture wings – including Intel, EMC and SAP, among others – most other companies have wound down their venture operations. And, based on our survey of corporate development officers late last year, they don’t expect to get back into the venture business. Some 36% said they planned to do fewer minority investments in 2009, compared to 22% who expect to do more investments this year.