social networking – Page 2 – Inorganic Growth

Vertical takeoff

September 2, 2008September 2, 2008 2 Comments

Verticals are all the rage in social networking these days. Last week alone, there were two high-profile acquisitions. Amazon.com acquired Shelfari, the Facebook for bookworms, reportedly for slightly less than $10m. And Lifetime Entertainment Services acquired the parenting social networking portal ParentsClick, with seven employees and decidedly less than $5m in revenue, for an estimated $10m. Both deals sprang from previous partnerships. Shelfari was incubated by Amazon with an initial investment of $1m. According to sources, ParentsClick and Lifetime have had a longstanding technology and Web development relationship. After fielding offers from the usual suspects, ParentsClick saw value in a marriage with Lifetime.

This comes on the heels of other vertical social networking M&A. We believe this uptick in acquisitions, despite growing disinterest in traditional social networks, is a sign of a shift in focus to niche verticals. Venture capitalists have recognized this as well, and from what we hear a large shift in funding, especially among early-stage investors, is taking place. So what other vertical social networking sites are ripe for the picking?

LinkedIn, arguably the most successful among the verticals, springs to mind. The social networking site for professionals has been profitable for two years and is on track to make $100m this year from advertising and subscriptions. Founder Reid Hoffman has indicated to us in the past that he is open to offers if the price is right. Having recently attained the $1bn valuation we alluded to in the past, however, the site is now too expensive for most. And Hoffman seems content to wait for the struggling public markets to recover.

This is the exception to the rule, however; most other sites will be acquired. One such example is Flixster, a Shelfari-like social networking site for movie buffs. NewsCorp and Amazon could want to either eliminate an obvious and growing competitive threat or supplement their own Rotten Tomatoes and IMDB portals. With more than 40 million users, we estimate that Flixster could fetch more than $100m.

Select vertical social networking deals in 2008

Date	Acquirer	Target	Deal value
August 27, 2008	Lifetime	ParentsClick	$10m*
August 25, 2008	Amazon.com	Tastemakers [dba Shelfari.com]	Less than $10m (reported)
June 23, 2008	Nokia	Plazes	$30m*
June 10, 2008	Forticom	Nasza-Klasa.pl	$42.3m
June 3, 2008	Electronic Arts	ThreeSF [dba Rupture]	$15m
May 16, 2008	Vodafone	ZYB Technologies	$48.7m
February 11, 2008	Avid Life Media	Hot or Not	$20m (reported)
January 30, 2008	Hoover’s	Visible Path	$4.2m

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

Rise in social networking deals

August 18, 2008

After a trickle of deals in 2007, this year has seen a flood of acquisitions of social networking sites as buyers look to sell advertising and services around these properties. Acquirers have spent some $1.15bn already on networking sites, compared to just $95m in all of 2007. This year’s M&A was boosted by several key service providers making significant bets on the market, including AOL’s $850m purchase of Bebo and Comcast’s acquisition of Plaxo for an estimated $150m. (Both deals, we should note, are larger than last year’s collective tally for social networking sites.)

And it’s not just the obvious acquirers picking up these online sites. Mobile phone maker Nokia shelled out an estimated $30m for geo-social networker Plazes, while Hoover’s, primarily known as a business directory, bought into the Web 2.0 trend with its tiny $4.2m acquisition of Visible Path. Even Barry Diller went shopping in this market, with his IAC/InterActiveCorp’s purchase of Girlsense.com.

Despite the broad interest and appetite for social networking sites, we wonder if supply hasn’t outstripped demand. At last count, there were more than 130 networks of various stripes. With only two companies (Facebook and LinkedIn) likely to go public anytime soon, that leaves a slew of sites hoping to connect with buyers. Coming off a 1,200% increase in M&A from last year, we can only surmise that the number of deals – and, more important, the valuations handed out to the sites – is likely to come down.

Acquisitions of social networking sites

Period	Deal volume	Deal value
Jan.-Aug. 2008	20	$1.15bn
Jan.-Dec. 2007	9	$95.1m
Jan.-Dec. 2006	2	$5.1m
Jan.-Dec. 2005	1	$580m
Jan.-Dec. 2004	4	$129.8m

Source: The 451 M&A KnowledgeBase

Loopt scores at Apple’s WWDC

June 13, 2008June 24, 2008 1 Comment

As Apple’s Worldwide Developers Conference winds down, the hype for the new iPhone is only beginning. Amid all the hoopla, though, we couldn’t help but make an observation about not so much what was in Steve Job’s all-important keynote, but what wasn’t. Specifically, Kleiner Perkins Caufield & Byers’ much-touted iFund was only mentioned in passing, and none of the surprisingly few ventures were highlighted. (KPCB has written checks to just three companies, out of thousands of applicants.) In fact, a major competitor of iFund’s location-aware application Whrrl, Loopt, was a highlight of the keynote. This comes as somewhat of a surprise after Palego’s Jeff Holden and KPCB partner Matt Murphy spoke highly of their relationship with Apple in a May 27 BusinessWeek article and even speculated on the chances of being a featured app. This led many to believe they were a shoe-in for the keynote. Given Apple’s obsessive demand for radio silence prior to the event, perhaps loose lips do indeed sink ships.

Loopt is funded by KPCB competitors New Enterprise Associates and Sequoia Capital to the tune of $15m. It has a few hundred thousand paying customers, but more importantly, it is the leader in the mobile location-aware-social-networking space spanning several carriers and operating systems. This is a market that has seen a lot of interest from the likes of Google, AOL, Microsoft and even Facebook. In the aftermath of the conference, whispers and rumors of potential acquirers of this little app are all over the place.

Since Google let Plaxo go to Comcast and has failed with its in-house development (Orkut), the search engine has been itching to make headway in the sector through acquisitions. Given Google’s huge push into the mobile space, it is seen as a likely acquirer. However, we think the most probable acquirer is Facebook. The soaring social networking site has been serious about pushing into mobile-social-networking, and a pairing of Facebook’s mobile application with Loopt seems a perfect fit. Since valuations in the social networking space are like something out of the bubble era, it is not unrealistic to see a price tag of just south of $100m for Loopt, a 40-employee startup. With healthy cash reserves and an estimated $400m in revenue for 2008, Facebook has the resources. In fact, though this would only be its second acquisition, we understand Facebook has been gearing up to make more acquisitions in the coming year. If indeed Loopt is taken off the block, rivals Palego, Zyb, and Buzzd may follow in quick order.

Traditional social networking acquisition deals for more than $50m

Announced	Acquirer	Target	Deal Value
May 14, 2008	Comcast	Plaxo	$160m*
March 13, 2008	AOL	Bebo	$850m
March 4, 2008	Demand Media	Pluck	$67m*
May 30, 2007	eBay	StumbleUpon	$75m
July 18, 2005	News Corp	MySpace	$580m

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