BloGiza

The online year that was

As today is the last day of 2007, it’s a little hard to resist looking back at the past year and trying to sum it up. So, I won’t resist. Unlike last year, 2007 is hard to summarize with one handy tag such as “the year of online video” or “the year of social networks”. There was a lot of activity in a number of different areas, the rise of a major player in the social networking space, and the rise of a new form of communication.

So, herewith a few highlights IMHO of the online industry in 2007

Story of the year: The consolidation of the advertising industry
Y’all thought I was going to say Facebook, right? Now, while the rise of Facebook is certainly the most hyped story of the year, my vote for the most significant development  (not to mention the biggest source of M&A activity) is the rapid consolidation of the online advertising space.

During the last 12 months, Google bought out Doubleclick for $3B. Shortly thereafter, Microsoft acquired aQuantive for a staggering $6B. AOL bought out targeted ad firm Tacoda, as well as Quigo which. Yahoo acquired Blue Lithium, as well as a majority stake in Right Media. WPP bought 24/7 Real Media. And the list actually goes on.

The M&A hyperactivity in this sector is an indication of the fact that online advertising has reached a certain stage of maturity. Beyond that, the consolidation is likely to have long-term ramifications, especially in regards to the rise of Google as the behemoth of the information age as well as the development of new business models online. And that’s what makes this, at least for me, the biggest development of the year.

Phenomenon of the year: Facebook
Obviously, I couldn’t not mention Facebook which gained momentum extremely rapidly this year and became the go-to social network for those of us who aren’t musicians, 14-year-olds, or skeevy perverts. Facebook only opened itself up to the world outside the university sphere towards the end of 2006. I joined up early this year. Before long, almost every high tech-ist I knew (and many I didn’t) was on it. Lately, the sphere has expanded further and everyone, their parents, and their parents’ friends are connected. Clearly we’re on to something.

Of course, it will be interesting to see whether Facebook will be an ongoing concern for most people or just a passing fad. I like it for business purposes, as a tool for microblogging, and as the communications platform of choice for a number of my friends. On the other hand, I have a hard time answering those who complain that there’s nothing to do there. We shall see.

New technology: Microblogging
The rise of Twitter and its clones provided us with probably the only real new media form we’ve had in a few years, viz. microblogging. At first, the concept seemed a bit stupid. After all, why would I want to blog in tiny, one- or two-sentence bursts? But then you start getting into it and discover that Twittering (or updating your Facebook status, which I tend to do more) is a nice complement to blogging for those times when you have something small and/or clever to say but which doesn’t warrant an entire post. Plus, it’s the first Internet app that makes perfect sense for the mobile. It’ll be interesting to see who snaps up Twitter and for how much.

Interesting development in local tech: The renaissance of the Israeli internet scene
Three or four years ago, it seemed that the Internet industry in Israel was close to dead. During the days of the ’99-’00 bubble, the high tech scene was awash in Internet startups looking to be the next ICQ. Then the bubble burst and most of the companies went under. Worse, the VC industry was burned on the subject and it subsequently became almost impossible to get a new Internet startup funded.

As recently as two years ago I regularly had colleagues in the VC world lecturing me that Israel was incapable of producing Internet companies and, besides, these types of investments weren’t suited for VC anyway. What a difference a few years and a YouTube (and a Facebook) later make.

Once again, we are seeing dozens of new Internet companies each month. What’s more, there is a real feeling of an Internet scene here, helped along in no small part by Facebook, the work of groups like the Co.ils and the Geek Garage, and of course Jeff Pulver’s social activities. Let’s hope this continues to develop and mature.

Case of possible overhype: Online video
I’ll catch some crap from friends about this, but the online video space has become somewhat overhyped in the last year. Actually, that’s kind of unfair. What has happened is that in the post-YouTube age, online video has become ubiquitous. This has led to a lot of noise and a sense of, “Ok, what do we do now?”

Towards the end of last year, it looked like the field of mid-tail, independently produced video content (e.g. Ask a Ninja, Rocketboom, Ze Frank) would be the next big thing. As of now, that has failed to happen. There haven’t been any real breakthroughs this year. Even projects as big and as hyped as Joost have yet to take off as a mass-market application.

I still have big hopes for this sector, but it may have to wait until sometime in mid-2008.

Predictions for 2008
You’ve got to be kidding me. Only fools make predictions in this online age where what you write will forever haunt you. Still, I’ll make some safe and predictable ones for the upcoming 12 months:

• There will be a number of huge-size Internet exits that will have people scratching their heads
• The whole notion of privacy will continue to erode as Google finds out more and more about you
• Mobile internet will remain where it has for the last three or four years, i.e. tantalizingly around the corner as the Next Big Thing
• Some technology or company that you’re not thinking about will be the big story of 2008

So, for all my celebrating friends and colleagues out there, I want to extend best wishes for the new year and hope that 2008 brings health, happiness and success to us all.

The Online Advertising Chowdown

With all the recent focus on new media and the future of television, it seems that the real story as far as Internet exits (at least for the first half of  2007) is online advertising. Over the last month or so, we've seen a real feeding frenzy in the sector. Almost all the big Internet players --Google, Microsoft, Yahoo, AOL -- have rushed to snap up online advertising agencies.

Thus, just when you think Goog's $3.1B acquisition of Doubleclick was a biggie, along comes the $6B Microsoft/aQuantive deal (at an 80% premium, no less). Not to mention a raft of smaller but still very substantial exits (WPP/24/7Real Media, Yahoo/Right Media) in both online and mobile advertising.

From the Internet-oriented VC perspective this brings up two thoughts:

1. Just a year or two ago, DoubleClick and its ilk were seen as boring Web 1.0 companies (albeit lucrative ones). And yet, despite the hoo-ha over Web 2.0 and online video, these subsectors haven't shown anywhere near the potential for mega-exits that we are now seeing with online advertising. Perhaps I should say "the potential for mega-exits yet," since I am a hopeful fellow. Still, it goes to show that while hype has its place in our biz, there is still no substitute for the old-school basics like revenues and a logical business model.
2. This does, however, bring up the obvious caveat: are these companies actually worth the money Goog & co. are willing to pour into them, or are we talking about another Internet bubble? IMHO these companies are worth the price tag, even though the aQuantive deal seems excessive. We are, after all, talking about the companies which drive most of the revenues on the Internet. Until the Web comes up with better business models, online advertising will continue to be a most lucrative field. And will likely get more lucrative as the big Internet players start using the mountains of information they have about us and our browsing and shopping habits to start targeting better and better ads at us.

Google Eats Feedburner

It's funny to think now, but just a few short months ago we labored under the conventional wisdom that "Google doesn't do major purchases." Which was correct up to a point. If you look at Goob's M&A activity over the last five years you see a string of (by VC standards) nickel and dime acquisitions: lots of startups doing nice features (maps, spreadsheets, etc) plus a few deals where Google wanted to buy a company for the R&D team.

In fact, even the YouTube deal seemed like an outlier. But no more.

Google just announced that it was buying Feedburner for about $100M. This of course comes on the heels of the Doubleclick acquisition that was announced last month. So now Google's acquisition activity is becoming a bit clearer.

What seems obvious is that Goobe has gone from making small tactical purchases (in order to boost products that it wanted to develop) to making much larger strategic purchases in its drive to become the undisputed Master of Your Online Life. The Feedburner acquisition means that Google will now have access to millions of RSS feeds, the new life blood of the Web. It's all in service of finding out more about you the user and serving up better and more targeted advertising.

I has seen the future and it is looking increasingly multi-colored.

Google Buys Doubleclick

Goog, as though looking to disprove once again the notion that they only do small purchases, has dropped another bomb on the biz-tech world. This time, we're talking about yesterday's announcement that Sergey and Larry are buying DoubleClick for $3.1B.

Some thoughts:

• DoubleClick is probably the major player in the CPM/ad serving space. Watching it getting gobbled up by Google is kind of like watching a whale swallow up a somewhat smaller whale.
  
• The deal is a whopper any which way you look at it. Goog is paying out $3.1 billion in cash for a company that two years ago was taken private for $1.1 billion and which had revenues of $300M last year. Either way, this is a huge premium, especially for a mature company like DoubleClick.
  
• I think by now we can all stop thinking about Google as a search engine company and start thinking about it as the world's biggest advertising machine. Google is king of the CPC/text ads space; acquiring DoubleClick gives them a huge presence in the CPM space assuming that they manage to digest the new company without cannibalizing their existing revenue streams
  
• The mega-valuation came about in part because Microsoft was also looking to buy DoubleClick. Google was able to outspend Gates & Co big time. Which means that Google has now officially taken over the title of the Borg of the new millenium.

Google uses Israeli typesetters...

This story cracked me up. If it's true, then Eric Schmidt is walking around with business cards that name him as "Chariman" of Google's Executive Committee. (Theories as to  what the typo means can be found in the article and its comments).

Geez, a market cap of $137 billion and they get the same quality copy editing as your average Israeli restaurant menu.

Mozilla's 2005 Revenues ...

... were $53M apparently. Which is quite a hefty hunk of change for a non-profit organization which distributes its products for free.

Most of the money actually comes from deals Mozilla has brokered with Google for making Goog the default search engine in the Mozilla search toolbar. Which just gives you an indication of how much Google must be making and just how much money is out there in the Internet advertising market.

In the Zeitgeist

Google just released its 2006 Zeitgeist, its list of the most popular search terms of the year. Interestingly "Bebo" comes in at number one, strengthening the feeling that it will soon become the number two social networking site.

Also, take note of the number four spot. It does my little provincial heart proud....

Vertical searching your way

Google recently launched an interesting new service that lets anyone define their own vertical search engine. Called Google Custom Search, the service is part of Google Co-Op, Goobe's new push to create API'd search features that users can install on their own sites.

Google Custom Search allows you to define a list of sites that you want it to search. It's quite easy to set up. It didn't take me long at all to define a vertical search engine for Web 2.0 and New Media sites (which you can try out on our sidebar to the right) and put it up on the site.

This is a smart move from Google's perspective in a lot of ways. Obviously, it gives Google inroads to a lot of new and fallow real estate. It also sets up a major challenge to the legions of VC-backed vertical search engine plays that have been popping up recently.

GooTube

Or should it be "YouGle"?

Well, it's now official: Google is buying YouTube for $1.65B in a stock transaction. The deal ends several weeks' worth of speculation about who would buy out the video-sharing site and how much they would pay for it. I had heard speculation that the deal would top a billion, but I think the final price tag will surprise a lot of people.

After all, although YouTube is probably this year's Internet success story and one of the best pure-Web brands (along with MySpace, Facebook, Flickr and several others) from the second wave of the internet it still doesn't have that much by way of revenues. Certainly not to justify its boffo price tag from a conventional standpoint.

All of which has some people mumbling about Bubble 2.0.

Anyway, some thoughts:

1. The deal confirms the belief that short-form video has emerged as the first new significant media form of the 21st century. YouTube has been evolving quickly and now provides not only a platform allowing people to express themselves but also a cutting edge distribution channel for semi-professional and industry content.
   
2. It will be interesting to see what kind of effect this will have on other video sites.  Specifically, I'm curious to see what will happen with Metacafe, Israel's main entrant in this space.
   
3. This was a surprisingly strong move by GOOG and breaks the conventional wisdom that Google doesn't make big strategic purchases.
4. I tend to agree with Om that the big loser in all this is Yahoo, which lost out on the deal. Yahoo will now be forced to scramble to close some other large deal (Facebook maybe?), which will likely be regarded as a "me too" play.
5. Google will now have to defuse the ticking legal bomb that YouTube represents. The only major threat to YouTube comes from the kind of concerted attack (by the MPAA, RIAA, and other large bodies) that brought down Napster. The success of YouTube is widely seen as coming from illegally distributing copyrighted materials. This includes not only last night's episode of "The Colbert Report" but also home videos of people dancing to Britney Spears.  YouTube will have to cut industry-wide deals in order to rectify the situation; if the industry is smart, they will embrace the new medium.
6. A grudging mazel tov to Sequoia, YouTube's sole backer, who will be walking away after two years with a 43x exit.