We continue to see many companies, Fortune 1000 to startups alike, embracing “Web 2.0″ technologies. These span technologies that include social networking, user generated content, and creative forms of crowd sourcing as a form of publishing. Recently we’ve seen companies which are part of the infrastructure of the United States begin to offer “Web 2.0″ technologies presumably as a way to service customers. These companies include Waste Management, Chevron, and Proctor & Gamble to name a few.
What’s scares me is that these companies that embody America’s infrastructure are embracing technologies which have yet to prove that they can deliver any intrinsic value. As an example, Facebook has been “valued” at $15 billion dollars based on an investment made by Microsoft that has no fundamental qualifications. Outside of a few misguided acquisitions, i’ve yet to see a “Web 2.0″ company that created value.
If you have any doubts, name one “Web 2.0″ which created shareholder value based on free cash flow, excluding any acquisitions.
Any answers? …didn’t think so.
It was widely reported today that CBS acquired CNET, the one time darling of tech news, gadget reviews, software downloads, and just about anything that you can come up with that may be interesting to so called tech geeks. Now before anyone accuses me of name calling, let me make it clear that I am one of those so called tech geeks. Hence, I was once an avid reader of CNET news, and I use to actively use several CNET properties. Note my CNET usage references are past tense, which is fundamentally the most obvious problem with CNET today, irrelevance.
CNET has made a number of attempts to reinvent itself since the internet bust combined with the stock market bust in 2001 eroded CNET’s 1999 peak valuation of $12 billion dollars. Much has already been made about CNET’s purchases of My Simon ($700 million), and ZDNet ($1.6 billion) so I won’t say much other than the timing of these acquisitions makes any reasonably astute person question why CNET would pay such high post market crashes for the technology of an internet shopping engine, and an internet based technology media publisher. ZDNet, in my opinion, was a good fit, but not at a $1.6 billion price tag. CNET’s historical strengths bely a traditional publisher, with the internet as its’ primary medium.
The My Simon purchase, on the other hand, went directly to CNET’s primary weakness, technology innovation, product design, and product management. This isn’t to say that there aren’t smart and talented people at CNET, there certainly are which I know first hand having worked at CNET spinoff Snap.com back in the 90′s. That personal experience combined with my personal usage of CNET over the years has made it clear to me that CNET struggled with product issues. Let me make it clear that I have no axe to grind here, the widely reported efforts of Jana Partners, the hedge fund that had a significant stake in CNET stock, made it clear that they were disapointed in CNET’s inability to stay competitive and increase shareholder value. In particular, they questioned the ability of CNET’s board and senior management to develop and execute a strategic direction that created shareholder value. Jana Partners was particularly acidic in their criticism of CNET’s product mix. Reiterating, I have no axe to grind as CNET shareholders have said as much. Thus, the $700 million dollar purchase of My Simon was not only too high a price tag, but too difficult for CNET to execute integration and monetization.
At CNET’s core, there is much value in my opinion. I think CBS looked beyond CNET’s recent inabilities to turn a profit, and liked what they saw under the hood. In particular, CNET has a tremendous domain portfolio which features domains like news.com, tv.com, search.com, and mp3.com to name a few. Any person with knowledge of SEO techniques recognizes that these are hugely valuable domains that generate very large amounts of organic traffic. If you combine these domain assets with the media assets of CBS, it is reasonable to assume that CBS will become a major internet player. CNET’s market niche of techie nerds is healthy on a monthly basis, estimated at more than $150 million unique users per month. Unfortunately, this niche is not mainstream, and cannot sustain CNET’s bloated operating structure. CBS on the other hand has mainstream audience appeal, and is better positioned to monetize CNET’s great domain portfolio. Additionally, CBS looks more like ZDNet in that it is a traditional media company, which is a better fit for CNET’s strength as a media company. Hence, this is an acquisition that mostly makes sense. I say mostly given CNET’s inability to turn a profit – I don’t think CBS needed to pay a 45% premium to acquire CNET.
At the end of the day, it isn’t the reinvented CNET that provides value to CBS as an acquisition target, it is what CNET could have become in their beginning had CNET been a better product company. Since CNET wasn’t strong in its’ product mix despite an incomprable domain portfolio, CNET was a great target for any strong media company that needed a strategic SEO acquisition. CBS acquisition strategy of CNET was solid, and should yield much shareholder value over the long term.
Today, many internet startups create new names to describe the products and services offered by their businesses. They create new names due to the fact that there is a scarcity of good domain names that are available. This, however, is incorrect. There are many good domain names available, but most require a price as they’re owned by someone or some entity that invests in domain names. Many describe these investors as “domain squatters”, which is a misnomer since domain investors are no different than real estate investors. Typically, those who throw out the term “domain squatters” are simply bitter since they lacked the foresight to secure the domain rights that would be ideal for their current business idea.
Great domain names, even the coveted one word domain names, are available for a price. Unfortunately, many entrepreneurs today choose to “make up” a new brand name, often a word which comes from the english language minus a few vowels. What’s interesting is that many entrepreneurs choose this path as they feel paying a so called “domain squatter” is ridiculous, even if the domain name naturally represents their product or service. Instead, they create a new brand name, work to secure venture capital, then spend millions branding their new brand name.
Now ask yourself this question, say someone is selling widgets.com for $10,000. An entrepreneur and his/her team has developed a disruptive new widget which has resulted in the team securing $3 million dollars (for example), and they’ve named their new company wdgts.com. Typically, the newly funded company will spend thousands (if not millions) marketing wdgts.com. Now wouldn’t it have been more practical, cost efficient, and much more intelligent to purchase widgets.com which would have risen organically to the top of search results on all of the search engines? This would substantially lower search marketing costs for potential customers searching for widgets, while enabling the new company to get better use of its’ $3 million dollars in funding. Doesn’t this make more sense?
Search engine optimization should be the starting point for all entrepreneurs seeking to build a viable business. For every one google.com or yahoo.com, there are thousands of mowsers, edgeios, meevees, boos, floozes, and zozas. There are great keyword domains available for purchase, ones that expire each day, and those that have never been registered. Granted, the one word keywords will likely have to be purchased, but there are many GREAT two letter keywords which drive strong traffic organically. Smart entrepreneurs should roll up their sleeves and find these gems. This is a better solution than taking an investor’s money and blowing it on wdgts.com.
To most this may seem like a ridiculous statement, but a simple trek through history brings to light the fact that mobile content has existed in various forms for decades. The invention of the printing press led to the publishing of newspapers which provided mobile consumers with local and national information on a variety of topics. The later invention of radio ultimately led to portable radios which provided consumers with an alternative means of mobile content delivery superior to the newspaper in that radio delivered information in “real time”, which isn’t possible with newspapers. Eventually, magnetic media was invented which provided a storage medium for the rapidly growing music entertainment industry. This magnetic media was used to store and market music in the form of cassettes. Sony Electronics expanded the mobile entertainment market which previously featured portable radios by creating and marketing a personal portable cassette player called the Walkman. With further technological advancements in storage media and radio communications, Sony would later market the compact disc based Walkman, and the personal portable television, the Sony Watchman.
During the 1980′s as transistor based devices evolved to include everything from watches to clock radios, Coleco introduced portable electronic games. These games provided personal entertainment in the form of LED (light emitting diodes) based racing, football, and other basic forms of mobile gaming. In the late 80′s, Nintendo introduced the groundbreaking GameBoy, which not only provided personal mobile entertainment, but more importantly featured interchangeable software. This key success factor for the Nintendo Gameboy was, and remains choice. The Nintendo Gameboy has evolved to today’s Nintendo Gameboy DS, which is still a hugely successful personal mobile product.
Summarizing the previous decades of personalized mobile content, consumers were easily able to access news, music, and games easily with very little effort. Now let’s take a look at where we are today with another type of hugely successful personalized mobile technology, the cell phone. Unlike the previously discussed mobile mediums, the cell phone enables the killer communication application of voice. The cell phone also is responsible for another killer app form of communication, the short form messaging service, also know as the text message. In both cases, use of voice and text messaging has ease of access and ease of use.
The emergence of the internet in the 1990′s as a commercial medium combined with the convergence of voice and data technologies has led to a natural emergence of technically sophisticated cell phones which are capable of both voice communications and data services. Data services available over the internet today include news, music, games, and many other types of services which have been made possible because of the internet. However, unlike all media predecessors to the cell phone, access and use of the news, music, games and other data services is complicated, confusing, unnatural, and non intuitive. These issues exist for numerous reasons ranging from a lack of standards amongst phone manufacturers, poor product design, and technology constraints. The most significant and most obvious reason is due to the carrier’s desire to control the customer experience in order to maximize their service revenues. This is the so called “walled garden”.
Interestingly, today’s mobile carriers could learn many lessons in revenue generation from the past. Ease of access and ease of use will ultimately lead to maximum revenues from the consumption of news, music, games, and any other services that are readily consumed over the internet today. The carriers must recognize that they provide the technology that is the medium, and that they are not responsible for providing the content that is consumed over the medium. In other words, the carriers are not news media, music labels, gaming companies, social networks, or any other content that is consumed over the media that the carriers provide. By contrast, the carriers must and should continue to innovate the merged medium that now carries voice and data. If the carriers continue to make innovations in voice and data technologies, then the carriers will avoid the fate of the media which is at or nearing its’ end of life – newspapers, magazines, radio, cassettes, VHS, compact discs, and the wired telephone. Simply put, the carriers will maximize their revenue by skating downhill using their known competencies, and will minimize their revenues by skating uphill remaking themselves as providers of news, music, games, and internet content.
- Brand Marketing
- Internet Marketing
- Product Design
- Venture Capital
- Web 2.0: Stupid is as Stupid Does
- Location Isn’t A Product, Location Is A Constraint
- CBS buys CNET for $1.8 Billion
- Costly Brand Marketing
- Mobile content isn’t new, “mobile internet media” is new.