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.
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