The worst Billion dollar Internet acquisitions

There were lots of bad acquisitions so it is hard to keep the list to just ten. But, here are my nominations for the worst Internet acquisitions of all time.  To get on my list the acquisition must be at least a Billion dollars, must have disappeared from view or lost the market share race, and must have been acquired at least 18 months ago. It takes a while to really know if an acquisition was a success or failure.

10. Mapquest - AOL acquired MapQuest for $1.1B in December of 1999. A nice service but worth $1.1B? I actually like MapQuest and it has decent market share but I couldn't find another billion dollar acquisition that looked worse. Any ideas?

9. Ask Jeeves – IAC/Interactive Corp acquires Ask Jeeves for $1.85 Billion in March 2005. Less than 4% market share and losing ground to Google. AskJeeves definitely has value but it is hard to justify the nearly $2B price tag.

8. Overture - Acquired by Yahoo for $1.6B in October 2003. Yahoo has spent the last year of so building "Panama" which will replace most of the Overture technology. There is some value left in Overture...but not much.

7. AltaVista - CMGI acquired a controlling stake in AltaVista from Compaq Computer for $2.3 Billion in June 1999. Later acquired by Overture for $140M.

6. GeoCities - acquired by Yahoo! in May 1999 for $3.56 billion

5. Netscape - acquired by AOL in November 1998 for $4.2 billion.

4. Broadcast.com - acquired by Yahoo! in July 1999 for $5.7 billion.

3. Excite - acquired by @Home in January 1999 for $6.7B

2. Lycos - acquired by Terra Networks for $12.5B in May 2000. Terra then sold Lycos to  Korean company just 4 years later for $95 million.

1. AOL - merged with TimeWarner in January 2000. AOL was valued at $160B. Today AOL is valued at about $20B, based on Google's investment of $1B for a 5% stake in AOL. Losing $140B of market value is really hard to do...almost unheard of. This is the number 1 worst Internet investment of all time.

Honorable mentions, but less than $1B;

Blue Mountain Cards $780M acquired by Excite

MySimon $700M acquired by C/Net

Too soon to tell;

Skype - acquired by eBay for $2.6B with performance bonuses that could push the total price to $4.1B. Huge price tag for a free VoIP service. My guess is that Skype will turn out to be a bad investment for eBay and eventually take a place on the Top 10 Worst Billion Dollar Internet Acquisitions.

YouTube - acquired by Google for $1.65B. Time will tell, but it looks very expensive right now.

MySpace - acquired by Fox Interactive for $580M. Too early to tell but this could turn out to be one of the BEST Internet acquisitions. A relatively low price for a really hot Internet property.

Tom O'Keefe maintains a pretty comprehensive list of Internet Acquisitions on the ResearchConnect.com site. I used this list in compiling my worst billion dollar acquisitions of all time.

What do you think? Are there other Billion dollar acquisition blunders? Would you rank them differently? Doesn't this make you wonder what happened to the executives that made these decisions? Only in America...

Comments

[Marcelo Calbucci]

Very interesting, but it has some mistakes, IMHO.

I don't think Overture or GeoCities were bad acquisitions.

We can't really tell, but Overture brought up an existing revenue pipeline to Yahoo. It was also a preventive measure (Microsoft could have acquired it).

Geocities brought a ton of traffic to Yahoo. I don't know if they monetized it well, but that is a post-acquisition issue.

Just a coincidence that they are both related to Yahoo.

[Greg Linden]

Great list, Don.

To be fair, though, a lot of these were during the 1999-2000 bubble. The stock price of the acquiring dot com company was often absurdly inflated as well, so this way of looking at the costs of these deals may overstate things a bit. It is not clear that the shareholders of the acquired companies ever managed to turn their paper gains into real money before the dot com crash.

However, this does make some of the deals look even worse for the acquiring company. For example, the Time Warner/AOL deal looks great for AOL shareholders, who managed to combine their ethereal dot com stock with a stock that had real assets behind it, but horrible for Time Warner shareholders.

[Benjamin Stone]

Indeed this post could be titled the ten *best* internet acquisitions from the perspective of the entrepreneur's exit.

[ZF]

So the AOL acquisition destroyed value in an amount equal to Google's entire current market value.

[Don Dodge]

Marcello, I agree that GeoCities wasn't a total wipe out...there is some value there, but not anywhere near what Yahoo paid. Overture is pretty much a total loss...except for the really bright people they inherited from AltaVista.

Interesting that Yahoo acquired 3 of the top 10 worst.

Greg and Ben, I think Mark Cuban would agree with you that the entrepreneurs made out very well.

ZF, that is an interesting coincidence. Investors sold out of AOL and a few years later bought into Google. Could history repeat itself?

[ben barren]

totally agree. we need to develop a list of the best priced acquisitions 1.0 + 2.0...

[Mark Z.]

What about ICQ - acquired by AOL in June 1998 for a whopping $287m + 3x $120m = $647m. Not in the required billion Dollar range, but still a lot of money. Also, just to be fair, I should add that the press release actually said: "AOL also will make contingent payments of up to $120 million over three years based on growth performance levels".

I guess the ICQ investment never monetized.

[ashkan karbasfrooshan]

Intersting, even in hindsight, these things are subjective. i.e. Say MySpace gets smacked with a massive fine over the UMG lawsuit, is it still a steal?

Mainly, I agree Ask is expensive at nearly $2B, but it did make Barry Diller enter search. There were not that many options for him to do so.

[Kevin Burton]

I think it's less of whether it was a bad acquisition as much as bad execution.

These acquisitions have often looked great but the acquiring company has failed to execute. AOL is notorious for having this problem (see Netscape and MapQuest for example).

This is why I often cite an acquisition as good for the space. Google buying Blogger was the best thing that happened to Six Apart.

Kevin

[Andrew Herron]

I think it'd be interesting to see how much of those aquisitions were paid for with stock, and what that stock is worth today.

[Sean Ammirati]

Don,

As usual - great post! I have been a long-time RSS subscriber and really enjoy your blog.

I would disagree with the Overture acquisition. I'm pretty sure that Yahoo leverage some of the Overture Patents (Patent 6,269,361) to get 2.7 M shares of Google rigth before the IPO and some on going license revenue?

Also, I understand Panama is replacing the ad serving system. However, they did leverage that technology for a number of years.

Sean

[ZOverLord]

It's all about number of users now. Also, having a good developer interface as well.

Being able to communicate with others worldwide and in real-time, without the need to know the other parties native language sure does not hurt the expansion process. For more information on what I mean, please click my name below, thanks.

[Don Dodge]

It is all about the value returned on the investment. Some of these aquisitions (investments) were total losses, but more often they are just very poor returns on investment.

MapQuest, AskJeeves, and Overture have some value but I doubt they earned back the original purchase price...say nothing about an actual return on the investment.

AOL, Lycos, and Excite were nearly total losses of tens of billions of dollars. No earning back the purchase prise, and certainly no return on investment.

So, I am not saying all of these top 10 worst were total losses...just bad investments that didn't earn a reasonable return.

Actually, some of the less than billion dollar acquisitions like Blue Mountain Cards and MySimon were perhaps worse investments than say, AskJeeves. But my cut off point was $1B.

[David Scott Lewis]

I would have posted this on SeekingAlpha, but I don't want to go through their registration process.

Perhaps it's understandable that you'll ignore any of Microsoft's mistakes, but one that should have been on this list is WebTV. Sure, it morphed into another property, but that property has been a failure as well.

For about $50 million, it would have been a worthwhile gamble; for about $500 million, is was a totally asinine acquisition.

[Don Dodge]

David, I only looked at Billion dollar Internet acquisitions. As I mentioned there are several acquisitions slightly under a billion that were horrible...but not candiadtes for this list.

WebTV was acquired for $425M...far below the threshold for this list. I agree that it was bought too early and probably paid too much, but the people and technology are still inside Microsoft and delivering value in multiple ways.

Microsoft has made some great acquisitions in the past. This is not one of them. See my post "Microsoft will acquire my company" for an interesting overview of some of the very successful Microsoft deals. http://dondodge.typepad.com/the_next_big_thing/2005/10/microsoft_will_.html

[Steve M.]

Don-great list and insight; but I would disagree on Yahoo's Overture purchase for at least the following reasons:

#1. Without Overture, there would more than likely not be a Panama (which I believe will prove to be very successful).

#2. As you said, the people they picked up are/have been a great asset to Yahoo; in many ways.

#3. Though we don't know the amount, they're earning licensing fees from MIVA; possibly Google (though I didn't think that agreement included ongoing fees).

#4. They've no doubt earned some nice fees from MSN up until AdCenter's launch.

#5. It gives them the knowledge/experience base to be able to more quickly/easily bring other PPC ad platforms (i.e. Match Engine Marketing/paid match) to market.

ps Is your Microsoft link working?

[Alfred Thompson]

Great list. I think that most of these were way over priced in the first place but I wonder if the AltaVista deal couldn't have worked out well if it had been handled better. It was, in my opinion, the best search engine available at one time. Had the focus stayed on search with continued development focused on keeping it the best search engine Google might never have become the top search site. I admit that "if" is a huge word and "what if" games are more interesting than valuable but I think that AltaVista was only a bad deal because of what was done with it after it was bought.

[Vijay]

What about Microsoft's acquisition of Hotmail? Did it amount to anything for MS?

[JD]

Keep your eye on Tellme for the honorable mention list. The deal hasn't closed yet, and $800mm is less than $1b, so it won't qualify for the official list. But, with a very poor management team and a declining business that's been in search of a strategy, Tellme will be a challenge for Microsoft to justify 18months from now. Also, many of the best employees have already left Tellme, many still there are eager to leave, and the culture as a whole is considerably anti-microsoft. So, it's not the case that Microsoft just acquired a great team.

[dave davison]

Yikes! the acquisition fever is back to the old °pay for the eyeballs"crap that built and burst the last bubble - now everyone with a momentary "lead" in the eyeballs contest gets acquired for big bucks. while your list may be self-serving in your role as a Microsoft deal flow filter, I think your post is well worth grokking - The bubble game is on again and google is blowing the biggest one.

[Chris De Herrera]

Well for me one of the worst billion dollar internet acquisitions from a financial perspective was the acqusition of Cobalt Networks by Sun Microsystems. In September, 2000 they were acquired for 2.0 billion dollars. By December 2003 Sun discontinued all Cobalt products, wrote off 1.6 billion and released the Cobalt code as open source.

[Isaac]

aQuantive for $6 billion!!!!!!

[d.]

I have to disagree with broadcast.com at number 4. Since I worked there for several years before and after the acquisition, I can attest that Yahoo had no clue what they were buying. For many of us original employees, that didn't matter. At least we profited from the stock price!

[Koudesnik]

You knew about Skype, didn't you? :) It can be added to the Top 10 Worst ...