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November 22, 2006

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» Oveture was not a bad acqusition from torstensson.com/blog
Don Dodge thinks Yahoos 2003 acquisition of Overture was 8th worst billion dollar acquisition of an Internet company. I would probably put it at the top of my best billion dollar Internet acquisitions List (if I did keep such a list). Yahoo got... [Read More]

» Dinner next to Don Dodge from A Southeast Entrepreneur
I sat next to Don Dodge from the blog Don Dodge On The Next Big Thing tonight on the Boston Harbor Dinner Cruise that was part of the Red Herring East conference. We had a good conversation with the table about a post he was working on that will list ... [Read More]

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 ...

Alfred Loo

Here is something for you. Singapore Technologies bought 75% of Micropolis for $55 million in 1995 only to close it down a year later.

http://www.thefreelibrary.com/Singapore+firm+buys+75%25+of+Micropolis+Corp-a018661330

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