Yahoo acquires MyBlogLog for $10M - Has anyone done the math?

Yahoo has acquired MyBlogLog reportedly for $10 million. Does anyone stop to do the math on these things? MyBlogLog started business in July...just 6 months ago, and they have 5 employees. They reportedly serve 45,000 blogs, have 33,000 registered users, and zero revenue.

Valuing startups is an inexact science for sure, but there are some guidelines. Here are a few "back of the napkin" approaches without the benefit of any due diligence or facts.

Employee multiple - Cisco popularized this metric back in the 90's. They used $1 million per engineer as one metric for valuing a startup. I'm not sure of the math assumptions behind this, if any, but taken together with other metrics it kind of holds together. Using this metric MyBlogLog would be worth $5M.

Build vs. Buy - You can usually estimate how many "man-months" it would take to build something internally and apply a fully burdened cost of say $240K per year or $20K per man month. MyBlogLog has 5 people and has been in business for 6 months. Lets be generous and assume they spent another 6 months in stealth building the service. So, 5 man years of effort at $240K would make it worth $1.2 million.

Value per subscriber - You can build a revenue model based on the number of subscribers, multiplied by some estimate of revenue per user per month. MyBlogLog reportedly has 33,000 subscribers in their first 6 months. Lets say they triple that in the next 6 months to say, 100,000 subscribers. Lets say they can monetize these users at $1 per user per month, or $12 per year. So, 100,000 users times $12 per year makes it worth $1.2 million.

Strategic value - All acquisitions presumably have strategic value that exceeds their intrinsic value. Big companies have leverage in terms of users, products, audience. Meaning, they can take a small product or feature that has very little value on a stand alone basis, but enormous value when applied across their existing products and customers. As Mark Cuban once told me "It is not what it is worth today, but what it can be worth in the future as part of your strategy". So, Yahoo must have a brilliant strategy to knit together Del.icio.us, Flickr, MyWebLog, and other acquisitions into a targeted revenue generating machine.

My guess - Based on absolutely no information, other than what I have read, I would guess MyWebLog to be worth somewhere between $2.5M and $5M. The $5M number would assume some strong synergy with some existing services. It is very possible that Yahoo has a grand strategy for all these acquisitions that will someday make MyBlogLog look like a bargain at $10M. From afar it is hard to see.

Bradley Horowitz is VP of product strategy at Yahoo. I have known Bradley for almost 10 years and have a lot of respect for him. We worked together on video search when I was at AltaVista and Bradley was at Virage. He has assembled lots of interesting pieces at Yahoo but I haven't seen any clues as to how he expects to knit them together into a synergistic whole that produces leverage or revenue. Can you gives us some clues Bradley?

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Comments

[Greg Linden]

Good analysis here, Don.

On the build vs. buy calculation, though, I think you need to factor in the risk on building. You could do that either by multiplying the $240k/year by a factor for the risk MyBlogLog employees took of getting $0 from their efforts or by multiplying the final $1.2M of Yahoo reproducing the work by a premium for the cost of longer time to market and risk of failure to deliver. All of this assumes that Yahoo would build something identical to MyBlogLog if given the opportunity, probably a big assumption.

On the broader point of your post, this acquisition does seem odd to me. There seems to be no interesting technology here, nothing in the idea that cannot be reproduced quickly, and a tiny user base.

The acquisition would have to be for the people. If the people are all remarkable, they could be worth $1-2M each, but that assumes all the people are superstars who will have an immediate and substantial impact at Yahoo.

[Ewan]

MyBlogLog has a very clever idea, but I can't see how Yahoo couldn't build a competitor for under $1 million and then very quickly turn it into a service supporting 50,000 or more blogs, indeed that kind of low number of users would probably considered a horrible failure on a Yahoo project.

I can only assume MyBlogLog have some kind of intellectual property relating to a widget which becomes a social networking site, and that Yahoo decided that would it be worth paying over the odds for the rest of the company to get it.

[Robert Young]

Don,

I believe you left out the most important component for a valuation exercise...

There is value in MBL having signed up 45,000 blogs. Not to mention the derivative value of that being the large number of users who see the MBL facerolls on those thousands of blogs. This component is what will prove to be the most critical viral component of MBL, thereby yielding potentially substantial network effect value.

[Peter Caputa]

Here's the math they did: How many mybloglogs can I buy for one facebook? or youtube?

[Frédéric Casagrande]

Don,

MyBlogLog does actually some revenue. Stats on a blog (or a community, to use their wording) are free, but limited. If you want your blog to be monitored realtime, you'll have to upgrade this "community" to Pro for a $25 yearly subscription. With the 100'000 users you were talking about makes your $2.5M guess much realistic.

I'm very curious of the evolution of this service.

Best regards.

Frederic

[Don Dodge]

Robert, I did indeed value the users. They have 45,000 blogs with 33,000 signed up as users. I even tripled the number to account for growth. How should we "value" those users?

As others have commented, 45,000 is a very small number of users. Yahoo could build a similar service and get more than 45K users in a couple weeks.

Divide the $10M price by 45K blogs and they are paying $222 per blog. How exactly will they make back their purchase price...and maybe someday make a profit? Network effect has to translate into value and revenue at some point.

The how many MBL's can you buy for one YouTube reminds me of the joke about a guy trading his $100K dog for two $50K cats. Equal value for sure :-)

At the end of the day $10M is a drop in the bucket for Yahoo. Did they overpay? Perhaps by a few million but in the scheme of things it doesn't matter. Well, it would matter to me if I were on the receiving end...maybe someday.

[Dave]

Don -

the strategic value is in combining MBL with YPN, and establishing a differentiator for YPN over Google AdSense.

consider the MBL + YPN combination:
- basic web stats / blog stats
- basic social networking / community
- affiliate payments for publishers

in addition, i think you're missing the overall audience MBL has... while they may only have 45K *profiled* users, they have cookied access & data on tens of millions of users. this is akin to the value that DoubleClick, Hitwise, ComScore, and other large measurement networks get from cross-site tracking information.

overall, $10M is a pretty minimal amount to pay for the value here.

- dave mcclure
http://500hats.typepad.com/

[Jeff Clavier]

Don, you are forgetting two potential elements in a deal like that:
- The asking price from the company: the maths you are suggesting make sense, but they are just maths and don't take into account what the founders' minimum price was.
- You are assuming that Yahoo was alone courting MBL, and that noone knows whether it was the case or not.

[Eric]

There's a big first mover advantage when it comes to web properties, due to network effects. Numerous services are objectively better than del.icio.us (for example), but none are seriously competitive with it.

Also, Yahoo hasn't had much luck with in-house competitors. Yahoo 360? Yahoo Video?

They took a look at this, saw it as a unique offering that was destined to be *the* leader in this area, and got it while it was still young.

[Fraser]

I think many of the comments are accurate.

It's hard to put a price on the network effects that they're already developing with the initial user base. Yahoo! has had significant success from Answers... why don't others simply build their own Answers-clone? I mean, the technology development would cost next to nothing, right?

Networks and network effects introduce an interesting issue re. valuation. I suspect we'll see the development of analytical approaches to valuing a growing network, but I don't think it currently exists.

I tend to agree with Dave, that if properly leveraged with their other properties, the value of MBL and it's data is significant and at $10M won't put a stress on Yahoo's bank account.

[Chris Winfield]

Great insight Don. I have to agree with Eric's comments though - the first mover advantage here should not be overlooked. Also - what would be very interesting to see is how many of those 33,000 subscribers joined within the last 3 months and also just the last month alone. I would venture to say that the rate of new subscribers is increasing quite rapidly.

I am basing this on what I have seen in my industry and even blogs outside of it. Take a look around at many of the blogs you visit on a daily basis - how many now are now part of it? How many joined over the last day (including this one)? I actually think that Yahoo! made a pretty smart move here...

[Jim Kukral]

Don, you're obviously a very smart businessman, so take this with a grain of salt...

MBL got bought despite the numbers, because it's cool.

No amount of money thrown at a project can make it cool, and Yahoo! bought it for that coolness factor. Whether or not they can keep it cool after is the question.

You can't make cool, you either are, or you aren't. I would argue that the value of a "cool" product/service can vastly outweight the numbers in some cases.

Take Care,

Jim Kukral

[Juha]

Jim Kukral's comment sums it up. Apple's iPods aren't superior to the competition, and there's nothing so far that says the iPhone will be.

But what do they have that others don't... yep, that intangible quality that either touches you or doesn't.

[Joe Hunkins]

Don I really appreciate your "do the math" posts on these aquisitions but think you missed the valuation here for the reasons mentioned above, most importantly the fact that these guys have a unique helpful product that is catching on quickly among many elite bloggers and Yahoo does not.

Assuming Yahoo could have built a similar application in 6 months they would probably have lost not only the 45k bloglog subscribers but also those who would have signed up in that 6 month period, which is probably at least another 100k blogs. Value of 145k subscribing blogs, many of which are tech leaders, would appear to me to be high enough to justify the 10 million aquisition cost.

[TanNg]

Network effect have value when user base exceeds critical mass. In this case the user base was too small to get network effect.