Web X.0

The chess game continues...

So it looks like the predicted Microsoft-Yahoo deal will happen finally. This is waaaaay overdue - it should have happened back when MSN decided to leave Overture and pursue its own performance-based ad platform. The day that happened (sometime in 2003 as far as I remember) created 2 losing platforms.

I love the timing of this announcement. Looks like Microsoft were sitting on this waiting for Google's stock to dissapoint, and then hand it a beautifully timed 1-2 blow. Cool.
(on a side note - it's really great to see Google's stock crash from $750 to $525 within 3 months... healthy reminder that Google does not have exclusive rights to the world's wisdom and shareholder value)

Seems like the next natural move will be for Time-Warner to spin off AOL (disclosure: I co-founded Quigo which is now part of AOL), and sell it to Google (~$25B?...). The game is advertising, and the key is distribution. There are more ad $'s flowing to the internet every day, and not enough high quality distribution to meet that demand. With Yahoo out of the game, AOL will now be the #1 biggest player with available ad inventory (both on its own properties as well as on its huge platform-A). In a 2-player race, Google will not be able to afford losing AOL to the MS/Yahoo combo and will have to make this move (not to mention that it already owns ~5% of the company). Interesting days...

In case you want to get rich and/or work for Yahoo

Regardless of what happens on November 5th, and regardless of whether we end up calling social networks a "graph" or not... -
It's fairly clear that Yahoo will soon be scrambling to find a company that takes your Flickr friends, del.icio.us friends, Yahoo Mail contacts, IM contacts, etc, etc and merges them all into something that makes sense. A "social graph" perhaps.

This probably won't be a multi-billion-dollar acquisition, but it will almost certainly happen.

I don't recommend building-for-flipping, but if you're an entrepreneur and are eager to work for Yahoo with a nice signing package - here's a nice opportunity for you.

If you do use this tip, please send me a small comission in 6-8 months... :-)

{image captured here}

GooglePoint, part 2

Some due housekeeping. Ugh - I was hoping to avoid this post...:

A few months back I predicted that Google would not develop anytime soon a presentation app to compete with PowerPoint.

D'oh! - I was so wrong. Note to self: Never underestimate the Google'rs eagerness to inflict pain on Microsoft (and vice versa...)

"Prediction is very difficult, especially when it's about the future." --Nils Bohr, Nobel laureate in Physics

Thanks for the catch, Barak.

I don't get Twitter

There - I said it.

(BTW - this is becoming a nice little mini-series... started with my long and thoughtful confession about Second Life).

I'm going to make the following predictions:

1. Within a year, people will vaguely remember what that whole Twitter craze was about (and those that do will be terribly embarrassed they ever wasted time twitting bugging each other). It'll sit comfortably in the dustbin with the Tamagotchis and The Macarena.
2. Or - I am going to look very very stupid in March '08.

Anyhow - feel free to twitter me at: http://twitter.com/galai

StubHub acquired by eBay - you heard it here first...

About 7 months ago I predicted that eBay would eventually buy StubHub, the wonderful ticket marketplace. Well - looks like the day has come and eBay has acquired StubHub for $310M. From TechCrunch:

"...they are announcing the deal earlier than expected - they are acquiring San Francisco-based StubHub for $285 million plus the cash on StubHub’s books, which is about $25 million. The deal has been signed and should close in 30 days or so. eBay will be releasing a press release shortly."

This one really had the writing on the wall... it just made too much sense, after eBay lost this important marketplace to StubHub. And as I said in my original post - in the marketplace business there is rarely place for more than 1 player and eBay cannot afford not to be the one...

A bunch of other predictions I threw on the wall are here.

More coverage on GigaOm.

Is Microsoft acquiring Facebook?

There's something a little weird about last week's announcement that Microsoft has won the exclusive 3-year deal for managing display and text ads on Facebook. Here's why:

• To the best of my knowledge, Microsoft has no contextual product as of yet, and has never run any text ads on 3rd party content sites on any significant scale. As a result, it's impossible for Microsoft to have any significant advertiser base or ad coverage for content or experience in yield optimization.
• What this means, is that either Facebook or Microsoft are betting the farm on Microsoft's ability to build a successful product, to fill it with advertisers and get bid levels up extremely quickly. This is a pretty big bet[1]. 
• Question is - Who's making the bet? I think it's safe to say that Facebook ain't it. Thanks to Google writing checks to publishers quicker than they can take them, the online ad space is now an absolute seller's market. No reason for Facebook to assume any risk on this deal, let alone with a company that has no real product yet, has no advertisers yet, and has little experience in monetizing 3rd party content pages.
• Which means that if anyone is making a bet here, it must be Microsoft. And that's where things are getting a little suspicious. For what's gotta be a material deal, it's pretty strange that: a) "Facebook and Microsoft executives said they began their talks late last week", and b) that Microsoft, a public company, is not disclosing the terms of the deal.

Multi-hundred-million-dollar deals, especially when Microsoft is the one laying down the money don't normally close within less than a week, and once they are closed, they usually are disclosed.

Which leads me to speculate that maybe neither party has assumed any material risk with this announcement?...

How is that possible? Could the following *speculative* scenario be the answer?:

• Microsoft were in the final stages of acquiring Facebook.
• The MSN executives saw the MySpace-Google announcement, making them cringe in their seats about Google getting all the press and Wall St love again.
• Microsoft, wanting some badly needed PR wins, pushes Facebook to make an announcement about winning an "exclusive deal", noting that within a couple of weeks Facebook will be part of MSN anyway so they have nothing to lose.
• Facebook, eager to close their $1B+ acquisition while they are still in vogue and run to the hills, make nice to Microsoft and agree to a vague announcement.

This could definitely explain the suspicious announcement from last week. But does it make sense for Microsoft to acquire Facebook, which has reportedly declined offers to be acquired for $750M recently? I'll try to look into that in a separate post in a couple of days.

[1] How big of a bet? In normal times, this could be estimated by multiplying reasonable CPM's by traffic numbers. But thanks to Google, these are far from normal times and therefore the best way to estimate the size of the bet is by comparing it to the $900M MySpace deal. Considering that the MySpace-Google deal is almost a 4 year deal, while the Facebook-MS deal is a 3-year deal, we can adjust from $900M to $720M. The next discount can be made for user sizes (~100M for MySpace, ~10M for Facebook), so we can further adjust to $72M.

However, it is widely reported that Facebook users login to the site waaay more than MySpace users do (GigaOm reports that over 2/3rds of Facebook users login *daily*... pretty amazing...). And the Facebook users have credit cards, while most of the MySpacers don't. So how valuable is that traffic for advertisers? Facebook would probably claim that $720M or even more is the magic number. Microsoft would probably shoot for the $72M range. The real number, if there is a real deal here (and that's a big IF), is probably somewhere in the middle, and most probably in the multi-hundred-million-dollar range. 

Why Fox will acquire Hattrick

You're probably scratching your head saying 'Hattrick who??'. And that's exactly one of the reasons I think Fox will acquire this fantasy sports game site.

Hattrick, I'm being told by trusted sources, is a highly addictive game that's gaining traction very quickly. People that get hooked visit it at least once a day, and are spending significant amount of time on it. It's demographics seem to be exactly the ones Fox is now after - 18-34 year olds.

Fox's interactive group is sitting on a pile of cash earmarked for acquisitions, and Hattrick just seems too good of a fit to pass. If previous acquisitions are any indication, Fox is definitely looking for those companies that are somewhat under everyone's radar, that are experiencing rapid growth, that catch significant mind share from the 18-34 demographic and that are a good compliment to other Fox content/properties (and sports is as good as it gets). In addition, it doesn't seem like Hattrick has any revenue sources at this point, making an acquisition that much more affordable.

So at the risk of being stupid again (previous M&A predictions are here and here), I will predict that Hattrick will eventually be a happy member of the Fox family.

[UPDATE] Welcome all Hattrickers! - I started a discussion about ways to make money from fantasy sports sites, while keeping the game great (link).

GooglePoint?

The prevailing wisdom seems to be that Google is out there developing an MS Office killer, and after launching mail, spreadsheet, calendar, database (sort of) and soon-to-be-word processor (following the acquisition of Writely), the next target on Google's cross-hairs must be an alternative to PowerPoint.

Maybe I'm slow to see what everyone else has already figured out. So at the risk of looking foolish I'll predict that Google is NOT going to release a PowerPoint alternative anytime in the near future.

Here's why:

• Google is great at web-based text applications, but has very little experience with graphic apps, which is a totally different ballgame.
• The definition of what an Office suite contains is quite arbitrary. As I posted before, I think Google is more interested in engaging MS engineers on defending their jewel products (instead of having them spend time developing an AdSense killer), and NOT on offering a full alternative to whatever Microsoft happened to define as belonging to the Office suite. If this speculation is correct, I suspect the products will be released in order of lowest-hanging-fruit, rather than in order of what Microsoft's marketing folks happened to package into the Office suite.
• The success of Google's "Office Killer" products can be ranked with almost perfect correlation to the advantages gained by turning them from desktop apps to web apps:
• Gmail is probably the most successful - the ability to access your mail from any web-enabled device and always have it synced is a clear advantage over the desktop app - Outlook Express. On the flip side, very little functionality, if any, is lost by using email online rather than on a desktop[1].
• Calendar - Again - enabling a calendar on the web adds significant advantages (access anywhere/anytime, and sharing of calendars) while losing very little functionality that's in the desktop app (security is the only aspect I can think of).
• Spreadsheet (and in due time - word processing) come next - some advantage is gained by allowing collaboration between people (and again - access), but lots of functionality is lost - graphs, macros, etc (not to mention security). Of course these are not functions used by all users, but it definitely decreases the overall appeal of the app.
• Google Page Creator (Google's "killer" app for Microsoft's FrontPage). Very little value is added by moving this app online because collaboration and access on development of personal websites is hardly useful. Yet lots of the rich editing functionality possible on a desktop application is lost when migrating online, making Page Creator a very lame product compared to FrontPage (which itself isn't something to write home about...)
• And this is where a Google version for PowerPoint would rank - little or no value added by moving the app online, while lots of value lost by doing so.
  

Google has shown multiple times in the past that it will spend huge resources on products it thinks are core to its arsenal (Gmail, Google Maps, etc), and that it will also develop low hanging fruits even if their importance to Google is questionable (Page Creator, Spreadsheets, Co-Op, etc). But I have yet to see a product they released which is both of questionable value AND requires a huge R&D effort. And a PowerPoint killer falls into that category.

Sergey & Larry (& Marissa?) are smart enough to set their own product agenda and therefore the definition of what's included in the MS Office suite is completely meaningless here, IMHO.

[1] Gmail should probably be compared to Hotmail rather than Outlook Express, but for the sake of the MS Office Killer discussion I'm sticking to Outlook Express. In any case, Gmail kicks Hotmail's ass big time both on storage capacity and functionality.

Post-disclosure...

I guess one problem every entrepreneur wants to have is for their company to have too many clients to remember all by name. Seems like I got to that point...

Last week I wrote why I thought eBay would end up acquiring StubHub (the fantastic and highly recommended p2p ticket marketplace). When I wrote that, it was 100% from the point of view of a customer who has used StubHub to buy last minute tickets a couple of times.

Someone pointed out to me one little detail I missed about this whole story, so:

Better-Later-Than-Never-Disclosure: StubHub is a client of Quigo's, the company I have founded and am employed by. As demonstrated by the fact that I didn't even know we're currently servicing StubHub, it's needless to say that I posses absolutely no knowledge of anything relating to my bold stupid acquisition theory. In fact, I will now have to cross fingers that my prediction fails miserably, so as to not lose StubHub as a client...

Why eBay will acquire StubHub

Here's another episode in my "this-is-probably-going-to-make-me-look-stupid" series of predictions. I should really stop this habit... Anyhow:

I went to the Yankees-Mets game last night. It was sold out with an attendance of 56,205. However, we were able to get four tickets just a few hours before the game started, thanks to StubHub which is a marketplace for buying and selling tickets between people.

The StubHub service is really great - they have a solid feature set, the site is good, information on the events and venues is very good, the 'Buyer's Guarantee' makes you comfortable buying there, etc, etc, etc.

So would eBay acquire StubHub for all the great features and expertise they have developed around person-to-person ticket buying and selling? I bet you eBay doesn't give a shit about any of that.

What does matter in the world of online person-to-person marketplaces is becoming the de-facto marketplace of choice for buyers and sellers. Once you become that, it's a very defensible position that's almost impossible for other marketplaces to win because of a simple law - buyers won't come to a marketplace that doesn't have much inventory, and sellers won't list their inventory in a marketplace that doesn't have many buyers. This catch-22 is what makes de-facto marketplaces so defensible... even the best feature set in the world from the best known brands can hardly dent this law (ask Amazon and Yahoo, both of which tried launching eBay-clones in the past).

It seems that growingly StubHub, not eBay, is perceived as THE go-to place for buying and selling tickets to events. Once that perception is established, even mighty eBay will find it almost impossible to win back the leadership position in this category (and again - in the marketplace business if you're not the leader, you're almost by definition not a player).

eBay cannot afford to cede such a core category to another player, and will not be able to win this battle through R&D, and therefore I predict that once this is realized, eBay will acquire StubHub.

[UPDATE:] 2 for 2...