$3.2 Billion WiMax Deal Goes Through. Take Cover.
The deal to combine Sprint Nextel’s and Clearwire’s fledgling WiMax businesses that was rumored last March is finally expected to go through. Comcast and Intel are supposed to put in $1 billion each; Time Warner, $550 million; Google, $500 million; and regional cable provider Bright House Networks, $100 million. The new company, which will be valued at $12 billion, will be run by Clearwire and take its name.
As I said before, this is a disaster waiting to happen. Sprint and Clearwire need the deal to try to salvage the billions they’ve already sunk into their money-losing WiMax networks. But putting more cooks into the kitchen with different WiMax aspirations is not going to help. Google wants more wireless broadband alternatives for its planned mobile apps and advertising. Whereas the cable companies want a way to compete against mobile phone operators encroaching on their turf. As I wrote last March:
WiMax is a promising technology and these are early days. But even an extra $3 billion won’t be enough. Building out a nationwide WiMax network could cost as much as $8 billion to $12 billion. And there could be more technical hiccups.
I can see why Google might throw its hat into the ring here—anything to promote more broadband wireless networks. But Comcast and Time Warner Cable should stay away. The logic behind the investment seems to be that the cable companies could use the WiMax network to counter the moves by Verizon and AT&T into their turf (with TV service over phone lines). It is being suggested that the cable companies would be able to launch their own white-label mobile phone and high-speed Internet services over WiMax.
Here’s where that logic breaks down: Verizon and AT&T have a huge head start and customer lock-in when it comes to cell phone service. WiMax mobile phones would take decades to chip away at that even if they do offer faster data speeds. Today, Clearwire is only offering at-home phone service, not mobile. As for broadband Internet and home phone services, Comcast and Time Warner already compete effectively against the phone companies today with their alternative services over cable.
I hope that I’m wrong and that this new consortium will bring cheap WiMax to us all. Because the technology is very promising. Unfortunately, the business is not.
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Could AOL Be Next on Microsoft’s List?
With Microsoft walking away from the Yahoo deal, there’s been a lot of talk about what it’s next best option would be. Going after AOL is an obvious choice. It has the ad inventory (aka pageviews) Microsoft needs, has its own collection of growing online advertising businesses, and has a very willing seller in parent Time Warner. The Times of London is reporting that Microsoft and AOL are in “preliminary talks” about an acquisition. And AOL isn’t exactly hitting on all cylinders right now, so it could be a much cheaper, cleaner purchase.
http://business.timesonline.co.uk/tol/business/industry_sectors/technology/article3876643.ece
Of course, Microsoft is still talking to everybody at this point, except maybe Yahoo. Whether it truly intends to set its sights on AOL is unclear because it needs to talk to AOL at the very least as a strategic ploy to try to thwart any possible deal between Yahoo and AOL (which has always been a possibility in the background). But at least Wall Street doesn’t seem to think that a deal is imminent. Yahoo’s shares are up 4 percent from yesterday to $25 a share right now, while Time Warner’s shares are pretty much flat at $16 after rising about 6 percent last week. Maybe Yahoo’s talks with Google are going better than Microsoft’s talks with AOL.
(Disclosure: As a former employee of Time Warner, I own some shares in the company)
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Smelling Trouble Behind AOL’s $850 Million Bebo Deal
When AOL bought Bebo for $850 million last week, CEO Randy Falco and COO Ron Grant believed the social network would help save AOL from its downward spiral. Social networks are where pageviews are generated these days, and AOL’s own attempt to turn AOL Instant Messenger into one (via Aim Pages) was a dud on arrival. Bebo, with 22.9 million unique visitors in February and 10.3 billion pageviews (per comScore), was growing and it was for sale. Even though AOL is trying to transform itself into an advertising network, it makes much higher margins on the ads it places on its own pages. The formula for its business is pretty simple: Unique visitors X page views = advertising inventory. If social networks are the future of the Web, AOL needed to own one.
But was Bebo the right one, and did AOL pay too much for it? Those are questions that other AOL executives below Falco and Grant are asking themselves, reports Silicon Alley Insider. The concerns of the senior executives who actually run AOL (and reportedly were not consulted on the top-secret acquisition) include: the general difficulty of making money placing ads on social networks (see Google’s missed quarter), “flattening traffic growth at Bebo” (see chart below), overly-rosy revenue projections for Bebo that might have been three times too high, and the likelihood of losing Bebo’s most talented employees (the founders are already out of there).
From my own sanity-checks with sources, there is definitely the sense that AOL was not Bebo’s first choice. Initially, it was aiming for a valuation above $1 billion. But then the ground started falling out beneath it, and AOL’s $850 million offer started to look real good. AOL was a desperate buyer. Even if it bargained Bebo down on price, it may still have paid too much. Bebo’s growth is indeed flattening relative to other global social networks like Hi5 or Friendster. And while social networks generate a lot of pages, they are not yet particularly valuable pages.
There is a silver lining here, though. If AOL can use its targeted advertising assets (Advertising.com, Quigo, Platform A) to make that Bebo inventory pay out, it will surprise everybody. And that will be good for Platform A because it then will be able to grab more advertising business from other social networks. (That is, if New York State does not outlaw targeted advertising before then). The likelihood of that happening is not great, but AOL employees need at least a glimmer of hope to keep showing up to work every morning. (I do what I can).
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What Media Company Gained the Most Market Share in 2007? (Hint: It Starts With a G).
When it comes to market share gains in advertising dollars, Google outstripped every other media company in 2007, whether you look at the Web, TV, print, or radio. Earlier this morning, Henry Blodget compared the advertising revenues of 17 major media businesses (including News Corp, Time Warner Cable, Viacom, Google, Yahoo, Microsoft, AOL,, the New York Times, and CBS Radio). He left out Disney for some reason, but otherwise it’s a pretty good set of data (see the spreadsheet here). According to his calculations, total online ad revenues across these 17 companies grew 9% last year, online revenues grew 28% (versus 3% for offline ad revenues), and Google’s online ad revenues grew 44% (versus 15% for the combined online ad revenues of Yahoo, Microsoft, and AOL).
But let’s take a deeper dive into these numbers. Google added $2.6 billion in advertising revenues last year. Next in line and far behind was News Corp., which grew its ad revenues by $915 million. To better visualize how much Google is creaming every other media company, I put together the charts above and below (click on them to see a larger version). And here’s a table with each company’s ad-revenue gains (or declines), in descending order:
Now, what about absolute market share? Google does pretty well there too, with 14.9% of the total $58 billion represented by all 17 businesses. That is up from an 11.3% market share in 2006, and makes Google No. 2 behind News Corp’s 16.5% market share. (No.3, actually, behind Time Warner, but Blodget separated Time Warner Cable, Time Inc., and AOL, which combined would have a 15.2% market share).
Looking at the absolute numbers in the pie chart and table below really helps you put these businesses in perspective. For instance, check out Yahoo in the No. 4 spot, with $4.7 billion in ad revenues last year. It is right behind newspaper company Gannett, which is still a cash cow, but saw its advertising dollars decline by $338 million last year. Yahoo, in contrast gained $361 million in ad revenues. That’s still a fraction of Google’s growth, but looking at the absolute numbers let’s you see why Microsoft wants to buy it. A combined Yahoo-Microsoft would be No. 3 on this list.
And here are the underlying numbers:
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