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This week’s Bebo acquisition rumour comes in the shape of Viacom, the also-rans in the MySpace courtship battle. With Bebo in no rush to sell, we don’t anticipate this latest industry gossip will become a reality anytime soon.
It is plainly obvious that Big Media Companies are now scrambling all of their M&A jets in search of social networking sites to buy. This was previously something that seemed a little bit like bandwagon jumping a few months ago, but now there is a real reason for it.
Viacom missed out on MySpace, which was ultimately bought by Internet Big Spender #1, aka Rupert Murdoch (who has splashed out about $1.5bn in the past year or so). And since then, Viacom has been looking for its own MySpace, and with good reason. Is Bebo going to be the one?
Viacom is of course a major US media organisation. It owns the MTV cable franchise, Comedy Central and Nickleodeon, so we know it knows about youth markets, an advantage in the social networking space.
Viacom has previously considered other social networking options, having lost out in the MySpace bidding war. Facebook, another large social networking website, was said to be the subject of an $800m bid by Viacom, but the Facebook founders wanted to hold out for $2bn, according to the gossip. $2bn! What kind of return would Viacom get for that sort of outlay? Madness. Or is it?
Perhaps there is more to this social networking lark than meets the eye, at least from a business / ROI perspective. Murdoch’s gang spent $580m on MySpace, which many – including some of the E-consultancy team – thought was a significant gamble.
My personal concern about this sort of investment is less about Bubble 2.0 (it ain’t a bubble folks…) and more about demographics.
When it comes to social networking, we’re primarily talking about youthful users: these sites are driven by youth audiences, and youths are:
a) notoriously fickle, and...
b) highly disinterested in being marketed to.
So it could be argued that the prospects for medium/long-term success, in terms of maintaining an active user base and selling direct response advertising, do not merit a $580m – or $2bn - investment.
Yet this is exactly what MySpace is successfully doing. Users are continuing to sign-up en masse – there are almost 100m of them now. And as we’re reporting in another article, MySpace has pulled off quite a coup by luring none other than Google, which has in turn trumped its rivals by securing an exclusive contextual ad deal with MySpace. To the tune of a guaranteed $900m. In cash. Wow.
Murdoch has pulled off a blinder. That $580m investment has, in the space of a year or so, been recouped in full – bandwidth and other operational costs aside – with plenty to spare.
Note that Google’s Sergey Brin led the deal team, which says something about the stature of MySpace, and its importance as a strategic win for Google, especially in the light of that recent Yahoo/eBay tie-up (a similar deal).
So all of this is good news for Bebo. Michael Birch would do well to hold out a while longer, at this rate.
And when the time comes we could see the first $1bn+ acquisition in the social networking space. Unless of course those Facebook founders bank $2bn anytime soon…