What Should Hearst Buy?
What kinds of digital media investments have lasting value? How can Hearst avoid the mistakes like Yahoo's purchase of GeoCities for almost $3 billion -- which was recently closed down after a long moribund period. Then there was News Corp., who paid big bucks for MySpace only to see it lose its cachet to Facebook. Are aggregators and blog networks (most of Silicon Alley's recommendations) really good investments? Especially, are they likely to be successful for investors who are second (or third or fourth) to the party?
So what does have value?
Hearst has made some very successful investments over the years. Its investment in Netscape is probably the most famous and contributed mightily to that billion-dollar pile. Its early investment in Mark Cubans' first act, Broadcast.com, is another. Hearst's investment in its own Women's Internet media business - Home Arts - later merged with Women.com, and subsequently with iVillage; finally, the sale to NBC for $600 million was at least, not embarrassing, if not a home run. Let's face it; Hearst has had a nose for value. Witness its now long -time investment in ESPN, in which it still holds a stake.
Hearst has two proven investing skills: making smart first-mover investments, and partnering with strong content brands. More recently, it's been focused on infrastructure.
It has long been said that selling tools to the miners was the way to get rich on the gold rush. And the same principle applies here: Infrastructure for the digital media publishing world - by which I mean specialized, software-as-a-service solutions that serve large slices of the digital publishing market -- far from built out. The first big one was Doubleclick, but we all missed that one. Hearst made two smart infrastructure investments with Brightcove, the video serving company and, earlier, Internet Broadcasting, the hosting and serving suite of services for local TV stations.
These are both investments in "cloud-based infrastructure." They are businesses that have the potential to be of permanent value, in part because they can scale up many times, as Internet publishers and customers will check in but never check out.
Publishers will soon realize they should use a service provider to help them limit their technical challenges rather than build custom sites with so-called fee software that requires customization costing time and money. Publishers will focus on what they are good at: content and sales. Two companies more come to mind here. Clickability and GoDengo provide an integrated suite of services that allow publishers to quickly launch a media Web site with all the key functionality they need, a CMS, hosting, and serving a web site. How many companies need these services? There are probably 30,000 specialized consumer and business-to-business publishers who need web sites built or rebuilt. The two companies probably have less than 200 clients combined today.
So much attention now is focused on the social media companies, and the aggregators, that it is easy to forget something as un-sexy as infrastructure. But social media tends to be like fashionable restaurants: hot today, closed tomorrow. And content aggregation strategies seem to be cost-effective to build, but that also means many competitors. Aggregators are just too blasted easy to start to ever generate high margins.
There are, of course, some examples of social media that do have traction and permanent value but they are less oriented to fun or entertainment, and more focused on getting things done that have economic value. One example is Yelp, the local recommender for restaurants and retailers which has critical mass almost 200 cities; another is dating sites, where key examples are already owned, but perhaps the highest-value site is independent: eHarmony. These companies benefit from critical mass of scale that is important and difficult to reach on a local basis.
Another often overlooked media business -- in an economically valuable sector -- is Baby Center. They are the leader, by far, in the online baby media business, and they seem non-strategic for their owner, pharmaceutical giant, Johnson and Johnson.
There is one recommendation from Silicon Alley that I do approve of for Hearst: Thrillist. This is a media company with a brand and a voice and, as important, a strong connection to its customers through its email-delivered content strategy. Don't' get me wrong, they have a Web site and a mobile strategy I'm sure. But because they have done the hard work and delivered the value that convinced their audience to subscribe to an email newsletter they are in a strong position to publish to their audience, and to grow virally. See my recent column on the value of email here .