The Tale Of Two Deals

For the past several months, the online advertising industry has been buzzing about consolidation in the video business. Many of the year-end prediction pieces for 2011 reflected an interest in this topic as well. However, as I learned early in my career as an investment banker, there are two very different types of deals. Any banker can do deals that make money; but it is the great bankers that do deals that really matter.

Although I have massive respect for anyone who builds a business and can sell it for millions of dollars, most transactions do not provide long-term value to their respective industries. As we enter the next phase in the evolution of the online video ecosystem, it is important to further the conversation about consolidation and focus on the deals that matter.

Deals that matter are those that significantly change market-share dynamics and competitive positioning, and lead to billion dollar businesses. To put this in perspective, let's discuss past deals that fit these criteria.

 

Search Deals

 

In the search industry, there are only two deals that matter. The first was Yahoo's acquisition of Overture, which created a long-term viable competitor to the Google AdWords business and ultimately led to the Yahoo/Microsoft search alliance. The second was Google's acquisition of Applied Semantics, which enabled Google to build the AdSense network. This was Google's second billion-dollar venture and ultimately led to the majority of the inventory on the DoubleClick Ad Exchange (now Google Ad Exchange).

No other deals have fundamentally changed the space the way these two have. Others worth noting because they made money for the stakeholders in the acquired companies include Excite/@Home and Yahoo/Inktomi.

Display Deals

In display, there have only been four deals that really matter. The first was AOL's acquisition of Advertising.com, which created what was, at the time, the largest display ad network in the world by a big margin. Second and third were Yahoo!'s acquisition of BlueLithium and subsequently RightMedia, which led to the creation of the Yahoo Advertising Network and the Yahoo-powered RightMedia Ad Exchange. The fourth was Google's acquisition of Doubleclick, which enabled the launch of the Google Ad Exchange, which is now the largest display advertising business in the world.

Deals that didn't matter in display but made a lot of money for the stakeholders involved include AOl/Tacoda, Microsoft/AdECN, Microsoft/Aquantive and WPP/24/7.

 

Mobile Deals

In mobile, there have only been two deals that matter. Google bought AdMob, which instantly gave Google more than 50 percent market share in mobile advertising, and laid the foundation for its category domination. Apple bought Quattro Wireless, and although the jury is still out on the value Apple got out of the deal, it served as the catalyst for the company to launch iAd - an  important addition to its near-monopoly status in devices and operating systems.

As of now, there actually haven't been many inconsequential deals in mobile, but we will have to see the long-term impact of Mobclix/Venti and others before we make a definitive assessment.

Video Deals

Using our historical perspective on deals that really matter, let's now focus on the video category. Clearly, there has only been one transaction in the video space that is material to the business: the Google/YouTube transaction. This deal will likely go down as one of the single best media acquisitions in history because it provided Google with the foundation to become a global leader in digital video content and advertising for the next decade.

It is likely that all other video deals signed thus far will prove to be financially lucrative for the stakeholders involved, but insignificant in the long-term, competitive chess game of major media companies. Until Yahoo!, Microsoft, Viacom, Comcast and the major broadcasters begin to focus real capital in the video category, the consolidation that occurs will be peripheral at best.

Tags: m&a, video
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1 comment about "The Tale Of Two Deals".
  1. Alan Schulman from SapientNitro , January 19, 2011 at 4:49 p.m.

    Well said Tod.