All of the recent Organic video and social networking announcements should make the buyout or acquisition valuations for both YouTube and Facebook seem ludicrously more than they should, and rather validate the valuations each is/was seeking.
Cisco Systems (NASDAQ: CSCO) and Yahoo! Inc (NASDAQ: YHOO) have already taken some initiatives that could either make those two viral growth companies valued much lower. Viacom Inc (NYSE: VIA) needs to do something, but they should focus on start-ups that are not in the 9-digit handles. Before giving the full synopsis of the potential deals, we need to show the layout and the most recent data from July's comScore reading (yes, we know it is July data).
NewsCorp's (NWS) MySpace is the leader in social networking and is actually big in videos as well.
Microsoft (MSFT) spin off Wallop said Tuesday it was starting service and will compete head on with MySpace and Facebook. Wallop starts with $13 million in backing from Microsoft, Norwest Venture Partners, Bay Partners and Consor Capital. This is just after MSFT launched its Live.com service.
Yahoo (YHOO) has acquired San Francisco start-up Jumpcut, the online video editing company, for an undisclosed amount according to Venture Beat.
Cisco Systems (CSCO) has recently announced its video comprehensive digital media system.
Google (GOOG) has its video sharing.
Time Warner's (TWX) AOL has its UnCut and new open video search initiative.
About 106.5 million people, 3/5 of US Internet surfers, watched an online video in July, according to comScore.
Yahoo was listed as #1 with 37.9 million people initiating 812,000 video streams. MySpace was listed as #2 with 37.4 million people initiating 1.5 million video streams. YouTube was ranked #3 in the list of video properties on free content. Time Warner's network (including AOL) ranked #4, and Microsoft sites were listed at #5.
One other noteworthy situation is that comScore said adding Adobe's (ADBE) Macromedia Flash video increased the number of online video viewers between 10% and 20%.
So back to valuation: YouTube was reportedly not going to accept anything under $1.5 Billion, and that is after it secured Level 3 (LVLT) as its nationwide broadband provider and after it signed terms with Warner Music. Mark Zuckerberg's social networking site Facebook was reportedly in talks with Yahoo! or another for a $900 million or $1 Billion deal.
If you take this all at face value it essentially leaves Viacom (VIA) as the last man standing. The company has signaled that it wants to go more into web content, and it very much needs to. They have to make acquisitions and they have to do it soon. They have said the intent is to rapidly identify companies as they are emerging, or at least that was my understanding.
The problem is that if Viacom goes out and tries to buy a Facebook or YouTube, then they will be overpaying, assuming the price is anywhere close to current expectations from these kids. These kids who started the two companies do not yet know their business models yet, and the Street hasn't figured out the model yet either. Neither will replace the overall dominance of other services, even if their traffic is actually up among the top sites. The truth is that this video sharing is going to be around, but it will likely not replace all web models out there. Personally, I run 4 monitors, watch numerous updating pages, monitor some feeds, and have kept up to 4 different news channels before. But, the thought of monitoring a dozen video feeds simultaneously seems numbing and honestly as worthless as gold to a dead man. I may have to eat those words one day and will accept the hickey if I am wrong, but I doubt that will be the case.
Those who created YouTube and Facebook have created a service and deserve to be rewarded for it, but they do not deserve at all to become Billionaires. If someone pays the current and most recent asking prices for either one of those, then they can expect to get a call from me asking them to buy the London Bridge. There are literally almost no barriers to entry in this field, and it is cheaper to grow it organically. Quite literally, you can create a start-up for this with all licensed and leased technology in very little time. With the compression now available, even the bandwidth costs out there are not going to be murderous, and that is likely true if if Cramer is correct about a bandwidth shortage coming soon.
I thought Murdoch's acquisition of MySpace was brilliant and I thought News Corp (NWS) stock was a steal around the time he initiated that buyout, about this time last year, and the Street was criticizing him. I recently noted that maybe Yahoo! should consider YouTube instead of Facebook first because of the price, and while I think YouTube has more value I cannot think of the need to pay over $900 million, $1 Billion, or $1.5 Billion for either one of these companies for any reason on earth.
Here are the top 25 sites tracked by Alexa in overall US-related web-based traffic based on the traffic information available as of today:
3. Myspace - Social Networking Site.
4. Microsoft Network (MSN) - Dial-up access and content provider.
5. EBay - Person to person auction site, with products sorted into categories.
6. Amazon.com - Amazon.com seller of everything
7. Craigslist.org - Online community
8. YouTube - YouTube is a way to get your videos to the people who matter to you. Upload, tag and share your videos worldwide!
9. Wikipedia - Free encyclopedia built collaboratively using Wiki software.
10. Go.com - A searchable directory, news, stocks, sports and free e-mail.
11. CNN - Cable News Network. Includes US and international stories and analysis, weather, video clips, and program schedule.
12. Live.com - part of Microsoft
13. AOL - An Internet portal, offering search, shopping, channels, chat and mail.
14. Blogger.com - Free, automated weblog publishing tool that sends updates to a site via FTP.
16. Microsoft Corporation - Official homepage of Microsoft Corporation
18. The Internet Movie Database - Features plot summaries, reviews, cast lists, and theater schedules.
19. The New York Times - Online edition of the newspaper's recent content with searchable archives for a fee.
20. Flickr - Picture galleries available with social networking, chat, groups, and photo ratings.
21. MapQuest - Find directions for and explore towns and cities worldwide. Display addresses on a map, view nearby businesses, get driving directions and maps, and plan a trip with city information. Also includes aerial photographs of selected areas.
22. Weather.com - Offers forecasts for cities worldwide as well as radar and satellite maps. Also includes news stories and allergy information.
23. Digg - Technology focused news site where the stories are chosen by community members rather than editors.
24. Apple Computer, Inc. - Apple's main homepage.
25. About.com - A network of sites where visitors can find many targeted topic areas, each one managed by a personal guide; part of New York Times.
Jon Ogg is a partner in 24/7 Wall St.; he does not own securities in any of the companies he covers.