Web 3.0 & Yahoo! (Part 4)

Acquisition Strategy

Yahoo! has made several acquisitions this year, primarily in display advertising. The key acquisitions were MyBlogLog, Right Media, BuzzTracker, Rivals.com, Zimbra and BlueLithium. Of these, RightMedia and Blue Lithium are good moves to consolidate its Ad Networks position, but Zimbra, in my opinion, is not a good acquisition.

I feel Yahoo! can improve its competitive positioning significantly through some smart strategic acquisitions, which will enable it to be THE dominant player in several of the key verticals.

In the online job space Yahoo! could consider acquiring job search engines like Jobster or SimplyHired. It could also consider acquiring professional networking sites like LinkedIn or online exchanges like Elance, Guru or Odesk.

Jobster has raised $48 million in VC funding from Reed Elsevier, Ignition Partners, Mayfield Fund and Trinity Ventures. SimplyHired has raised $17.7 million in VC funding from News Corp.’s Fox Interactive Media and VC Foundation Capital. My favorite in the job search engine category, however, is Indeed, following an identical business model to Google’s keyword search, except that it is implemented for Job Search, specifically. If Murdoch has designs on SImpleHired, Indeed may be Yahoo’s best bet.

During an interview with Business Week last year, the CEO of LinkedIn stated that the site has turned cash flow positive. He indicated that users are paying between $200 and $300 per year to access the site and that recruiters pay as much as $2,000 per year. For $60 per year, users can get introduced. LinkedIn has raised more than $26 million from Sequoia, Greylock, Bessemer and the European Founders Fund. I remain a skeptic on the LinkedIn business model, and have never paid a dime to use the service. It would, however, be a good ancillary service to HotJobs.

In the online travel space the Company could consider acquiring Orbitz or travel search engines like Kayak or Sidestep. Orbitz, with a marketcap of $679 million, could be a good target for Yahoo to consolidate its Travel vertical.

If Yahoo is unwilling to spend that much money, the vertical search engines may be good smaller bets. Kayak.com has raised a total of $30 million since its launch in January 2004 from Accel Partners, General Catalyst Partners, Sequoia Capital and America Online. SideStep has raised more than $30 million in funding from Trident Capital, Norwest Venture Partners, PAR Capital, Saints Capital and Leader Ventures. Both acquisitions would be within $150 Million.

In the photo sharing space Yahoo! could consider Shutterfly, as it will enable the Company to better monetize Flickr by having an in-house printing/photo-merchandising service. Shutterfly is traded on Nasdaq and has a market cap of $672 million.

Yahoo! has been rumored to be in acquistion talks with Facebook for over an year but nothing has materialized and with the recent deal between Facebook and Microsoft, which valued the social networking site at $15 billion. I don’t see Yahoo! paying such a high price for Facebook. The other social networking sites that Yahoo! could consider acquiring are Bebo, Hi5 or Friendster.

Bebo received $15 million in venture funding from Benchmark Capital in May 2006. In July 2007, Hi5 raised $20 million from venture capital firm Mohr Davidow Ventures. Friendster has raised $10 million in VC funding from Kleiner Perkins, DAG Ventures, Caufield & Byers and Benchmark Capital in August 2006. Friendster had earlier raised funding from Kleiner Perkins Caufield & Byers, BenchMark Capital and Battery Ventures. There are others like Piczo, Xanga, etc.

Ning founded in October 2004 by Gina Bianchini and Netscape co-founder, Marc Andreessen is another interesting acquisition target. It allows users to create their own social networks based on any topic they choose; Ning currently has over 80,000 different networks. In July 2007, the site received $44 million in funding led by Legg Mason.

Other acquisitions to consider are Trulia (Real Estate Search), ZipRealty (Real Estate Portal), and perhaps some business and finance properties like Seeking Alpha. WebMD, in online health, could also be an interesting acquisition.

Overall, I would like to see (a) more vertically oriented acquisitions from Yahoo (b) an effort at turning their horizontal ad networks into vertical ad networks, since the CPMs are dramatically higher with more targeted networks. The days of spray-and-pray advertising are numbered. Over the next 3 years, I expect to see Horizontal Ad Networks morphing into Vertical Networks. Yahoo should not be a laggard in this movement.

(To Be Continued)

[Part 1] [Part 2] [Part 3]

This segment is part 4 in the series : Web 3.0 & Yahoo!
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