Deal Radar 2008: MyStrands is MyChoice

Given how much you heard me talk about personalization being an open opportunity, I would like to start my Deal Radar 2008 series with MyStrands, a company that has taken the personalization opportunity seriously.

Founded in 2003, by Dr. Francisco J. Martin, MyStrands has developed a social recommender engine designed to provide personalized recommendations of products and services through computers, mobile phones and other Internet-connected devices. MyStrands is a free desktop application that allows users to discover things they like and didn’t know about. The Company is a team of 90 people and is headquartered in Corvallis, Oregon. Their music video service is very similar to Middio, MOG and iLike.

MyStrands raised $24 million in its Series B2 round of funding this December. Spanish bank BBVA led the funding along with existing investor Debaeque. In June 2007, the company had raised $25 million in Series B funding led by Spanish media mogul Antonio Asensio, owner and CEO of Grupo Zeta, with existing investors Debaeque and Sequel R&D. It had earlier raised $6 million in March 2006 from Debaeque and Sequel R&D. The Company has thus raised $55 million till date.

MyStrands revenues are estimated to be $12 million in 2007. MyStrands’ users on an average spend 3:29 minutes on the site. According to Alexa, MyStrands has a traffic rank of 42,377, which is not particularly high. MyStrands is not as popular as Last.fm or iLike.com but it is definitely catching on.

MyStrands is expanding its service network to include video, books, etc. CBS acquired Last.fm, the dominant player in the social music space for $280 million. Though, Last.fm has a much larger userbase than MyStrands, it is solely focused on music, whereas, MyStrands is looking at branching out into newer areas like video, books, etc.

In 2008, the company can become part of the recommendation/personalization infrastructure for many other high traffic sites, and go beyond its destination site / iTunes plug-in business model. This means, they would need to learn to architect / package their technology as SaaS, and expose it for others to use as an Enterprise 3.0 offering. As it stands, they have started marketing a Recommendation Server, which seems to be an old-school licensed software model. It’s a start, but may not be enough.

Assuming the Company is able to double revenues next year (to $25 million), we could expect the Company to be acquired at a valuation of 5 to 6 times 2008 sales or an approximate price of $125 – $150 million. If they hold out another year, and get to a revenue range of $50-$60 Million, AND be able to expand the types of categories that they can personalize to a broader set, they can get to a 8 to 10 times on 2009 sales, and a valuation of $400-$600 Million.

While at first blush, MyStrands may look like a company that would be acquired by a large media company with interest in music (eg. Amazon, Viacom, Comcast, Time Warner, Universal, etc.), given the infrastructure software strategy, only Amazon is their realistic destiny. Amazon understands the value of what they offer, and has been consistently positioning itself not only as a destination, but also as the e-commerce infrastructure vendor of choice. Microsoft or Yahoo could also look at acquiring MyStrands, but with less immediate synergies. Farther afield, enterprise software vendors SAP and Oracle may actually be their perfect home. SAP, in particular, would be an interesting acquirer given the European roots.

Lot of Ifs, but I do like the company, and the space they have carved for themselves. I am also pleased to see them moving into the infrastructure space. I am slightly concerned about the large amount of money they have raised, which makes exits somewhat complicated. For instance, there is a strong chance that Web 2.0 as a category will be crashing this year. This will likely depress valuations by late this year / early next year.

Anyway, MyStrands, deservedly, is on my Deal Radar 2008, and I love the fact that Personalization is their mantra.

This segment is a part in the series : Deal Radar 2008