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"Completing" Six Apart and Making a Business Case for the Deal

In my experience, I think I've gained at least a rudimentary conception of value creation in acquisitions, and how to evaluation acquisition targets.  Sometimes, you get a good financial buy, where you are able to pickup an accretive stream of operating income for a good price.  On top of that, operating synergies may exist that allow you cut some overhead and, again, improve your bottom line given your purchase price.  Other times, you have strategic synergies that allow you to distribute your product in other markets or up/cross sell products.

Today's announcement of Six Apart's Acquisition of LiveJournal, to me, anyway, fits a different catagory.  I don't necessarily believe that it gives its users a more fullsome offering, because I think that the user bases are dramatically different and I don't think you have people.  However, where it does make sense is that the offering seems more "whole" as a company now.  The two companies are amazingly complimentary, with LiveJournal really fitting nicely as a free offering to go with the paid Typepad service and liscenced Moveable Type software.  Perhaps that might make it more attractive to a strategic, but I'm not entirely sure that makes the most business sense.  To what end do you create a company that touches all the bases when all of the bases might not be independently viable?   Fred argues that there exists a great opportunity to "monitize" the LJ content with ad placement, but I don't think the average LJ user would be too happy having ads on "their" space.  I think Danah would probably cringe at the mere mention of the word "monitize."  I wrote on Fred's blog that I think you'd see the kind of outrage that baseball fans had when Selig tried to put Spiderman ads on the bases. 

So, yes, now Six Apart is "more complete."  I can see that and perhaps that makes them more formidable, but better?  Not sure.  It kind of makes me think of the General Motors strategy of putting a car in every single damn segment they could find.  At one point, the company had close to 100 different models.  Some were profitable, some not as much, but you always knew that somewhere, GM had a car for you, no matter who you were.  I guess I'm not sure where "complete" gets you. 

I don't think you can upsell the LJers into Typepad, and even if you could, you didn't need to buy them to do it... I'm sure they are aware of the service regardless.  In any case I never liked the idea of buying customers you couldn't win on your own. 

So everyone keeps saying that Six Apart is now better because its bigger, more diversified, has a complete set of offerings... and while those sound better, I guess I haven't heard anyone really come up with a believable business case on how this will translate into better earnings and value.   

Perhaps they just didn't spend that much on it?  That might be the key.  If the stats are right, and LJ has about 90,000 users paying $25 a year, they're bringing in about $2.25 million.  Now, let's say that the acquisition went at a very healthy 4x multiple of sales, making the purchase price about $9 million.  They've raised a little more than that, but not much more, so this would represent a big chunk of the venture money they raised.  Let's say its in the $7-9 million range, so we don't assume they went and spent all their money in one place.  I have no idea what it really was... I'm just pulling numbers out of my butt.  (Well, the multiple isn't out of my butt... you usually see private venture companies go at about 3x forward sales, plus or minus a turn.)  At $7-9 million, with estimates of about 2.5 million *active* LJ accounts, you basically paid $3-4 a viable customer.  Now, the question is, is that expensive or no?  I have NO IDEA.  I mean, can those blogs generate that kind of dough each?  What if only 25% of LJ users (which would be some pretty good penetration) sign on for whatever advertising or business proposition you send their way... now you've got the number up closer to $16 a viable customer and that seems like it would be tough to make back.  Remember, while bloggers can make a lot more than this with contextual advertising, the blog service doesn't get a piece of that.  If the service got a cut, that would be different, but bloggers *own* all the equity in their blogs the way its set up now.

If anyone else has any shorthand models they want to throw around here, I certainly welcome them.  This is about as halfassed as you can get, but its a start.

Mena's Corner: Current Mood: Optimistic

Link: Mena's Corner: Current Mood: Optimistic.

So its true...  Six Apart bought LiveJournal.  I think the funniest thing was that, by the time they announced it, it was old news... a whole day old.  We all posted and commented the thing to death before we knew anything about it including myself (you thought CNN was bad about making 24 hours of news out of nothing.)  The truth is, we don't know what this means until at least a year from now, if not longer, and I don't think either of the companies knows either...  well, not exactly anyway, which, to me, is what a marriage is supposed to be about.

I've always said that, if you're truly in it for the long haul, you're in a marriage for like 50 or 60 years.  What could you possibly discover about each other in even a year or two that would somehow prepare you for 60... its insane.  You need to just find someone who compliments you as a team and decide that, no matter what, this is the person I'd like to face the unknown with.  I knocked this thing at first because I couldn't figure out why and I couldn't point to tangiable reasons that would create value.  But, that doesn't matter.  Inevitably, the landscape changes and all of the "best laid plans" go awry.  I think marriages and mergers fail when people are too locked into a plan and what the future will bring, instead of just saying, "we have great resources, they have complimentary resources, we think we're better together."  You can't predict the future and things won't always go your way...  so just pick someone you love and hold on tight... seems that's what is happening here.  I may not get it, but I can respect it.

Its too bad this didn't happen earlier, because had Howard Dean's blog had a little Current Mood: "So excited I might scream uncontrolably" smiley, we might have seen that coming and taken it better. - MLB - Beltran offers under wraps

Link: - MLB - Beltran offers under wraps.

Make that $100,000,100.   I will personally contribute $100 to the get Carlos Beltran fund if the Mets need help.  This guy would be the best outfielder this franchise has EVER had....  I'm ALL for it.

apophenia: The Cultural Divide Between LiveJournal and Six Apart

Link: apophenia: The Cultural Divide Between LiveJournal and Six Apart.

Danah has more cultural insight into the blogworld in her pinky than I have altogether and assesses this deal from an interesting perspective.  And yes, I'm one of those people that thought LJ was just for teens...  obviously its a lot more than that.  In fact, now that I think of it, I think of it like Diaryland and I've definately witnessed firsthand how close those communities are and how far away from the new blog wave that hit in '04. 

This is almost as bad as when AMF bought Harley Davidson.

Om Malik on Broadband ? Six Apart to buy Live Journal

Link: Om Malik on Broadband ? Six Apart to buy Live Journal.

This is interesting, but I'm not sure I agree with OM's comment that Six Apart is somehow a natural fit.  Certainly the LiveJournal audience is a drastically different crowd than the paying Typepad crowd or the Moveable Type users, but diversifying your audience by buying a group that is unlikely to ever pay for your product, well, I'm just not convinced that's a good way to go.  I mean, how many fifteen year old girls are going to fork over a dime to get their site hosted, even if you do give them all of the fantastic features of Typepad/MT which I have come to know and love.  Where's the payoff here?  Perhaps it makes Six Apart more attractive as an acquisition candidate itself?  It seemed like their growth would certainly make it attractive enough, and I can't honestly believe that LiveJournal's growth is any better. 

Om writes "It also gives the company a very fighting chance against Google’s Blogger and Microsoft’s MSN Spaces."  Fighting chance against MSN Spaces?  I'm sorry, but I don't see the droves of people flocking to Spaces, and I can't really see any blue blooded blogger letting Bill and Steve host their little baby.  I haven't seen numbers, but I never got the impression that MSN Spaces had any initial success.  And as for Blogger, which is currently the biggest site, well, I never really thought of it as a "winner" takes all scenario.  I always thought of Typepad/MT as a place for more sophisticated and professional bloggers that need more features and Blogger as the place to go for a simple, free service.  There should be more than enough of the prior space to go around, if you include all of the corporate blogs, to build a viable business.  That segment of the market, currently the only paying segment, is prime real estate and will be huge at some point. 

I'll stop, because I definately don't have enough info to work with here so I'm not going to go guessing as to why they did it.  But, let me tell you, if they try to generate revenues directly from LiveJournal members (I won't make that statement more explicit for fear of starting up the rumor mill), hell hath no fury like a fifteen year old LiveJournaler.  Forget the backlash when they changed the MT pricing scheme...that would be nothing.

I'll think more about this on my way to work, but I can't really think of a good reason to spend your venture money on LiveJournal.  If I'm missing something, I'd love to hear it.