Always one of the most active sectors, Internet acquisitions in all their shapes and flavors have continued unabated in 2008. Overall, we tracked over 70 deals in this sector during the third quarter.
As mentioned in our special spotlight (page 11), social networking services based on User Generated Content (UGC) are flourishing. People naturally want to communicate, and the Internet has always provided a forum for this, from the early bulletin boards to today's video blogs that allow for new levels of interaction. Social networking websites and technologies are proving to be hugely popular around the world, and there is no sign of this growth abating. This was reflected in the past quarter’s deal announcements.
The rise of the Internet, mobile phones and other digital media is forcing marketers and their suppliers, including ad agencies, to adopt new business models and broaden their offerings. We are seeing the emergence of new advertising models as the industry gains confidence, driven primarily by the phenomenal growth in online advertising revenues. As a result, we have seen many acquisitions in and around this space. Early Internet advertising players (Google, Yahoo!, etc.) are being joined by traditional media companies, including ad agencies, which now are making great progress.
We are beginning to see M&A in and around the IPTV sector with deals such as KIT digital acquiring Morpheum and Vizrt acquiring Escenic. Worldwide subscriptions to Internet-based television platforms are on track to reach 19.6 million subscribers in 2008, a 64 percent increase, according to analysts at Gartner. Revenue from worldwide Internet protocol television is forecast to reach $4.5 billion, up 93.5 percent from a year earlier, with Western Europe boasting the largest number of IPTV subscribers and North America the largest market for IPTV revenue. The biggest change since 2007 is the rapid advent of new entrants making inroads in consumer video consumption and placing greater demands on IPTV operators to innovate.
Areas we continue to see deals being done or heating up include:
· Collaboration
· Social Infrastructure
· One to One Commerce
· Security
· Mobile Web
· Unified Identity - Same identity across multiple sites
· Cloud Computing
· SaaS/Web Services
· VoIP – Converged Communications
· IPTV – Internet Broadcasting
· Hyper-targeted Advertising – As well as related analytics technologies
· Continually Improved Search
· Media Delivery
Social Networking
Niche or focused social networking is a growing trend among Internet communities, as evidenced by the number of deals in the space this past quarter. Buyers appear to be looking at niche social networking sites to increase their customer base and cement or attain positioning as a leader in a particular niche market. Lifetime Network’s purchase of ParentClick Network is an example of a buyer making an acquisition to increase customer base and solidify its position as the leader in women’s entertainment. The acquisition allows Lifetime entry into the fast-growing online consumer base of parenting and moms, which increases its exposure to a key segment of its target audience.
Buyers are also looking at niche social networking sites as providers of targeted customer/consumer bases to which the buyer can market more effectively compared to large social networking sites, e.g., MySpace and Facebook. For example, through its acquisition of Shelfari, Amazon.com is better able to market to a focused customer base in a target niche market, i.e., book lovers.
However, niche social networks are not solely sellers in the marketplace. They are also trying to increase their customer bases and strengthen their positioning in specific niche markets. Mid-Q3 saw Stracka Design, which operates a social network for golf enthusiasts, acquire GolfQ.com, a golf promotions website. Not only has Stracka increased its customer base, thereby strengthening its positioning in the online golf community, it has also added new capabilities to its social network allowing it to maintain its current and added customer base.
What does all this mean? Well, it seems to indicate that niche social networking deal activity is unlikely to slow down as community sites continue to be attractive targets. As consumers move to niche social networking sites to connect with like-minded people without having to fight through the noise of thousands (or even hundreds of thousands) of sites, so will advertisers follow to the sites that contain their target audiences; increased, more focused advertising means more ad revenues and increases the value of the site. All of which means niche social networking sites will continue to be attractive acquisition targets in the future.