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Wednesday, October 11, 2006

Will Google Really Go After Facebook Too?

There are now rumors that Google (GOOG) may outbid Yahoo! (YHOO) in a bid to acquire Facebook. The new rumored price tag: $2.3 Billion.

Buzztracker has a link here from that shows many ponderings and thoughts on this. I have my own thoughts, and I am wondering how this higher price tag came up and why.

Honestly, Google's acquisition of YouTube has some interesting ramifications and has already led to credibility in the online video craze as far as incorporating it into business models. News Corp's (NWS) purchase of MySpace already lent credibility to social networking as a business model. Google already got the search pact from News Corp's (NWS) MySpace, and now Murdoch is reportedly looking to expand its existing pacts with Google. If Google does a Facebook acquisition, then this could and may be considered an "About Face" move. If News Corp was somehow not included in the deal, and Murdoch has already said Facebook is overvalued, this could lead to outright contract breaks. If they are included (assuming the deal for Facebook is true), then other online portals are going to have to ramp up their niche efforts to maintain traffic and maintain a higher relevance.

If you took this land grab to an extreme case you could see more collaboration among all the other web traffic generators. Could this lead to more and more co-ops? Outright mergers might not be the case because of antitrust and corporate integration issues, but what if "true" collaborations came about? What if Microsoft (MSFT) decided to roll in all of the AOL traffic, or what if they decided to roll in all of the Yahoo! traffic? With enough money and enough incentive any of the big players would consider it.

Google has already telegraphed it will do more and go after more. The issue is this: At what price does this online land grab stop making sense? If Facebook is worth $2.3 Billion, then what about all the other online properties out there? Does it mean that everything goes free and all the "old school" properties are worthless? Most likely not. Facebook was deemed expensive at $1 Billion, and now the rumor mill puts it at $2.3 Billion? Is Facebook worth more than YouTube all of a sudden?

There are really no barriers to entry in video and in social networking. If you can buy servers and buy bandwidth you can get into the business. None of the content licensing deals to eliminate copyright violations are 100% exclusive to keep others from being able to strike deals. Video has more barriers to entry because of copyright than social networking does, but all of the technology is essentially out there that can be instantly licensed, bought, or even taken for free to create new platforms.

Hey, stranger things have happened. After all, Microsoft (MSFT) invested in Apple (AAPL) back in 1997. If Google pays this much, or for that matter if anyone else does then you just have to wonder what the new price of poker is going to be. Microsoft has even capitulated and made more room for alternative systems to work with Windows and their software.

So anything is possible, but at what price does this land grab start to become obscene?

Jon C. Ogg
October 11, 2006

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