Executives buying a hot Internet company sound so assured and optimistic. In conference calls to celebrate such deals, they invariably predict accelerated growth for the parent business, a pipeline of new complimentary products and an infusion of entrepreneurial zeal. Check in a few years later, however, and the results are usually mixed. Some Internet acquisitions live up to their blockbuster billing, but many, in fact, flop.
Yahoo's $1.1 billion deal for Tumblr, the online blogging service, is just the latest in a long list of Internet acquisitions that comes with high hopes. It's all the more risky because of Yahoo's horrendous track record of buying companies. The question is whether Yahoo has learned its lesson. In an unusually self-aware press release about the Tumblr acquisition, Yahoo (yhoo) alluded to its checkered history by saying it "promises not to screw it up."
Here's some of the highlights and lowlights in the relatively brief history of Internet acquisitions.
The $160 billion AOL-Time Warner merger, hailed as a dream marriage old and new media, quickly fizzled with the Internet bubble. Subscribers to AOL's stodgy dial-up business defected to broadband. Advertisers abandoned AOL (aol) in droves. The promised synergies between the two divisions, like selling each other's advertising and sharing content, never really materialized. Eventually, amid a depressed stock price, the combined company split up (disclosure: Fortune magazine is owned by Time Warner (twx)).
Yahoo executives got way ahead of themselves in acquiring Broadcast.com, an online television site founded by Mark Cuban, for $5.7 billion in 1999. Slow dial-up connections made watching video a test of patience as did the laughably meager library of shows (think 1960-era monster movies and Victoria's Secret fashion shows). The service soon disappeared, as did the executives who engineered the deal.
In yet another example of poor leadership during the dotcom bubble, Yahoo acquired GeoCities, a sort of early online blogging service, for $3.6 billion in overpriced stock. Then Yahoo essentially did nothing. The service, known for its garish, neon pages, was left to rot for years until it was shut down.
Acquiring MySpace in 2006 gave Rupert Murdoch's News Corp. (nws) the hottest social network of its time. The price, $520 million, seemed relatively reasonable, at least compared with some of the excess of the bubble era. But even that turned out to be far too much after users started flocking to Facebook (fb), the social networking upstart and soon-to-be king. News Corp. sold MySpace, a shell of its former self, two years ago for $35 million.
AOL got itself a fading web browser and has-been website when it acquired Netscape Communications in 1999 for nearly $10 billion. What were AOL executives thinking? It's not exactly clear other than a failed effort to remake Netscape into a web portal and some vague comments about e-commerce. AOL was eventually able to wring some money out of Microsoft (msft) for antitrust violations during the browser war era and some more last year for Netscape's patents. But the acquisition remains a big loser while Netscape, the browser, is long dead.
And the best, starting with PayPal
PayPal already had a huge following among eBay (ebay) users when eBay acquired the online payment service for $1.5 billion more than a decade ago. It turned out to be one of the best tech deals of all time. EBay's ownership helped make PayPal even more ubiquitous for buying and selling in eBay's online marketplace. More importantly, it served as a launching pad for PayPal's growth off of eBay with merchants like United Airlines (ual), Dell (dell) and Best Buy (bby). If there's any doubt about PayPal's success consider this: It's growing so fast that it will likely surpass eBay's marketplace in revenue within the next couple of years. Yes, PayPal will soon be eBay's biggest business.
In terms of size, Google's (goog) acquisition of Android, the mobile operating system maker, was miniscule at an estimated $50 million. But the deal eight years ago turned out to be a huge coup that ultimately served as the foundation for Google's Android operating system now used in 75% of all smartphones and more than half of all tablets sold. It's difficult to discount the importance. Without Android, the Google-Apple rivalry wouldn't exist. Apple (aapl) would have cornered the mobile market.
Google had tried and largely failed to get much traction in video on its own. As a remedy, it bought YouTube, a hot video startup, for $1.65 billion in 2006. Under Google, the service piled on new users and built up a gigantic library of clips. Revenues did take some time to figure out. But YouTube has since made huge progress, and according to one analyst, took in $2.4 billion last year after payments to partners were excluded.
In another shrewd move, Google bought DoubleClick, the online display ad service, for $3.1 billion in 2008. The deal helped Google expand from search advertising to selling much bigger ads that appear on partner websites. With DoubleClick, Google has emerged as the biggest display ad company with an expected 17.6% U.S. market share this year -- greater than Yahoo and Facebook.
Tony Hsieh, founder of Zappos.com, the online shoe store, liked what he heard in Amazon.com's sales pitch. If he accepted its acquisition offer, his company could remain relatively independent. The $1.2 billion deal seems to have worked. Zappos continues to be a shoe-selling powerhouse within Amazon (amzn). Amazon, of course, has stayed on track in its relentless quest to dominate online retailing.