SeekingAlpha's James Nicholson has in interesting post on the 10 worst Internet acquisitions ever. The biggest surprise: Yahoo's purchase of Broadcast.com was ranked at No. 1 ahead of even the Time Warner acquisition of AOL. See the list for other clunkers.
Nicholson's list puts a nice perspective on the recent spate of merger mania, but hindsight only goes so far. It is far more entertaining to predict what mergers are going to fail a few years from now. Among my candidates:
--News Corp.'s acquisition of Intermix for $580 million in July 2005. The prediction: This merger won't look so hot five to 10 years from now. However, today I look like a fool. After all, this deal set off the Web 2.0 bubble. Why? Rupert Murdoch gets MySpace, grows traffic, monetizes it and looks like a genius. I reckon that every time Yahoo, AOL or Google buys some Web 2.0 player the MySpace deal is the elephant in the room. These Web bigshots are thinking: "I can't believe Rupe got lucky. We can't let that happen again. Buy every damn Web 2.0 play with potential."
So why will this deal become a failure? I think News Corp. will screw it up. MySpace will go too heavy with the monetization, alienate a fickle audience and have trouble growing. Financially, the MySpace deal has already paid for itself courtesy of a multi-year ad deal with Google, but as soon as MySpace slips problems will emerge. Also remember that MySpace caters to an audience that isn't likely to make a lifelong commitment. Future case studies will examine how MySpace lost its mojo.
---eBay's purchase of Skype for $2.6 billion in September 2005. Hats off to Skype for selling at the top. Maybe I'm dense, but I remember listening to that merger conference call and thinking "I don't get it." I get it a little more now, but the light bulb goes dim pretty quickly. My guess: eBay users aren't going to get it either. Even if they do the Skype price tag still creates a major ROI hurdle for eBay. Russell Shaw illustrates why eBay users aren't buying Skype hype.
--Anything Interactive Corp. buys. Sure Barry Diller is a mogul, but the jury is out on whether Internet conglomerates really work in the long run. In Interactive Corp.'s third quarter earnings statement Diller said:
"We are unabashedly building an interactive conglomerate. We have three interrelated strategies: one, the growth of each of our businesses; two, Ask.com as the connecting thread; and three, all our cross company efforts which allow us to leverage our audience, scale and diversified expertise."
The problem: The company's connecting thread is Ask.com, which it acquired for $1.85 billion. Ask.com has about 6 percent of the search market according to comScore Networks. Bottom line: You are only as strong as the weakest link and Ask.com is a fourth place player behind Google, Yahoo and Microsoft. The bright side: Interactive Corp. can acquire a company, figure out it doesn't work and always spin it off. That's what happened to Expedia.
--Google's purchase of YouTube. Can a $1.6 billion dollar stock deal really turn into a failure when the acquirer paid for it with a one-day stock gain? Sure, if YouTube opens up enough headaches to distract Google. The jury will be out on the YouTube acquisition depending on how many copyright problems emerge. Mark Cuban's stance on the Google-YouTube deal may seem crazy now, but remember he's crazy like a fox. After all, he's the guy that sold Broadcast.com to Yahoo.