Video: YouTube celebrates day after purchase

updated 10/10/2006 9:16:53 PM ET 2006-10-11T01:16:53

Yahoo Inc. is under pressure to clinch a deal to acquire, the No. 2 U.S. social networking site, to recapture momentum from Google after that company struck a deal to buy YouTube, analysts said on Tuesday.

Google Inc.’s deal to buy video entertainment site YouTube Inc., announced on Monday, has raised the bar for other major Internet players to strike quickly as confidence in the sector grows and valuations rise, industry insiders said.

A Yahoo acquisition of Facebook, the dominant hangout for college-age students, could approach $1 billion, these people say. Industry sources have previously said the pair have held talks although it is unsure what stage these are currently at.

“We think Yahoo is being out-executed by Google in terms of innovation, financials and partnerships/acquisitions,” Scott Kessler, an analyst with S&P’s Equity Research Services, wrote in a note to clients on Tuesday.

“With its shares close to their 52-week low, we believe the pressure is significant for Yahoo to do something meaningful to garner positive interest and restore investor confidence,” he said.

Beyond YouTube, Facebook and top social networking site, which was acquired a year ago by News Corp., there are precious few companies of scale yet to emerge in the market for consumer generated media firms.

But other similar deals could follow.

“It’s a feeding frenzy,” said Wharton marketing professor Peter Fader, who said that besides Google-YouTube and potential Yahoo-Facebook tie-ups there “will be all kinds of other buyers and sellers emerging out of the woodwork.”

Fader worries that prices will ramp up quickly, inviting easy comparisons to the 1999-2000 dot-com boom and crash.

“For the most part the dot-com craze has settled down. But this is the one remaining Wild West area.... if too many firms rush in and pay too much money for some of these community oriented sites it could hurt everyone, just as things burst in 2000.”

Josh Bernoff, vice president Forrester Research, was also concerned about companies overpaying.

“What’s going to happen is some other companies are going to buy these second-tier video sharing sites, and they will be some of the worst deals ever made. Companies like Viacom and Yahoo will look at what’s left. They will overpay.

“The properties that remain have much less traffic and much less value,” Bernoff said, citing other Internet video businesses including Revver, Guba and Veoh Networks.

Revver Chief Executive Steven Starr told Reuters following the YouTube deal that he was not looking to be acquired. “We are totally not for sale. We are a very excited group who believe we are in the right place at the right time with the right technology.”

Yahoo spokeswoman Joanna Stevens declined to comment on the status of any talks between her company and Facebook. “We don’t comment on rumors and speculation,” she said Tuesday. Facebook were not immediately available for comment.

Not just Yahoo, but Microsoft Corp. needs to move quickly in the social networking space as content sites are being consolidated. Sources close to the company say the software giant believes it can build competing properties themselves rather than be forced to overpay for hot companies.

( is a joint venture of Microsoft and NBC Universal News.)

One banker not involved in the talks who spoke on condition of anonymity said the Google deal got competitors’ juices flowing and saw Yahoo and Microsoft as the key players looking to tie up a deal, with media giants News Corp., owner of, and MTV owner Viacom Inc., less likely.

Fader sees telecom and cable players also potentially becoming interested in Web community sites.

The quality of the match is paramount, say analysts.

Fader sees the Google-YouTube deal as unique, as it involves “iconic” players as well as being able to generate synergies superior to “just adding another asset to the corporate portfolio.”

“While both fine companies,” neither Yahoo and Facebook “is nearly as dominant or unique in the minds of its customers as both a Google and YouTube,” he said.

Copyright 2012 Thomson Reuters. Click for restrictions.


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