Blogging 1.0 (continued)
First, I’d like to congratulate our friend Martin Nisenholtz and his team over at the New York Times. This was a very smart buy as I’ll explain in a minute. I know that Martin and his team have been working on this for a while and faced some significant competition for this deal and so they should feel very proud about coming out on top.
So, why was this such a good deal for the NY Times? First, they got one of the web’s most interesting properties at a very good price. About.com is a bigger and, I’d argue, a better business than Marketwatch and that sold for 60 times EBITDA last year to Dow Jones. The NY Times only paid 30 times EBITDA for About.com.
Second, and much more importantly, the NY Times is constructing something that I think is very powerful in the emerging digitial world we are living in. It’s a network where creativity and advertising happen both centrally and on the egdes.
I had a long brainstorming lunch with two particularly savvy media guys yesterday and we spent a lot of time on this notion of a network where creativity and advertising happens on the edges. That’s About.com with its guides model of content creation and its Google-like CPC revenue business model. There are literally hundreds of businesses emerging on the web that look like this and they are very powerful business models because they cost very little to operate.
If you look at the economics of Marketwatch vs About.com, you’ll see the benefits of this edge business model. Marketwatch’s EBITDA was 10% of its revenues at the time it was purchased. About.com’s EBITDA is 33% of its revenues. That’s operating leverage and operating leverage makes growth much easier.
I pointed out to my friends at lunch that if you combine a network like that with a traditional centralized network, you get something even more powerful. The two can feed each other and create even more value.
And that is what Martin and his team have put together. It will be very interesting to watch them execute this acquisition. If the content that is created on the edges starts to show up in the middle and the content that is created in the middle starts to show up on the edges, that will be a big deal. If the ads sold by the central sales force start to show up on About and if the CPC ads start showing up more on NYT, that means they’ve done it. I sure hope they make it work because it will be a model for the rest of the traditional media world to emulate.