Chart of the Day: Facebook Crushes Google, Yahoo, AOL & MSN

If search is any indication of what people want, they want Facebook more than twice as much as Google and Yahoo according to Google Trends.

I also compared the most popular social media companies to Facebook on Google Trends, to see if perhaps social media properties skew higher than the old Internet titans.  They don’t.

I was curious how Google compared to the old titans, and interesting, Yahoo and Google are neck and neck.

To be fair, these results are based on Google search results, so I’m not quite sure why someone would go to Google to search the keyword term “Google”, but it was fun to pulling the data.

To learn more about how Google Trends are calculated, click here.

Jay Gould maintains a long position in shares of Facebook (private).

How Groupon May Have Used Google As Its BATNA To Create More Liquidity!

As we’ve said before, the need for growth companies to be acquired or chase that rubber chicken laced road show circuit to go public through an IPO aren’t private companies only option anymore.  While the world can only speculate as to what Groupon will ultimately do, one thing is for sure, they have done wonders in creating shareholder value and increasing their private market value in their very public negotiations with Google.

Perhaps Google was Groupons’ BATNA (best alternative to a negotiated agreement) to the secondary market?  Just eight months ago Groupon raised $135 million on a $1.3 billion valuation from DST, which at the time was intended to be used to buyback equity from Groupon’s then 90+ employees as well as their early investors.  Today, Groupon reportedly has 1,000 plus employees, and their revenues are north of $2 billion annually.  With that kind of trajectory, did Groupon know their downside of walking from Google, or better yet, use Google to pump their valuation up for a new secondary sale of their private company stock, which will provide less dilution, preserve more control and protect their unique culture?

Again, one can only speculate.

The reality is, we just don’t know why Groupon would go public if the private market is providing a higher valuation for their shares and maintains more control for the founders that clearly seem to know what they are doing.  We believe that with $2 billion in annual revenue, Groupon is already a “real-live business.” Further, we believe that Groupon can comfortably take its “fuck you money” off the table without having to negotiate further with any public company, Google included. Groupon could sell less shares to the private market than the public market, for less dilution, less scrutiny, less regulation while providing sufficient liquidity to its founders, investors and employees.

So perhaps a congratulations is in order for Groupon.

Jay Gould maintains a long position in shares of Facebook (private). This post was edited by Bill Auslander.

Facebook vs. Google on CNBC

In this clip from CNBC, Lou Kerner, partner at SecondShares and social media analyst at Wedbush Securities, discusses the implications of Facebook’s passing Google in terms of total time spent in the U.S. and the potential that Facebook has to provide a competitive search application to Google.

Lou Kerner on Bloomberg TV Discussing Facebook

In this clip from Bloomberg TV, Lou Kerner, partner at SecondShares and social media analyst at Wedbush Securities, discusses Facebook’s entry into location based services and whether Google will attempt to compete with Facebook in social networking.

Lou calls Facebook the “Second Internet”, saying “really sitting as a layer on top of the first Internet, but more powerful in many ways than the first Internet because we’re all connected.” In response to whether Google will attempt to compete with Facebook, Lou says “Eric Schmidt has says the world doesn’t need another Facebook, but I do think they’re going to play a big role in social.”

Google Stock Set To “Sell” Due To Facebook – Down 21 Percent in 2010

SecondShares’ Lou Kerner was on CNBC yesterday after he initiated Google with an ‘underperform,’ making him just the second analyst to put a ‘sell’ on the stock. Kerner put a price target on Google at just $525.

According to Kerner, Google is making the vast majority of its revenue on a pay-per-click basis to drive traffic to web sites”, and “given its huge base of over 500 million members, the majority of which log on every day, Facebook is already driving more traffic to some leading web sites and it is poised to dramatically grow its share of traffic generation just based on clicks from user news feeds.”

According to CNBC, Google shares are down 21 percent this year, underperforming competitor Yahoo, which is down 17 percent. Yahoo was downgraded to ‘hold’ today by BGC Financial analyst Colin Gillis, who cited flat display advertising in June.

Lou Kerner is a partner at SecondShares and an analyst at Wedbush Securities.

How Google’s Investment In Zynga Helps

This post is written by Guest Author Byrne Hobart, a marketing consultant at NYC-based Blue Fountain Media. Blue Fountain Media helps clients with website design & development, online marketing, graphic & logo design and more.

A few months ago, it would have been fair to treat Zynga as a partially-owned subsidiary of Facebook. The big question for investors was how much Facebook ‘owned’. Since Facebook was Zynga’s platform—their sole source for new customers, and the only way existing customers worked with them—Facebook could theoretical “tax” Zynga, demand a change in strategy, or even shut it down. Owning shares of Zynga was a bet that Facebook would ignore them, lose to them, or buy them out (a situation analogous to Paypal before its eBay acquisition).

But in the last few months, that situation has changed completely.

It started in May: Zynga had an all-hands meeting in which they prepared to leave Facebook entirely.

Days later, they announced a settlement: Zynga will use Facebook credits, and Facebook will give them free advertising. This may have been one of the best pieces of corporate Jiu Jitsu in history: in a single deal, Zynga turned Facebook from a company that basically owned them into the company that gave them a torrent of cheap new users. That was the prior status quo.

But at the same time, Zynga was pushing those new users into interactions outside of the site:

  • FarmVille is one of the top 20 game Apps in the iTunes store.
  • Zynga’s poker app remains popular.
  • Zynga.com is the most popular game site on the Internet. According to Compete.com, it gets more traffic than gaming stalwarts like AddictingGames.com, Newgrounds.com, Miniclip.com, Pogo.com, and even games.yahoo.com (based on Alexa’s estimate of Yahoo’s subdomain traffic, and Compete’s estimate of Yahoo’s total traffic). It’s also an engaging site, with a high ratio of visits to unique visitors compared to other gaming sites (only Pogo is higher, and by a small margin).
  • Pogo.com is the second most popular game site; Farmville.com is third.
  • Farmville is marketing itself through 7-11.

And now, Google has invested at least $100mm in Zynga, and is preparing to launch “Google Games”. If there’s one company that can bring in more attention than Facebook, it’s Google (for the moment). As TechCrunch points out, that’s not the only benefit: Zynga will also have an opportunity to use Google Checkout instead of Facebook credits. Suddenly, their ultimatum from May got a lot more effective: it’s not a choice between Facebook and nothing, but a choice between two companies that can provide an almost equal amount of traffic.

The likely outcome: Zynga is too valuable a prize for either of them to risk. Zynga will be able to keep negotiating to keep an aggressive cut of the revenue their games generate, and they will be able to keep adding new online and offline partners. And of course, Zynga continues to learn more about user behavior, more quickly than their competitors.

Zynga’s competitive position has completely changed. For potential partners, they are a way to turn a large number of pageviews into 1) revenue, and 2) more pageviews. This makes them part of a tiny minority of web services that can be plugged into a wide variety of sites in order to make them more profitable. And if the other services—Amazon Associates, Google Adsense, and Paypal—are any indication, the result could be extremely profitable for Zynga.

David Kirkpatrick Video Interview – Author of “The Facebook Effect”

We had the opportunity to sit down with David Kirkpatrick, the author of “The Facebook Effect” for a 35 minute interview a few weeks ago.  The book’s subtitle, “The Inside Story of the Company that is Connecting the World,” is about Facebook’ss history and massive global impact. David’s been writing about technology and the Internet since 1991, and the book is much anticipated  around the world.

The interview is about 35 minutes long, and all worth listening to. But if you want to search for a particular topic, below the video is a brief Table of Contents:

David Kirpatrick Interview – Author of “The Facebook Effect” from SecondShares on Vimeo.

Minutes 0 – 3 : David’s background and the impetus for writing the book
Minutes 4 – 10 : Who David talked with including his interaction with Mark Zuckerberg, VCs, competitors and predecessors
Minutes 11- 15 : The book, how Facebook has evolved, how the company will make money and transform the world
Minute 16 : Social gaming and Zynga
Minute 17 : Yuri Milner, the Russian who has spent more money ($500mm) than anyone else on Facebook shares
Minutes 18 – 22 : The privacy issue
Minutes 23-25 : Search, Google and the social graph
Minutes 26-28 : How much is Facebook worth and when will it go public
Minutes 29-31 : Particulars on the book
Minutes 31 -33 : Who bailed to early, who comes off bad in the book
Minutes 34 – 36 : Final thoughts

Demand Media Hires Goldman, Bolsters Board – IPO Coming?

Demand Media has been killing it for four years now. The snapshot from Alexa below show’s ehow.com‘s inexorable rise from Alexa global ranking below 800 to an Alexa ranking of 144 over the last two years.

In the U.S., ehow is the 44th most trafficked site according to Alexa.   Demand has driven this remarkable growth by taking the traditional media concept of “make it and they will come” and turning it on its head, leveraging search data  from the likes of Google and YouTube to understand and then “produce content people demand”.   Understanding what people want is one third of the value equation.  The second part is producing it at a low cost.  Demand accomplishes this through Demand Studios, which counts over 10,000 “qualified” contributors that Demand pays very modest fees ($5, $10, $30 plus potential revenue share) to produce the content.  While some deride this production technique as a content farm (a topic well covered in this recent Time article about Demand where the author says he can make $60/hr) , why argue with success?  In fact, smart people like Tim Armstrong at AOL are trying to copy Demand’s “farming” technique.  The third part of the value chain is the search optimization that lands the content near the top of many long tail search querries (e.g. “how to raise earth day awareness“).

But ehow is just one part of the growing Demand Media empire.  The company had its root in the high margin “direct navigation” business, when they raised their initial round of capital and purchased various domain name portfolios that they monetize with Google search links.  Demand also purchased enom, the second largest domain registrar, after GoDaddy, with over 9.5 million domain names under management in its wholesaling model.  While a low margin business, enom is well positioned to scoop up valuable domain names that are dropped by registrants.    Other Demand Media brands include Lance Armstrong’s LiveStrong.com (U.S. Alexa 722), comedy site Cracked.com (U.S. Alexa 422), and white label social networking platform Pluck.

You have to love the company for so many reasons.  First and foremost is its creativity turning traditional media on its head.  Second, I love companies with a well defined Manifesto that includes tenets like “never rest”.  Third, the CEO, Richard Rosenblatt is a three time winner already.  You can get lucky once, but three successes (iMall acquired by @Home for $565mm, MySpace’s parent Intermix acquired by News Corp. for $649mm, and now Demand) is the mark of a truly remarkable entrepreneur.   And finally, Demand is adding significant heft to its management ranks.

In March, Demand added Yahoo and MSN vet Joanne Bradford as its Chief Revenue Officer.  This week they announced the addition of Peter Guber and Josh James to its Board of Directors.  Guber is an uber Hollywood insider who, in his spare time, teaches a new media class at the UCLA Film School with Rosenblatt.  James is the revered head of web analytic giant Omniture, recently acquired by Adobe for $1.8 billion.

So all this leads to the question of an IPO.  To date, the company has raised over $350 million, the last round at a purported valuation in excess of $1 billion.  The company is rumored to profitable on its $250+ million in run rate revenue.  While the domain business was a large part of the business in the early days, SecondShares estimates that its now less than 40% of the business, and getting smaller everyday.  While the domain name business is not going to garner a very high multiple (see Marchex which trades at about 2X revenue), the content business is on a tear, and Demand shares would surely be in demand in an IPO.  The FT recently reported that Demand had hired Goldman Sachs to explore an IPO.  We’d love to write a research report on the company at SecondShares, but alas, for obvious reasons, management turned down our request for a meeting.  With so much revenue on the table, and so little information about how it falls to the bottom line, we can’t write a credible report without some help from management.   But we like to highlight great companies whenever we find one.