A reasonable initial response to the news that The New York Times company purchased About.com for $410 million is shock – after all, that’s a lot of money for a $40 million revenue business that was pretty much left for dead not four years ago. Ten times revenue? 30 times EBITDA? The bubble is back, right?
Well, not exactly. First of all, The Times did not overpay by recent standards – the company was in the bidding for Marketwatch (Dow Jones won), and if I recall correctly that company went for 60 times EBITDA. And currently, most internet companies are trading at well above thirty times EBITDA.
So one could argue that the Times got a deal, but in the end, that’s not the interesting part of the news. What’s interesting is why the Times wanted About in the first place, and the role search – and the long tail – plays in the deal.
In the past few years, About.com has remade itself through paid search – the site was massively optimized to rank well in search engines, Google in particular. The reason was pretty simple – About’s revenue is driven by AdSense, and the more optimized it was, the better the clickthrough. I have seen research reports comparing major search sites to About, and the result is pretty stunning – on average, 10-15% of clicks on search sites are paid. But on About, it’s over 20%. That’s a pretty big difference.
Many point out that much of About’s audience are one time visitors who find the site through search, and that’s true. But informed sources tell me that in fact, that’s true for nearly every well optimized site, and About’s search-derived traffic actually converts to regular readership at a higher rate than even the Times. If that’s true, that’s a good sign for the deal.
The Times saw About as an opportunity to get into the search game, certainly – lord knows news is not a very profitable business when it comes to paid search. But there’s more. About provides the Times a platform to explore microcontent without having to – necessarily – extend the Times’ brand to everything. And as I’ve told anyone who will listen to me, I think microcontent is key to winning in the Web 2.0 publishing world. When publishing folks from mainstream newspapers tell me that blogging is far too small to possibly impact their businesses, I often ask this question: Would you rather have scores of microsites with a combined revenue of $15 million, profits of $3-5 million, and a double digit growth rate, or a newspaper group with revenues of $50 million, profits of $5 million, but declining growth?
The Times actually has a profitable and growing newspaper group, and it’s much bigger than an average publisher, but my point is this: the opportunity in publishing is clearly moving down the tail, and if you want to win, you need to play down the tail as well. About.com allows the Times to do just that. About is based on Six Apart’s MT, for one, so if they want to extend the Times own brand into blogging, they’re already halfway there.
Plus, it’s no secret that the content over at About is rather uneven – some of it is downright awful. On the other hand, some of it is the best in its field. With Martin Nisenholtz* (CEO of NYTD and now SVP at the Times) and the Times at the helm, one can imagine it will only get better, which is a very good thing for advertising revenues, as well as readers.
Not to mention the fact that About allows the Times to offer its own, non-search advertisers more opportunities to play down the tail – Now the Times can sell a national auto advertiser like GM both the main Times site, as well as About’s auto enthusiast sites. Would GM make a small About buy without a Times’ relationship? Possibly, but unlikely.
Also, owning the free About.com may well give the Times some air cover should it decide to cordon off portions of its main site to subscribers – a move that has been speculated upon by many in recent months.
Lastly, About has a large audience base, and the Times (now the 12th site when combined with About) can market to that audience in new ways – including cross selling the Times itself, which still represents the lion’s share of the company’s revenues.
At the end of the day, I think this is a good move for the Times. They’ve cast their lot down the tail and with the search economy. As Martin told me when I pinged him after the deal: “We’re deep into Web 2.0 now.”
And the move is good for those of us who think blogging, and microcontent in general, is a good thing. As Rexblog put it, the Times gave us all comps to work with as we start to think of our own sites as business. By Rex’s calculations, the Times paid $18.64 a visitor and $820K a blog (if you view About’s microsites as blogs). Not bad!
*(Full disclosure – I did a short consulting gig with Martin’s group last Fall, we did not discuss About or corporate M&A.)