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June 23, 2006

Is eBay Overture 2.0?? History repeats itself...

A little known ChannelAdvisor fact is that we are a spinout of Goto.com/Overture (the folks that invented this whole paid-search concept).

It's a well known fact that on July 15, 2003, Yahoo! acquired Overture for $1.2b.

What isn't well known is how the deal went down.  Stay with me as I will bring this back around to eBay.

By late 02, Overture was in a tough situation, Google was starting to cut them out of distribution deals with better economics (e.g. AOL) because of their free google.com traffic.  Overture went to Y! and MSN and pitched them on buying the biz for a premium.  At this point OVER was in the mid-$30's from a stock price perspective - closer to $2b in market cap.  MSN couldn't even get their act together to bid.

Y! basically said - we're interested, but you need us more than we need you and we're not paying a premium.  We'll buy you for more in the mid $20's (1.2b) as thats what makes sense to us.  If you're not interested, let's keep/sweeten our commercial deal. Behind the scenes, i'm sure the Y! guys realized that OVER really didn't have any options and Google was going to pound the heck out of them.

OVER was insulted as you can imagine, and in March of 03 executed on a (bad) strategy of acquiring FAST and altavista so they would have a .com leverage point like google.

This didn't work, the stock plummeted as google continued to take partners and search share away (leaving altavista/fast worth 0 really) and ultimately the Overture management said "no mas" and sold to Y! at the price they wanted.

Flash forward to 2005, eBay finds itself in a tough spot, the search co's (G/Y!/M) are getting between them and the buyers.  As the WSJ has reported, eBay approaches to do deal.  G is on it's own path so here we have Y! and MSN (sound familiar).  This is when eBay's share price was in the mid 40's.

I've heard from several reliable sources, that MSN dropped the ball (sound familiar) and couldn't make a decision to do anything.  Y! said: We're interested, but at $22.  If that's not interesting, let's do a commercial deal.

Of course if you're stocks at $44, you laugh at $22 (give them the finger behind their backs) and then do a commercial deal with the hopes the deal proves the combined entity is worth > $44/share.

Then Y! sits back and patiently waits as you go from $44 to $30.  then $22 isn't great, but it's getting painfully close.  Finally, you head into the seasonally weak Q2, and the buzz is there are some big things coming out that could get that $30 heading south.  Now $22 doesn't seem to far away...

I've heard enough pieces of this and know how Y! operates well enough that I'm pretty certain this is what's going on.  But only time will tell. If eBay ever does get into the low $20's, we'll see some action.


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