Filed under: Internet, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), eBay (EBAY)
Question: what does every e-commerce site need to enable it to sell more merchandise?
If you answered more giant Whoopi Goldberg ads, you’re only half right.
What every Google (NASDAQ: GOOG), Yahoo! (NASDAQ: YHOO), Microsoft (NASDAQ: MSFT) and Ebay (NASDAQ: EBAY) needs is better metrics. Why?
Search engine marketing (or SEM) is about paying for traffic. By bidding on keywords, advertisers with Google or its competitors are paying to bring people to their websites. Once there, a website needs to convert traffic into sales. Not an easy thing to do and clearly, some traffic is more valuable than other traffic. The better Google gets at valuating the traffic and providing these metrics to their advertisers, the more profitable everyone becomes. Google makes more money because it optimizes the bidding on keywords by really valuating a click. Advertisers win because they have the tools to bid on the most profitable traffic. For an unbelievable treatise on why analytics are so important, check out Dave McClure’s great work on the industry and why investors should take note (Warning: Dave uses some strong language).
Google has a whole stable of analytics it provides its users. Ebay has tools for sellers to make them better at selling.
There has been some activity in the space recently. The leader in the burgeoning metrics industry, Omniture (NASDAQ: OMTR), which went public in late June 2006, recently announced it was purchasing its largest publicly-traded competitor, Visual Sciences (NASDAQ: VSCN).
What makes this M&A interesting is the merger of the #1 and #2 independent metrics companies. With the consolidation, the industry should see some increased pricing stabilization and the combined entity should have increased scale to, as ThinkEquity analysts put it, “…out market, out innovate, and out support competitors, all while expanding profitability.” To this end, it’s interesting that the take-out price of VSCN is tied to OMTR — a recognition that the combined company is positioned to capture synergies going forward.
This is an industry that should capture investor interest, as it’s the enabler of ecommerce optimization. Omniture’s acquisition of Visual Sciences was priced at a 3.4 Enterprise Value/Revenue, a relative value in the internet space. Omniture picks up some next-generation technology, a strong customer base, and a leadership at the top of its game.
Zack Miller is the lead equity analyst for America Israel Investment Associates, LLC., the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund. Disclosure: Author holds Google personally and hopes it will pay for his kids’ college educations.
Entries (RSS)