TechCrunch, a company made up of tech blogs somewhat like this one as well as classified advertising and some events, announced its sale last week to the new-old AOL for a price widely, broadly, and deeply rumored to be $30 million. Nobody will officially confirm this price but I have no reason to believe $30 million is wrong. It is way too high, but it probably isn’t wrong. The better question is why would AOL pay TechCrunch four times what it is actually worth?
I think I know why.
Since I am not known as an equity analyst, you might wonder what makes me believe that TechCrunch is worth only a quarter of the rumored sale price? Well last year, in a moment of personal financial angst, I nearly sold a minority interest in this rag to Mark Cuban. And part of that experience involved valuing my product, which if you squint hard looks kind of like a little TechCrunch. That company was one of my comps. And based on the price Cuban was willing to pay and the relative traffic stats of our two enterprises, I’d say TechCrunch in the current market is worth about $7.5 million.
Getting the other obvious question out of the way: Cuban let the four (4!) contracts we’d negotiated with his legal team sit on his desk unread for two months until I finally walked away in disgust. The guy was trying to buy the Chicago Cubs then, which I understand was a complex (and ultimately unfruitful) venture, but it left me with nothing but a $15,000 legal bill. My only joy in this is, I suppose, that one of the contracts said I couldn’t blog about Cuban and I’m glad not to be bound by that.
Back to TechCrunch, AOL paid so much because they had to. TechCrunch is cool and AOL is not. AOL wanted to be cool so they had to pay more for the honor. And thinking of it that way a convergence number of $30 million actually feels about right.
That explains why TechCrunch would require at least $30 million from AOL, but doesn’t come close to answering the question of why AOL would need $30 million worth of TechCrunch? What is driving this economically-unsound acquisition?
Simple: AOL is making itself into the very media machine it expects Google will eventually want to buy and that media machine would have to include a lot more authoritative technology coverage than AOL currently provides.
Keep this idea in mind. Every move AOL makes from here on is done solely with Google in mind.
AOL CEO Tim Armstrong came from Google and knows that company as well as anyone. I am told he is convinced that Google will eventually have to give up its idea of not paying for content and will buy a big journalistic organization with some of the $30 billion in Google cash that’s lying around Mountain View.
In Armstrong’s view Google could buy Time-Warner, repeating the whole AOL Time-Warner debacle; it could buy Yahoo; or it could buy AOL. No other content providers are big enough to satisfy Google’s expected hunger. I’m told that Armstrong quite rightly sees a stigma on Time-Warner, that Yahoo isn’t a pure enough play and risks anti-trust problems in the search space, while AOL is just right.
All of this is hearsay of course, but it makes sense to me. And if it is true we should then expect AOL to go on a crazy acquisition spree making sub-$100 million buys of online firms in the tech and financial markets that command high ad rates.
I happen to believe that Armstrong is right about Google’s eventual intentions, even if Google doesn’t yet know it themselves. But that belief combined with the fact that I have pretty good idea what I, Cringely is worth in the current market does not mean any transactions are looming here.
We are no longer seeking investors, thanks.