InfoSpace Cuts 250 Staff in Restructuring

In late August, we noted and concurred with the comments of Denise Garcia, a WR Hambrecht & Co. analyst who foresaw a bleak future for InfoSpace.

Garcia’s reasoning, that mobile-content intermediaries such as InfoSpace were caught between the rock of content providers and the hard place of search vendors such as Google and Yahoo, seemed essentially sound then and it seems more cogent today.

In fact, InfoSpace announced today that it will undergo a major restructuring. It also will part ways with Ed Belsheim, its chief administrative officer, who will leave the company on January 1, 2007. Belsheim also resigned from the board, effective yesterday.

As part of the restructuring, InfoSpace will cut 250 jobs and incur $13.5 million in pretax third-quarter charges. Before today’s announcement, InfoSpace had 620 employees.

Google’s Acquisition of YouTube Does Not Portend a New Bubble

There has been some idle talk about whether Google’s $1.65-billion stock-for-stock acquisition of YouTube is a harbinger of another bubble market to rival the M&A excesses of the late 90s and at least part of year 2000.

Please allow me to set the record straight be stating unequivocally that we are not about to experience another bubble. That was then, this is now, and much has changed between then and now.

For one thing, the technology market, not to mention most of its denizens, has matured. We’ve moved into an era of greater consolidation, increasing commoditization, and fewer niches for enterprising startup companies to exploit. Many, though by no means all, of the technology industry’s big questions and most daunting problems have been solved and satisfactorily addressed, respectively.

Yes, other successful technology startups will be launched toward greatness and rich exits, just as YouTube met with enormous success on its way to yesterday’s announced acquistion by Google. There will be fewer of them, though, and the losers will vastly outnumber the winners, especially if the beleaguered world of venture capitalism doesn’t adapt to changing market dynamics and evolving business models.

An article in today’s New York Times was poorly headlined by the newspaper’s editors, and perhaps that mislabeled piece engendered some of today’s blather about another bubble. The article actually was a decent investigation of what made the Google acquisition of YouTube come together and why, for all the questions about valuation and content-related copyright, the deal made sense.

At the end of the day, Google’s acquistion of YouTube was pursued  because the former saw how it could leverage the YouTube video portal for an immense new stream of advertising revenue.

It would not have made as much sense for YouTube to be sold to other players, with the potential exception of Yahoo, another company that could have generated plenty of advertising revenue on YouTube’s video clips.

As for Microsoft, I firmly believe it was a wise move for the Redmond powerhouse to steer clear of YouTube. With the possible exception of the Xbox game-console brand, Microsoft’s consumer prospects are waning, and it has begun to see its future more in consolidating various enterprise markets than in batting in the consumer space against the likes of Google, Yahoo, and News Corp.s MySpace-based franchise.

This is not something that most at Microsoft will admit, and many at Microsoft have yet to recognize it, but it is happening nonetheless. Just look at the progress Microsoft is making in the SME market and then look at the struggles it has endured with MSN and Windows Live.

To take this discussion full circle, let me close by reiterating that there were good reasons for Google, a company with an immense war chest, to buy YouTube. It was not a bubble-headed move. One might quibble about the valuation and wonder about the remaining copyright issues that must be addressed, but this deal deserves better than being compared with the hope-and-pray merger mania that afflicted the technology markets back in the late 90s.

Google’s YouTube Acquisition Viewed Favorably by Most Analysts

Although Google’s shares aren’t rising today on yesterday’s news of its deal to acquire YouTube, that doesn’t mean market analysts don’t view the acquisition favorably. For the most part, they do.

A notable point regarding yesterday’s major event was made by William Blair analyst Troy Mastin, who wrote in a report that the deal marks the first time Google bought a company for its traffic rather than for its technology. Mastin noted that “we suspect some observers may view (that) as a mistake and characterize the price tag as unjustified.”

Still, Mastin believes “the acquisition looks much more palatable” if viewed as a means of effectively guaranteeing the acquisition of YouTube’s fast-growing traffic volumes. He also views the acquisition as a defensive gambit that prevents Yahoo or Microsoft from acquiring or cutting deals with YouTube.

Mastin also voiced concern that copyright holders will start filing infringement lawsuits now that YouTube is owned by a “deep-pocketed public corporation,” but, in light of the content-distribution deals YouTube and Google have struck recently, I am increasingly skeptical that such lawsuits will proliferate.

I think Google and the world of creative content — music, television, and movies — are coming to a mutual understanding, one that recognizes the inherently symbiotic nature of their relationship and allows for a reconciliation of business interests. I don’t think we’ll see a replay of the destructive misunderstandings that took place involving file-sharing networks and the recording industry.

The worlds of digital content and digital distribution have learned a lot about each other, and about themselves, since then. The same mistakes will not be made again.