The average value per user for the top 10 Web sites lost 11% this past week as the selloff in Internet shares realigned market caps and investor ardor.
The median value per user hit about $200 while the average was double that. Notably, for the first time in a long while Yahoo user value dropped below $1,000, although it was still a premium to the group.
At the same time valuations softened it makes me wonder a few things: 1) could the parts be worth more than the sum? and 2) we may be on the verge of a digital value creation expansion.
As valuations per unique monthly user drop amid a market correction it’s worth pondering that the top 10 sites, many of them conglomerations of topics and services, may actually be worth more if they were vertically listed.
For example, AOL.com, Microsoft and Yahoo offer prime examples of meta sites with a wide array of content and offerings. Many have similar features: free e-mail, chat, stock quotes, travel, etc.
There’s been some talk of Microsoft spinning out its Internet unit/products/services. On a pure play basis I would estimate that the pro forma division could command a premium to just Microsoft.com.
You’re probably looking at $100 billion in market value in Microsoft’s Internet-ness alone if you tie in every piece woven throughout its software applications, with MSN, with Hotmail, with Expedia, Carpoint, Investor, etc.
Under that scenario an umbrella-like “Microsoft.com” could prove attractive along the lines of few Internet companies today, except AOL and Cisco.
Consider if Microsoft.com gave away Internet access and sold services to that user. Use our ISP, buy a trip ad your access is free.
Some distinction on valuation also relies on interpretation and viewing the correct opportunity vs. the borrowed mindset from other mediums.
The tendency in the past and today across many Web portals is to label topical areas “channels” and play to the TV industry notion. I would posit that the analogy proves weak given that Internet topics are more like “services” than “channels.” Services are where the future of value exists, not channels.
WEBDEX | March | 5-19-99 | 5-27-99 | 5-5-99 | 5-19-99 | Percent |
website user valuation | Users | Market cap or PMV* | Market cap or PMV* | User | User | change |
(millions) | (millions) | (millions) | Value | Value | ||
AOL.com* | 47.0 | $20,000 | $17,500 | $425 | $372 | -12.5% |
Microsoft.com* | 32.0 | $8,750 | $8,200 | $273 | $256 | -6.3% |
Lycos | 31.9 | $5,053 | $4,406 | $158 | $138 | -12.8% |
Yahoo | 31.3 | $31,731 | $28,791 | $1,015 | $921 | -9.3% |
GO Network (SEEK) | 23.8 | $2,875 | $2,603 | $121 | $110 | -9.5% |
GeoCities | 21.3 | $3,447 | $3,106 | $162 | $146 | -9.9% |
Excite | 18.9 | $8,128 | $7,167 | $431 | $380 | -11.8% |
Time Warner web sites | 13.3 | $1,750 | $1,750 | $132 | $132 | 0.0% |
Blue Mtn Arts | 11.1 | $700 | $625 | $63 | $56 | -10.7% |
Amazon.com | 10.7 | $22,483 | $19,539 | $2,094 | $1,820 | -13.1% |
TOTAL | 241.2 | 104,917 | 93,687 | 4,875 | 4,331 | -11.2% |
AVERAGE | 24.1 | 10,492 | 9,369 | 488 | 433 | -11.2% |
MEDIAN | 22.5 | 6,591 | 5,787 | 218 | 201 | -7.6% |
pmv=private market valuation; user count from media metrix; valuations by Steve Harmon. (c) internet.com
As services, you begin to wonder what possibilities exist if that particular service had an independent mission, could maximize its revenue model as a service rather than a “channel.” Channels are about selling ads and keywords. Services are about selling services, a much more powerful revenue model.
Granted, Yahoo and AOL have generated tremendous advertising revenue and are part of the Web’s largest revenue-producing segments.
But if we use AOL as example, what kind of revenue is possible if AOL was not only your online service but your travel agent? Your long-distance company? Your cable company?
The technology is there, the opportunity is there, it’s old-fashioned thinking that has drawn lines between these “services.” A copper wire or wireless network is completely agnostic to the data on it.
I believe Paul Allen gets this concept quite clearly. One reason he just acquired cable company Falcon, on the heels of acquiring a significant stake in Web portal Go2Net (NASDAQ:GNET). Not to mention dozens of others.
In essence then, I think valuations are in for a revisit as the intrinsic nature of digital companies starts to migrate into meta brands unlike anything we’ve ever seen before. Meta brands that redraw the economics of every industry.
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