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America Online to Buy Internet Chat Service for $287 Million (1998)

nytimes.com

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Re: America Online to Buy Internet Chat Service for $287 Million (1998)

#101

Post by mattmanser »

ama729 wrote: post #20
majormajor wrote: post #6

Earlier quoted context omitted.

Well, 300M for 12M users, which is a lot fewer than the services that get bought for big numbers today. But magnitude of the money aside, has an online messaging service ever been able to really turn a huge profit? chongli points out that AOL eventually sold ICQ for less than they paid, and I can't think of any others off the top of my head (AIM didn't prevent AOL from being overtaken by Facebook, say). They seem to…

Apparently it wasn't a bad according to wiki (but the source is in German, so I can't confirm if it's true): > Orey Gilliam,[6] who also assumed the responsibility for all of AOL's messaging business in 2007, ICQ resumed its growth and turned into a highly profitable company, and one of AOL's most successful businesses. https://en.wikipedia.org/wiki/ICQ#History

If I make $10,000 a year yet spend only $1,000, I'd be highly profitable too.

Not worth a lot though, as the subsequent sales showed just how much money they'd lost.

Re: America Online to Buy Internet Chat Service for $287 Million (1998)

#102

Post by nl »

keypusher wrote: post #92
andreyf wrote: post #83

Earlier quoted context omitted.

Even if user numbers were comparable, the number of users for WhatsApp is still curving upwards: http://cdn-static.zdnet.com/i/r/story/70/00/026526/screen-sh... I would also argue that being installed and used on mobile devices is more valuable than being installed on a desktop is.

They already have 400 million users, and their growth might continue. But there are only 7 billion people on earth, they are running out of room to prove that valuation. Even if they literally sign up every single person on earth, that's still more than a few dollars per person in revenue required to make the $20 billion valuation worthwhile.

Google earned about $12B on revenue of ~$60B in the 2013 financial year, and trades at $404B.

That's 33 times earnings, and Google isn't growing at 70% a year.

400 million users * $1/year = $400m/year, but WhatsApp's expenses look pretty low. Say earnings of 200m/year

$200m * 33 = ~$6B.

That 70% growth rate makes all the difference.

Re: America Online to Buy Internet Chat Service for $287 Million (1998)

#104

Post by swombat »

efuquen wrote: post #69

Someone mentioned about trying to find out if their have ever been any other chat services that have really made a lot of money on it's own, and it sparked memory of an acquisition that didn't happen quite that long ago, Microsoft buying Skype in 2011, and here is a good recent article about it: http://www.theguardian.com/technology/2013/aug/30/skype-micr... The bullet point that stands out for me is this: • Problems…

Big difference: Skype had many more than the handful of employees needed to run WhatsApp. Their cost base was hundreds of millions.

WhatsApp seems to run lean and mean, and that makes a big difference in terms of keeping it profitable.

Re: America Online to Buy Internet Chat Service for $287 Million (1998)

#105

Post by justincormack »

jgreen10 wrote: post #72
efuquen wrote: post #69

Someone mentioned about trying to find out if their have ever been any other chat services that have really made a lot of money on it's own, and it sparked memory of an acquisition that didn't happen quite that long ago, Microsoft buying Skype in 2011, and here is a good recent article about it: http://www.theguardian.com/technology/2013/aug/30/skype-micr... The bullet point that stands out for me is this: • Problems…

It seems these types of transactions have nothing to do with potentials profits, but with power over users, or "lying on a bed of weeds and ripping them out before they strangle you".

And with not paying tax - Microsoft has all this money sitting in Europe that it has to pay tax on if it returns to shareholders, or it can waste it on buying companies instead.

Re: America Online to Buy Internet Chat Service for $287 Million (1998)

#106

Post by gingerlime »

alaskamiller wrote: post #15
slg wrote: post #7

I assume the motivation for pulling this out of the archive is the WhatsApp purchase. However, I don't think this comparison is truly fair. Not only is WhatsApp monthly adding over twice the userbase ICQ had at the time of purchase, but it is also actually collecting revenue from them. WhatsApp is a real company with real monetization strategies.

To contextualize requires relativity. ICQ in 1999 had about 45 million users. There were only 248 million internet users back in 1999. That's 18% of mostly international users. AOL was optimistic. So much so this is the actual response when they beat the street during their earning reports. "(ICQ is) growing like a weed," said AOL President Bob Pittman. "Monetizing it" will be "relatively easy," he added. WhatsApp ha…

ICQ was revolutionary at the time. Both in terms of early-game instant messaging, and the deal these guys struck with AOL. I remember everybody talking about it in Israel at the time. (iirc) Four founders in their early twenties each making around $40mil was quite a shock.

Even though it's a bit sad to see things didn't really evolve much since then, the bubble bursted a little later, and those kind of eyeballs-based "business-models" collapsed. I wonder if these kind of deals are the canary of another bubble bursting?

136093

Re: America Online to Buy Internet Chat Service for $287 Million (1998)

#107

Post by aleem »

efuquen wrote: post #69

Someone mentioned about trying to find out if their have ever been any other chat services that have really made a lot of money on it's own, and it sparked memory of an acquisition that didn't happen quite that long ago, Microsoft buying Skype in 2011, and here is a good recent article about it: http://www.theguardian.com/technology/2013/aug/30/skype-micr... The bullet point that stands out for me is this: • Problems…

WhatsApp is much better than Skype as an acquisition.

1. It's a single-purpose, specialised application which makes it hard to compete against. Once you can't subtract anymore from a software you are left with the essence of it. If you build that rock-solid you can eliminate any competitive threat on the product front. Kind of like unix utilities.

2. On the network front they played smartly by going after your phone book which makes them network agnostic (Skype, FB, Google, iMessage, BBM are all stuck within their own walls). At this point WhatsApp can just sit back and let network-effects do the work (they have spent 0 on marketing to date).

Between 1 & 2, competing with WhatsApp is hard and they are resilient to disruption. That's a great relief for any tech acquisition.

Another thing I like about WhatsApp is that they didn't do a whole lot other than fixing SMS. They did this by adding group messaging and reducing costs. And for now at least, I don't get any marketing spam on WhatsApp like I do over SMS.

Skype's shelf life was always questionable to me. It was and will remain relatively easier to disrupt.

Re: America Online to Buy Internet Chat Service for $287 Million (1998)

#108

Post by PakG1 »

aleem wrote: post #107
efuquen wrote: post #69

Someone mentioned about trying to find out if their have ever been any other chat services that have really made a lot of money on it's own, and it sparked memory of an acquisition that didn't happen quite that long ago, Microsoft buying Skype in 2011, and here is a good recent article about it: http://www.theguardian.com/technology/2013/aug/30/skype-micr... The bullet point that stands out for me is this: • Problems…

WhatsApp is much better than Skype as an acquisition. 1. It's a single-purpose, specialised application which makes it hard to compete against. Once you can't subtract anymore from a software you are left with the essence of it. If you build that rock-solid you can eliminate any competitive threat on the product front. Kind of like unix utilities. 2. On the network front they played smartly by going after your phone…

Fixing SMS is the interesting thing. GroupMe was bought by Skype for many millions, and the key thing about GroupMe was supposedly fixing SMS. But I have no idea what happened to GroupMe after that acquisition. Like many startups, perhaps acquisition was death for them, although it seemed to me that would make little sense for Skype's motivations. I don't think they would have been simply looking for talent the way acquihires usually do.

Re: America Online to Buy Internet Chat Service for $287 Million (1998)

#109

Post by notahacker »

nl wrote: post #102
keypusher wrote: post #92

Earlier quoted context omitted.

They already have 400 million users, and their growth might continue. But there are only 7 billion people on earth, they are running out of room to prove that valuation. Even if they literally sign up every single person on earth, that's still more than a few dollars per person in revenue required to make the $20 billion valuation worthwhile.

Google earned about $12B on revenue of ~$60B in the 2013 financial year, and trades at $404B. That's 33 times earnings, and Google isn't growing at 70% a year. 400 million users * $1/year = $400m/year, but WhatsApp's expenses look pretty low. Say earnings of 200m/year $200m * 33 = ~$6B. That 70% growth rate makes all the difference.

On the other hand, Google is investing massively in "next big thing" r&d, and even if all its efforts to create new markets fail, it's likely to still be a major player in adtech in 33 years time.

WhatsApp has staggering growth on the basis you don't have to pay for it and its founders are hostile towards advertising, neither of which lend you towards thinking it'll ever reach the 33x P/E ratio (actual P/E ratio >800) still less be significant in 33 years time.

Re: America Online to Buy Internet Chat Service for $287 Million (1998)

#110

Post by 001sky »

swombat wrote: post #104
efuquen wrote: post #69

Someone mentioned about trying to find out if their have ever been any other chat services that have really made a lot of money on it's own, and it sparked memory of an acquisition that didn't happen quite that long ago, Microsoft buying Skype in 2011, and here is a good recent article about it: http://www.theguardian.com/technology/2013/aug/30/skype-micr... The bullet point that stands out for me is this: • Problems…

Big difference: Skype had many more than the handful of employees needed to run WhatsApp. Their cost base was hundreds of millions. WhatsApp seems to run lean and mean, and that makes a big difference in terms of keeping it profitable.

This is slightly misleading in that a business with no revenues doesn/t have that much work to do.
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