20 for 20: The Top Mergers and Acquisitions of the Past 20 Years
Which came first: the technology idea or the business spark?
It's a question frequently raised in the streaming industry, especially when a brilliant, yet seemingly simple, technology idea surfaces, prompting many industry veterans to ask, “Why didn’t I think of that first?”
We so often hear about these clever or “obvious” technology ideas, however, as part of a product or service launch. The time between the inception of the idea and the public unveiling can often be measured in years, including months after “stealth mode” coding and weeks of technical due diligence, either prior to or coinciding with the patent filings and subsequent business launch.
Sometimes the business is named after the technology; other times it has a completely different but supposedly memorable name: Names ranging from Apple to Google to Yahoo aren’t indicative of the products or services sold, any more than one of our industry’s founding companies, Progressive Networks.
Even though the streaming industry is on the cusp of beginning its third decade, it continues to be an innovative industry. Forget the fact that we’re quickly growing toward global domination of media consumption— from the “replacement” of television channels with live-linear over-the-top (OTT) apps to the billions of video on-demand (VOD) clips watched each day—and focus for a few minutes on the fact that streaming still has plenty of room for unique and compelling ideas to solve complex, real-world problems.
One way to score the success of technologies is to measure the technology’s impact on the industry and overall consumer media consumption. Another measurement, though, is whether a technology’s business entity survives, thrives, or dies.
After all, if the technology is good, the business entity shouldn’t be an impediment to the technology’s adoption, right?
In this year’s Sourcebook, you’ll find two other “20 for 20” lists: technologies and standards. But first let’s look back at some of key mergers and acquisition (M&A) events over the past 20 years.
We asked readers to give feedback on key M&A activity over the last 2 decades, and three consistently rose to the top of readers’ lists: Google’s acquisition of two companies—On2 and YouTube— as well as Broadcast.com’s acquisition by Yahoo. Below is a synopsis of each of these three, followed by several honorable mentions to round out our list.
1. Putting the “You” in Online Dating Videos
Why does it seem that every technology in the broader video industry, but especially in streaming, begins with a business focus on either sex or religion? It turns out one of the major acquisitions in the last 2 decades actually started as a failed dating site.
I’d often wondered why YouTube was so narcissistically named, but the way one of the three founders tells it, the company intentionally registered its domain on Feb. 14, 2005, for a reason.
“Just three guys on Valentine’s Day that had nothing to do,” YouTube co-founder Steve Chen told an audience at SXSW in 2016. Subsequent claims say the site Hot or Not was an influence on the YouTube business model, just like it was for the earliest iteration of Facebook.
“We always thought there was something with video there,” said Chen, “but what would be the actual practical application? We thought dating would be the obvious choice.”
According to the CNET article that quotes Chen, he and the other co-founders—Chad Hurley and Jawed Karim, all of whom had worked together at PayPal before it was acquired by eBay—reconsidered the dating-only approach, opening YouTube up to be more than just introductory “you” videos.
They subsequently uploaded the first video April 23, 2005, a 19-second video of co-founder Karim titled “Me at the Zoo” that had been recorded by Yakov Lapitsky, a high school friend. Within 569 days, the company was acquired by Google for the equivalent of $1.65 billion in Google stock. To put it in perspective, that means every day between April 23, 2005, and the acquisition’s completion date of Nov. 13, 2006, was worth $2,899,824.25 for the investors and shareholders of YouTube.
Karim went on to found Youniversity Ventures (now known as Y Ventures) with investments in Airbnb, Eventbrite, Reddit, Palantir, and Skybox. Hurley stayed on in an active CEO role with YouTube until 2010. He and Chen went on to found a company called AVOS Systems in 2011, focusing on an audio and video operating system for mobile devices, with the name changing to MixBit in 2013.
“It’s a very different time from when we started YouTube, before the iPhone and the cloud were so in play,” said Chen in an interview with Jordan Crook of TechCrunch in 2014, announcing he was leaving AVOS-MixBit to join Google Ventures.
2. Nothing but AudioNet
There are numerous debates in the streaming industry as to who had the “first” stream, and various entrepreneurs, engineers, and even a few inventors lay claim to the title of “first streamer.”
One bit that makes it all the more difficult to accurately plumb the depths of the streaming industry is that the names of many of the early companies have changed over the years. And by that I don’t just mean the companies have been acquired or merged with companies that themselves were acquired or merged with other companies.
At the top of the article, I mentioned Progressive Networks, the company founded by Rob Glaser that was later renamed RealNetworks, and then just Real. Or there was the company Encoding.com founded by Martin Tobias, with whom I had one of the first (and still one of the most bizarre) interviews in my career. Encoding.com was later renamed Loudeye, but the original name was too good to lay dormant, so it was picked up by another entrepreneur for a second run at glory.
One that we don’t hear much about, though, is the company formerly known as AudioNet, itself the result of the restructuring of an initial company from 1989 called Cameron Audio Networks, named after Cameron Christopher Jaeb.
Jaeb had an initial idea about how to allow listeners to keep track of out-of-town games, at first by purchasing shortwave radios and then by using a device that received satellite signals. He met an attorney, Todd Wagner, who then introduced him to Mark Cuban, who had already sold a technology company and was looking for additional investment opportunities.
Legend has it—and industry vets have all heard a variation on this—that Cuban wanted to listen to games from his alma mater, Purdue, while living in Dallas. Cuban invested $10,000 in Cameron Audio Systems, which was renamed AudioNet in September 1995. Yes, that predates the streaming era by about 2 years.
On Oct. 10, 1997, these same three guys registered a domain name—broadcast.com—that was one part verb, one part noun, and many parts legend in the making.
Within a few months, not only had the name been changed from AudioNet to Broadcast.com to take advantage of the crazy internet investment bubble, but it had gone through an initial public offering (IPO) netting Cuban an additional $300 million and Wagner around $170 million, and making Jaeb a multimillionaire from his approximately 10 percent stake in the company. I give up trying to confirm the prices quoted here and below. I was able to confirm Jaeb had a 10 percent stake and Cuban invested $10,000 initially, and some other figures ($5.7 million, $1 billion) but not all.
The news of the IPO sent shockwaves through the nascent streaming industry, not just for the overall $1 billion valuation and 250 percent increase in stock price on opening day, but also for the fact that Jaeb and Cuban had been successful in tying up audio broadcast rights for a large number of college and professional teams at very reasonable prices. It seems the then-novel concept of broadcasting over the internet hadn’t yet made its way into the front offices or the college athletic directors’ fields of view, so initial internet broadcasting rights were sold at fractions of pennies on the dollar versus what was expected for traditional over-the-air radio and television broadcast rights.
Things got even better for Broadcast.com after the initial IPO. Less than a year later, an announcement by Yahoo that it was acquiring the publicly traded Broadcast.com for $5.7 billion in Yahoo stock meant that Cuban’s $300 million was now worth over $1 billion, allowing him to pursue sports team acquisitions and other investments, including the popular Shark Tank television series.
As for the Broadcast.com domain and name, today it points at Yahoo.com, but fails to resolve, perhaps due to the fact that Yahoo was itself acquired by Verizon last year. Will we see the domain revert back to ICANN and be available for the next entrepreneur interested in reshaping internet broadcasting? It’s unlikely, but never say never.
3. Duck, Duck, Golden Goose
One question I’ve always had about The Duck Corporation stems from its name. Founded in 1992, the company didn’t have anything to do with ducks at all, from what I can tell. But its later iteration, On2 Technologies, certainly became the golden goose for investors.
The Duck Corporation made video codecs, including the early TrueMotion and TrueMotion2 codecs that were used to compress animation sequences like those in video games that, at the time, were delivered on multiple CD-ROM discs.
The merger of Applied Capital Funding (ACF) and The Duck Corporation in 1999 followed multiple investment rounds, including one in 1995 and one in 1997. As part of the reverse-merger transaction with ACF, which was already listed on the American Stock Exchange, two new names for the merged entity were used: On2.com and On2 Technologies.
Subsequent public trading activity briefly brought its valuation to above $1 billion, or about $40 per share. In 2000, the company shifted focus from video content production to video compression, and the company started the VPx line of codecs, with VP6, VP7, and VP8 codecs being licensed to a number of media encoder and transcoder companies. The shift was noted in an interview between then-CEO Doug McIntyre and then-editor of StreamingMedia.com, Jose Alvear.
One feat that the VPx series achieved, unlike most of its standards-based codec competitors, was the ability of each subsequent VPx codec to perform better compression at a lower overall computational cost. On average, VP7 used less computational cycles than VP6, meaning that VP7 could be used on a lower-MHz processor than VP6.
The new On2 Technologies held its innovative encoding technologies close to the vest, causing some in the industry to argue that the technology was actually a derivative of other compression technologies already in use across CD-ROM, progressive download, and streaming delivery solutions.
On a somewhat related note, On2 also held its executive decisions close to the vest, even for a publicly traded company. In early 2006, a StreamingMedia.com interview between Doug McIntyre and I, held onsite in Manhattan, was deep-sixed just a few days later when McIntyre abruptly left the company.
Under new leadership, the company released VP8 in late 2008, using a boldly worded press release titled “On2 VP8 Surpasses H.264, VC-1, Real Video in Quality and Performance.”
The launch was not without criticism, from both industry analysts as well as a vocal group of investors who wanted to the world to know that On2’s technology was not constrained by the labyrinthine licensing surrounding H.264 and the licensing agency MPEG-LA.
VP8 never really reach the market, and was even kept out of the hands of key reviewers. At the time, reviewers such as Jan Ozer and I were told that a company was interested in acquiring the technology. That company turned out to be none other than Google, which acquired On2 in mid-2009 to form the basis of the WebM project, which married together the benefits of the Matroska file format with the video compression of VP8.
To address the concerns around whether VPx compression technologies were derivatives of other existing codecs, Google publicly issued statements regarding indemnification. Yet the company never really fully addressed the issue until several years later. In a blog post from March 2013, Google announced that MPEG-LA had licensed all essential VP8 patents for the WebM project.
“We launched the WebM Project in May 2010 with the goal of providing the web with a high-quality, open, royalty-free video codec that anyone can use,” wrote Matt Frost, senior business product manager for the WebM Project at Google, and On2’s former CEO. “Today’s announcement is an important step toward that goal.”
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Companies and Suppliers Mentioned