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| Last Updated: Sep 25th, 2005 - 21:20:24 |
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As you may recall from their last acquisition,, Marchex is making a costly run at buying up URLs that have strong traffic to them... mostly from Web users who mistakenly assume they know where they're going when typing URLs into browsers. In steps Marchex, ka-ching!
Rollin' Rollin' Rollin'
Clearly, this company is hell bent on gobbling up all the "owner expired" and/or heavily-trafficked-for-some-reason URLs out there and rolling them into a large (risky?) business play. Now we hear that Marchex acquired assets from Pike Street Industries, Inc., an online yellow pages company owning Yellow.com and Whitepages.net. Pike Street claims they've manged to achieve 2 million unique visitors per month to these URLs. In turn, they've been good enough to sell traffic (people seeking phone numbers and Yellow Pages on the Web) to the regional bell operating company (RBOC) partners; I'm assuming on a click basis.
Deal Terms
Pike Street gets $16.5 million in cash and stock ($12.5 million in cash and $4 million in stock). Oh... and $3.5 million in restricted common stock granted to the founders of Pike Street, who will join Marchex. They have to stick it out, though, vesting over three years.
Marchex vs. Mega-Networks
Says Peter Christothoulou, Marchex chief strategy officer, "The asset acquisition of Pike Street represents continued progress toward our goals of driving qualified leads to merchants and enabling local merchant transactions."
Say that again? That's a goal which would pit Marchex up against... well, just about everyone from AvenueA to ValueClick and everyone in between. The Marchex portfolio is increasingly leveraged into networks of inbound links that continue to funnel traffic to URLs, even if ownership has changed. In the short term, this seems remarkably profitable and smart but what about the long term? Where does growth come from?
Perhaps Marchex will rely on its other divisions such as search technology, search management, data feed management and search optimization services. Yet in each of these areas Marchex faces increasingly stiff competition and with behavioral advertising poising to take off (i.e. early successes from Revenue Science, ContextWeb et al) its core offering may struggle to earn share of advertisers' wallets. Consider, also, what some say about the increasingly diluted value of search agencies in general.
Popular Play
This is becoming a popular tactic used by experienced executives... like those at Think Partnership who are executing the same roll-up play in the "tier two" online dating, search services and, lately, affiliate marketing companies. Again this is remarkably profitable in the short term but like any strategy that involves growth by acquisition investors need to consider a variety of risk factors.
Jeff Molander is CEO of Molander & Associates Inc., a publisher of knowledge products aimed at assisting e-commerce managers, entrepreneurial and investment focused decision-makers. A prominent blogger, his analysis and recommendations serve to build business cases for investment in a variety of online performance marketing and advertising strategies.
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