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Is there room for a Web Roll Up?

In an entry a couple of days ago I made an off hand remark that because of the low cost of page production, a web roll up might not work. When I use the term roll up, I'm referring to the process where an investor buys a series of unrelated companies and capitalizes on the synergies and cost savings that occur by virtue of a single owner.

When I practiced law, I represented several companies who did this. One company rolled up a bunch of radio stations. Another did a roll up of technical schools (a/k/a devry university, and it's ilk). Why do they do this? Well, they figured on the cost side of the balance sheet, just by virtue of having the many companies run out of a single back office, there were cost savings to be had. Also, the sum of the revenue from the various parts places the company in a better financial position, and therefore can get more favorable credit terms, better leveraged buying terms, etc.

On the revenue side of the balance sheet, capitalizing on synergies in sales and marketing efforts, not too mention brand growth, make it an attractive option. So could this be done on the web? Some folks are trying it.

The point of my last post was that unless you are an exceptionally large site (and i mean exceptionally), the cost of publishing is pretty cheap. So where are the cost savings to be had? While likely you could position a single ownership to get better credit terms, I'm not sure there would be real savings otherwise. The closest company I can think of to having a Web Roll up in practice is IAC. From what I know, each of their portfolio companies runs its own back-end/ cost centers. Same with most newspaper companies and their various properties. If there were significant savings to be had, wouldn't those be ideal candidates to implement them?

What about the revenue side? Well, on the web, traffic = revenue, so utilizing properties to cross purpose traffic seems like something a roll up would want to do. But, again, looking at IAC and the newspapers I see very little happening there. Granted there might be little synergy in the users of match.com and lendingtree (two IAC properties), but they do own a search engine. Wouldn't that be an ideal mechanism through which they could cross purpose traffic?

Also, selling ads is a tough business. The world seems to be divided between premium ads (usually sold by the individual properties) and remnant inventory (usually taken care of by a network). The former get premium CPM's, the latter, well, not so much. So, if you wanted synergy on the sales cycle, what you really want is to create a "mini-network" comprised of your own individual properties where you can place premium ads. But selling premium for a single site (with individual demo's) is a tough sell on its own. Can this be done over a mini-network? If not, aren't you better off just creating another remnant network and cranking of page views across a bigger network?

Anyway, there's probably a lot of folks smarter than me who can figure out how to squeeze nickels out of a web-roll up. Right now, I can't see it happening.

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Comments (2)

Dave:

Has anyone seen Loomis?

Ben:

Markson

A bunch of people are looking at this on a large scale, but it seems to me there is an opportunity on a small scale. Part of the reason is pure financial engineering. There are a number of sits out there pulling about 750K to $2M of EBITDA on minor revenue but don't have massive growth prospects. The owner entreprenuers, it seems, have a problem from a tax perspective and being locked into current income versus liquidating the assets. A rollout that buys these guys out can turn income into capital gains and pool all this EBITDA together in a way that it could easily carry debt to pay the acquisition cost and manage the taxes...

So for the same reason some other profitable cottage industries were effective to be rolled up, it might work here...

Now, I don't know if it will---if I had thought it all the way through I would not be blogging about it buy exectuting the plan...

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This page contains a single entry from the blog posted on October 18, 2007 4:43 PM.

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