Wednesday, October 19, 2005

VeriSign Validate White Label Model

Jamster's model continues to take hard hits. On the VeriSign conference today, they mentioned that they had to settle a royalty dispute by paying back 7 million dollars to record labels and now appears to have two gigantic millstone-like expenses around it's neck. First, declining margins, because going forward, they will have to pay record labels more revenue. Secondly, they have to pay tremendous amount of money on advertising to distinguish themselves from the competition that has bubbled forth because of the success of Jamba in Europe. More importantly for InfoSpace fans, VeriSign expressed an interest to get into white-label services.

This would seem to validate InfoSpace's business model, who are the 800-pound gorilla in white label mobile content and search services. InfoSpace provides more than 90% of Cingular Sound ringtones. And Cingular has not been shy about advertising this business which is a win-win for InfoSpace. I remember on a conference call earlier this year Jim Voelker the InfoSpace ceo said that he questioned the sustainability of Jamba-like profit margins. He mentioned that ringtones started out as a very high margin business, when competition was scarce and music labels weren't demanding royalties on mono and poly tones. But once revenues came forth the business model has changed and VeriSign as well as InfoSpace have felt the impact, but by far InfoSpace has the superior model for mobile content.

The 100 million dollar question will be if InfoSpace will spend the dollars to extend it's lead in the white label business by continuing to innovate. Stay tuned.

Monday, October 10, 2005

Will VeriSign Buy InfoSpace?

Today VeriSign sold it's online payment business to Ebay for 370 million. In exchange for this, Ebay, will be partnering with VeriSign for it's internet secuirity services to get Ebay more in the enterprise market. They have also agreed to buy 1 million authentication tokens from VeriSign and will be given to Ebay customers worldwide.

Implications for InfoSpace

If you can remember InfoSpace had once owned the second largest secured payment business ( behind VeriSign last year in April to concentrate on their high growth businesses in Internet Search and Mobile. Interestingly enough, VeriSign has been mirroring the moves of InfoSpace.

Oct 2003-InfoSpace buys Moviso the biggest private label ringtone provider in the world.

May 2004- VeriSign buys Jamba the largest retail provider of ringtones in the world.

April 2004- InfoSpace sells it's slowest growing business in online payments company

October 2005- VeriSign sells it's secure online payment business to Ebay.

Striking simaliarities would you say? Verisign now has 1 billion dollars in cash right now. InfoSpace is valued at only 731 million at the present because of a temporary slowdown in ringtone revenues that wasn't anticipated by the street. Like VeriSign, they too have a nice cash position of 400 million. So Verisign could offer to pay a hefty premium for InfoSpace and buy into the relationships it has with the carriers Cingular, Verizon, and Sprint, which InfoSpace builds their portal.

This could be a very lucrative deal for Verisign to take lead in mobile content distritbution on the carriers deck as well as their website. But will it happen? Stay tuned.

Sunday, October 09, 2005

Greedy Bankers View Insp As Next Victim

There seems to be increasing pressure from the financial institutions for InfoSpace to be swallowed whole. This exemplifies the power that analyst and bankers have. It seemed like every month some analyst was coming out with new coverage on InfoSpace downgrading it, or putting out negative press about it's declining ringtone business. But the stock was already down big and priced in the stock but that didn't stop somebody coming out of the woodwork to say it again. Now it makes perfect sense to me. Financial institutions appear to put pressure on companies to give them a clear picture on growth prospects so it can recommend it's clients to buy. If this is not done, analyst come out in the attempt of bringing down the value of the stock, hoping for one of two things to happen.


Financial institutions make alot of money in fees when companies acquire other companies. When InfoSpace was swallowing up company after company in the Jain days, institutions sung the praises of InfoSpace, recommending it and watching the stock price climb to give it the strength to buy more companies so it can collect on the acquisition fees on the back in. Well if you haven't noticed, InfoSpace is flushed with over 400 million in cash. If they went buying things up like Jamdat, you would have alot of bankers in the Space's corner but they have decided to sit on the cash at the moment waiting for the right opportunities. In the meantime, brokerages continued to hammer them with downgrades, giving way to reason number 2.

Law Number 2: BUY OR BE BOUGHT

If InfoSpace will not cooperate and make acquisitions, brokerage firms are
destined to downgrade it enough to make it an attractive acquisition for it's large media clientS considering the healthy rebate of cash that it has.

InfoSpace has refused to play this game with brokerages but know appear to be launching a new local application to it's carrier partners giving it new hopes of another compelling revenue stream to boost it's year over year growth and propel it's stock price. It's also promising that the company has hired a big media guy to be mobile media president with rumors of another big hire this week. InfoSpace appears to have a few tricks up it's sleeve yet. The coming weeks should be interesting. Stay tuned.

Saturday, October 01, 2005

Silly Rabbit, Music Was Made for Itunes!!

If you have been around for awhile, you will remember the Twix Rabbit who was always trying to plot against kids to get access to their fruity Twix cereal. Always to be foiled by the kids at the end of commericials, which would exclaim: "silly rabbit, tricks are made for kids!!"

In the mobile world, companies have been much like this rabbit. Seduced by the taste of sweet music revenues. In fact, Openwave has just spent a bundle on a company called Musiwave (to the tune of 121 million) in the hopes of tapping into this market. But is it too late?

Imagine this: You want to built an operating system around music. You want to make it where people will only buy digital music from your store and no one else, although there is countless cut throat competition out there, including Napster, Real Networks, Aol, Yahoo and even Microsoft? Impossible right? Wrong. Not done though.

You are not happy with 25? 50? or even 70% market share. You want over 80%!! Then be able to license this operating system to mobile phone makers like Motorola but only teasing them with it's potential by limiting access to only 100 songs leaving thousands trapped inside the operating system. Which naturally gives you the ability to design your own phone down the road that can unlock the true potential of this wonderful operation system!!

This is what Apple has done with it's creation of the Ipod. Just as the rich man is willing to give up his freedom to marry youth, beauty, and form factor, consumers were willing to give up there digital music buying rights in exchange for their love affair for the Ipod and Itunes.

This is why I believe it would be difficult for companies to make alot of money on songs being downloaded off carrier networks when Apple already has relationships with consumers who are used to just transferring there music from computer to mobile device. And why Apple has the advantage if they were to come up with a real Apple mobile phone. Silly rabbit, music is made for Itunes!!

Thursday, August 11, 2005

Jmdt VS Insp

Why have the markets turned so badly on Jamdat? Well, last quarter they bought a mobile gaming company called Blue Lava Wireless who had a great selling game in Tetris. Tetris was a valuable property because Blue Lava had licensing rights to the Mobile version of Tetris for the next 15 years, with exclusive rights all over the world opening up to them. But the price was an insane 137 million, what a ripoff!! Jamdat knew that in this market you have to move rather quickly and the move seemed to pay off short term with the stock more than doubling in the past year. Their success seem to be effecting the attitude of InfoSpace employees who has seen many ececs leave for mobile content startups in hopes of cashing in quickly like the folks at Jamdat.

Jamdat's earnings came out tonite with some disturbing numbers. You see at the close of business Jamdat market cap is in the same ball park as InfoSpace's 750 million.
But Jamdat's revenue for the quarter was a palty 19.3 million compared to InfoSpace's 84 million. With small numbers like that, to deserve such a hefty valuation you would have to continue to grow like a weed sequencially. Well, Jamdat's guidance for the third quarter was a killer, it only projected revenues of 20 million which means less than 1% sequencial growth quarter over quarter. Guess what that did to the stock price after-hours? Try a 21% haircut in valuation. They only have 21 million in the bank so if they are going to acquire another major asset they will have to raise cash which means major share dilution which they have had plenty of this past year.

This highlights why I feel Jim Voelker was smart in saving the cash that InfoSpace has accrued and buying back it's stock. As growth slows mobile content companies will be forced to consolidate to survive and the folks with the most cash will has the upper hand. InfoSpace has already survived one tech crash and was able to acquire valuable assets like, Excite search box rights, and sold off many businesses like to maintain a reasonable amount of cash to play with.

Hopefully wall street will reward InfoSpace for making astute decisions in the new emerging markets that it is in. Analyst should stop paying premiums for revenue growth that is not sustainable but for savvy management who will be looking for great opportunities for long term success rather than expensive quarter over quarter gimmicks. Things appear to be leaning in InfoSpace's favor. With looking at how fast the markets can turn on you employees will definitely think twice about leaving for a startup. Will Jamdat recover? Stay tuned.

Friday, July 29, 2005

InfoSpace Setback

t has taken me sometime to gather my thoughts after the horror of listening to the CC and hearing JV say we would not be able to make yearly guidance and slash revenue projections by more than 55 million dollars!

As a result for the short term, investors have sold off the stock by more than 30%. Unbelievable. When InfoSpace warned last quarter that the second quarter would be light because of seasonality and was punished 28% wasn't the street already discounting that InfoSpace wouldn't make yearly estimates? Then, when Verisign warned last week that the third quarter revenues would come in light and InfoSpace was discounted another 10%. You would think that this was factored in the stock price but no, it tanked another 30%, that's ridiculous!!

Investors are valuing InfoSpace as just a niche search and commodity ringtone play with no future. It appears InfoSpace management is happy with buying cheap shares of the company now, keeping tight lipped about future plans in new products, and make a run for growth in the fourth quarter of 2005 and first quarter of 2006.

Certainly investors like me are agonizing over the short term, but with the amount of cash InfoSpace has on hand (407 million) they certainly have the assets to acquire the skillsets, and attract the type of visionary leadership to experience several more growth cycles, but it will be a painful road ahead for investors to say the least.

Thursday, July 21, 2005

InfoSpace A Trusted Partner?

VeriSign is suppose to be the company you trust. You know the motto, trust and work with VeriSign with your communication, commerce, and content needs. Isn't it ironic that there biggest growth driver until yesterday, was Jamster, notoriously known for unethical business practices banking on the impulse buy and people not reading the fine print of all the extra surcharges and subscriptions fees?

Then there is InfoSpace, which once was referred by Henry Blodget as "junk", who after ousting it's free wheeling founder and CEO Naveen Jain was left with a tarnished reputation with wall street and was left to die, a penny stock. Enter Jim Voelker, a straight shooting conservative. He seemed to be able to sell the right businesses, keep the ones with value like metasearch and make some fabolous deals. In no time it's reputation started to turn to one of trust. So much so that InfoSpace provides more than 90% of it's ringtones on the Cingular portal and wap decks.

The acquisition of Moviso seemed to be the critical driver in getting InfoSpace on track. At the time of purchase Moviso had more than 70% market share in the ringtone business of North America. So this company had serious prospects ahead of them. At the time they were owned by NBC Universal. Let's examine the magnitude of this deal.
NBC Universal knew it was imperative for them to get digital revenues from their artists which include: 50cent, Eminem, Jay-Z, or just the biggest selling artists today.

They didn't go to VeriSign, the supposed trust company, or Yahoo the company with the biggest online reach, but to little ole' InfoSpace. That showed you right there that InfoSpace had juice. Insp bought Moviso for 25 million. What is there ROI thus far? Well just last quarter alone mobile revenues came in at 39 million dollars!! And that was just InfoSpace's cut, imagine what the record labels and carriers pocketed!! It's no doubt that InfoSpace took the industry to the next level in North America.

Will trust services go away? Well imagine this, you are the record labels and your artists ringtones are on the Cingular networks. How would you be able to track the amount of downloads that Cingular actually downloaded? Or if your Cingular and your working with a off portal site, you are hit with a hefty bill with the site claiming that their artists sold 3 million ringtones and to pay up. Buy your numbers and theirs don't add up? That's why you need a trusted third party partner that both companies can respect to provide billing to make sure all get paid.

InfoSpace has been knocked by not creating their own mobile content, but it appears that they are becoming a trust services partner in the mobile content business which may prove to be way more valuable then pimping the crazy frog!! Stay tuned for earnings July 27th!!