At Last fm is bought......opens a Pandora's box of speculation

After months of rumours and a lot of speculation over last few days, Last fm sold today for $280m to CBS.....see here on BBC for confirmation. This is to date the UK's largest "Web 2.0" acquisition. Congratulations to the team !

Timing, as they say, is everything - and this was a good time as the legal environment and competition is getting a lot tougher now. Especially as (in our view) Pandora probably has the better model longer term as it's music genome database gets you up and running far faster from scratch than a pure Social Net play - in our view this is a more useful model when a particular Social Net niche gets very competitive and many 'Nets are competing for attention of new users.

Its quite interesting looking at why CBS did this - they say they are buying great technology and a very vibrant, active community".

To quote the BBC article

"They want to move from a content company to an audience company giving the audiences control and learning from this and that's why Last.fm was their choice,"

That's a telling comment, the move from a content company to an audience company...the old adage that "content is king" is not quite what it once was!

This is clearly driving the behaviours of the traditional Content Kings - and the valuations:

In this case its c 15m users at $280m, ie a valuation of a shade under $19 per user - that's a bit less than the average UK singles buyer spends in a year and a lot less than album buyers.

To compare values, in 2005 News Corp bought MySpace with c 27m* users for $580m (£290m) - about $ 22 per user, last year Google paid $1.65bn (£0.82bn) for video site YouTube with about - about $67 a user (sorry, unique visitor) and earlier this year MySpace bought Photobucket for $250m (£125m) at about $13 a user.

Still a lot cheaper than Flickr and deli.cio.us, which were in the c $80-120 per user bracket - though at their smaller scales - c 300,000 users - arguably the base business assets and larger growth assumptions distort the valuation per user.

So (bearing in mind dangers of measuring "real" users vs unique visitors, etc etc) valuations of SocNets are:

- photo webpage site c $ 13/ user (when you threaten to close it down if you don't get it)
- music site c £ 19 / user
- static webpage site with market dominance c $ 22/user
- video site c $ 70 / user - though there is some argument here that either (i) YouTube had such a huge premium due to its sheer market share / video premium / both or (ii) Google overpaid hugely to make sure others didn't get it (or just overpaid...)

(though they probably all paid far more per user if one takes the regular users only - don't know what % that is, but its usually far lower than the total user figures, so for Last fm say for example more like $90 at say a 20% conversion rate.)

What's also interesting is why players like Yahoo, Google and MySpace feel they need to buy such companies rather than build - could one not actually build a service and recruit users for those prices? Unlikely for Last fm, though we did feel that YouTube was on the build not buy pricing. Partly its because of the timing is everything mantra (too often so the deal is done on "my watch" , but partly because they just can't build 'em.

Yahoo had a photo service but bought Flickr, Google had a video service but bought YouTube. In both cases the uniquely branded stovepipe, one click away from the action, proved to be the better model by far.

So...now that CBS has one, will this start a gold rush for the others?

....opens up a veritable Pandora's box in fact

* put in 70m originally when initially posted....it was a finger poking error and post has been corrected.