Last month, Yahoo bought Associated Content, a Web publishing startup with thousands of semi-pro freelance writers, for around $100 million.$100 million isn’t much for a company like Yahoo (YHOO), and a big content deal helped Yahoo define itself, so the acquisition seems like a smart move. Here’s the story of how it happened. (Click here for the picture-book version.)
Before there was Yahoo, there was AOL.
Back in August 2009, everybody assumed AOL (AOL) was going to buy Associated Content. And, for a while, everybody was right. AOL began looking at Associated Content almost as soon as Tim Armstrong became AOL CEO in March 2009. The acquisition fit into Tim’s plan to turn AOL into a lean, mean Time Inc. for the 21st Century.
(Also, it didn’t hurt that Tim was an original investor in Associated Content and its former chairman — and that the startup’s CEO, Patrick Keane, had worked for Tim at Google.)
As spring 2009 turned to summer and summer began to end, talks between AOL and Associated Content heated up to the point where people at both companies assumed they would end with a deal. But AOL hadn’t yet spun off from Time Warner, and it still needed to go to the parent company to ask permission to spend as much money as Associated Content would cost.
Time Warner, to everyone’s surprise, said no. It was a Friday afternoon in August when it happened, and a lot of weekends got ruined.This news left Associated Content in a lurch. Founder Luke Beatty, who looks and sounds like Drew Carey’s more athletic younger brother, says he never panicked.
“I was never worried if were going to be able to sell Associated Content. I always knew the company was going to have a successful exit,” he said.
CEO Patrick Keane, a redhead with a boyish face, wasn’t worried either. He remembered how, after he gave a presentation at a conference months before, Yahoo’s top corporate development guy, Greg Mrva had made overtures.
But Associated’s chairman, Softbank partner Mike Perlis, didn’t take the AOL news nearly so calmly.
After AOL’s offer fell apart, Mike Perlis started working the phones. His first call was to an old friend — Yahoo cofounder Jerry Yang. Then he arranged a call between Yahoo EVP Hilary Schneider, the company’s most powerful executive after CEO Carol Bartz, and Associated Content investor and board member Ron Conway.
Ron Conway is a soft-talking, silver-haired, friendly man who also happens to be the world’s most powerful angel investor. Ron can make and break careers and companies. Ron was on the board of tech-magazine Red Herring when Hilary was its CEO back in 2000, and Hilary is said to consider him a mentor. Mike Perlis’s and Ron Conway’s calls worked: Hilary agreed to have a breakfast with Patrick Keane during an Interactive Advertising Bureau (IAB) conference in late September.
On the morning of September 21 or 22, Hilary Schneider, Greg Mrva, and Yahoo media boss Jimmy Pitaro met with Patrick and Mike for breakfast at a hotel just off Times Square in New York. Jimmy showed up late and ordered an orange juice. Hilary ordered “something healthy” – maybe egg whites.
Over breakfast, the five talked about Associated Content’s revenues, the amount of content it was creating, and the number of contributors it had. Says the Yahoo media guy, Jimmy Pitaro: “It was a high-level meeting to get our hands around the business. Kick things off. Get some details that weren’t necessarily public at the time.”
Photo: Crowne Plaza Hotel
It hadn’t just been Mike Perlis’s and Ron Conway’s sweet talking that brought Hilary and her team to the (breakfast) table.In the months leading up to the meeting, Hilary and her direct reports at Yahoo spent hours at staff meetings talking about growing Yahoo’s original content offerings and adding local content to their sites.
Their view was that Yahoo already had premium, national audience-oriented content down. What the company needed was content on “a more niche and more local level,” says Jimmy Pitaro. Associated Content, with its thousands upon thousands of freelancers ready to make content to order, came up – often.
Yahoo needed a champion
By all accounts, the breakfast meeting in New York went well. But afterwards, things got quiet for a month or so.
“They took their time,” says Associated CEO Patrick Keane. “Not in a blowing-us-off kind of way. They just took their time.”
There are two reason Yahoo’s talks with Associated Content slowed during this period.
The first is that in October 2009, Yahoo deal guy Greg Mrva – the one who had chased down Patrick Keane after he spoke a conference months earlier – left the company. He was replaced by a deal whiz from GE named Andrew Siegel.
Maybe Greg was pushed out because he wasn’t getting deals done fast enough. Maybe he’d been planning to quit and he didn’t want to get involved in a deal that he couldn’t see to the end. Maybe Hilary wanted to do the deal after she’d fired Greg. In any event, after Greg left, the deal picked up steam again.
While nobody interviewed for this story had anything particularly bad to say about Greg, everyone was enthusiastic about Andrew Siegel.
“We all really liked Seigel,” says Patrick Keane. “We liked his vision, him as a person, his honesty. He had a good vision for how to cut through the bullshit.”
The other reason the deal slowed is that at a company like Yahoo, acquisitions don’t happen until one of dozens of executives responsible for various businesses within the company steps up and figures out how to integrate the acquired company into his or her team.Yahoo didn’t find that kind of champion for Associated Content until October, when Matthew Idema, the guy who runs Yahoo Local, decided he would do it.
Says Associated Content founder Luke Beatty, “This is Matt’s deal.”
“Somebody at Yahoo had to decide they were going to approve the concept, initiate the process, move it into their business. It’s a ton of work. It’s a ton of work. It’s also a risk. Matt did 95% of all the heavy-lifting.”
Things picked up from there.
Associated Content’s final test
As the year ended, Matt Idema and Yahoo media boss Jimmy Pitaro devised a test to see if Associated Content and its thousands of freelancers could bolster Yahoo’s local content offerings as much as they thought they could.
Starting in the first quarter of 2010, Yahoo secretly began publishing stories written by Associated Content’s freelancers for users coming to Yahoo.com from computers in Detroit and Cleveland. The stories were of local interest, and the positive reaction from users was immediate; they were clicking like crazy.
Matt can remember the specific Associated Content story he was looking at when he realised his deal was going to happen. It was a story about a new building in Cleveland. It was the kind of local story Yahoo’s fulltime writers in San Francisco and New York would never have written and yet, “it was well-written, it got a lot of traffic and a lot of positive comments.”
Many people — journalists, especially — look down on the content produced by freelance platforms like Associated Content and its rivals, Demand Media and AOL’s Seed.com. Their disdain stems from the massive scale of the operations — How can there be quality with so much quantity? — and the fact that these freelance platforms assign some stories based on data gathered by algorithms — how can a robot know what people want to read?The people at Yahoo, media boss Jimmy Pitaro in particular, shared these concerns. So Jimmy put together a team from the Yahoo News group, led by an editor named Sam Silverstein, and had them audit the quality of Associated Content stories during Yahoo’s test.
When Sam came back with positive things to say, Jimmy was sold. Now he’s itching to use Associated Content freelancers to create niche verticals with endemic advertising. (Yahoo Lacrosse, anyone?) He wants his editors to commission stories based on what Yahoo can tell about reader interest from its vast reserves of Yahoo search data. Like a lot of Yahoos, he’s in love.
Associated Content is not dumped at the alter
The Yahoo team decided the test was a success by the end of the first quarter. Matt took the deal to Yahoo CEO Carol Bartz and CFO Tim Morse for sign-off in the beginning of the second quarter. But Patrick and Luke, perhaps wiser after losing the AOL deal so late, didn’t feel like the deal would definitely happen until later.
For Patrick, who had joined the company in 2009, basically with a mission to sell it, the moment of relief didn’t come until he and Luke flew out to Sunnyvale for a meeting with Yahoo executives David Ko, product boss Brian Lamkin (now gone), deal guy Andrew Siegal, front page boss Tapan Bhat (also now gone), and Matt Idema. Getting up from the meeting, going to dinner out in Palo Alto, Patrick finally felt the deal was done.
But Luke, who started Associated Content in his basement in January 2005, didn’t feel it yet. In fact, Luke says he didn’t really believe the deal was actually happening until Tuesday, May 18, when he walked into a conference room in the J.W. Marriot hotel in Cherry Creek, Colorado and saw all his employees reacting to the purple bags slung over their chairs.
“Matt and his team had like bags of Yahoo schwag on every body’s chair,” says Luke, “And everybody looked at me and said, ‘Oh, man. Really?'”
Really. This time.
August 2009: Associated Content investor Ron Conway tells his protegé, Yahoo's Hilary Schneider, she should look at the company
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