BoomTown » Money

Sale of iLike to MySpace–$13.5 Million in Cash, $6 Million for Talent Retention–Delayed Over Tax Issues (Really!)…Plus, the List of Other Suitors!

Kara Swisher — Tue, 18 Aug 2009 06:25:06 +0000

The board of iLike planned a meeting earlier tonight to go over a buyout offer by MySpace, several sources close to the situation said. But it was suddenly canceled because of some thorny tax implications related to the talent-retention part of the deal to purchase the social music start-up.

This does not mean the pending acquisition is in jeopardy, sources said, and it could be on track to be signed as early as today, barring any more complications.

That is what both iLike and MySpace execs are hoping, said sources, one of whom described the outstanding issues as a “technicality.”

What’s also been unclear is the actual price the social networking giant is paying for iLike, which has been reported as about $20 million.

In fact, only $13.5 million will be paid upfront in cash, with about $8 million of that money likely going to one of its major shareholders, Ticketmaster Entertainment (TKTM), due to its preferred shares.

Another $6 million has been promised by MySpace in forward payments to retain some key employees–including iLike co-founders and twin brothers Ali and Hadi Partovi.

Although those employees can remain in Seattle, where iLike has its HQ, they must stay employed at Beverly Hills, Calif.-based MySpace for two and a half years to get their money.

It’s that talent part of the deal that caused the Partovis to cancel the iLike board meeting, which they explained to key investors was necessary due to some confusion over how the money paid to these employees would be taxed.

A person briefed on the issue said that if it was taxed as compensation, it would have a much higher tax rate than if it were considered long-term capital gains.

The Partovis said in the email that they were working on the problem with their advisers on the sale, Allen & Co., as well as with lawyers and accountants.

Tax snafus in the middle of a sale are not exactly the way the entrepreneurial Partovis envisioned it was going to go for iLike (see my various video interview related to iLike below) when they created the compelling music sharing and recommendation service in 2006.

After only a few years, the innovative start-up claims it has 50 million registered users overall.

A lot of that growth was due to iLike quickly becoming one of the most popular widgets on social networking sites like Facebook, where it has also been the top music application, with 10 million active monthly users.

The Partovis–who once were close with execs at Facebook (see my party video below), particularly founder and CEO Mark Zuckerberg–placed great faith in its growth lifting all Web 2.0 boats.

It did not turn out that way, though, especially from the important financial point of view, and iLike scrambled to diversify.

The iLike service recently began offering a music downloading service, for example, as well as other such features, all of which would be attractive to the music-centric focus at MySpace.

Once an Internet sensation, MySpace has been struggling to restructure itself after losing momentum and buzz in recent years, as well as a huge advertising revenue drop in its most recent quarter.

Its owner, News Corp. (NWS), replaced its founders with new management four months ago, including former Facebook exec Owen Van Natta as CEO.

After making major staff layoffs and rejiggering management, Van Natta and his new team have been working on an overhaul of the MySpace product and seem to be refocusing it to become a global music and entertainment service.

MySpace also has a joint venture with major music labels, MySpace Music, which has been trying to attract consumers and build a viable business. Sources said MySpace Music could also buy into the iLike deal or simply license its technology to improve its features.

Thus, purchasing iLike would fit in well with MySpace’s overall plans.

And iLike has also been in need of a fix itself.

For all its popularity, especially on Facebook, it has moved slowly toward profitabilty, and its $17 million in funding has been dwindling, as has its viability as a standalone company.

Back in more frothy Web 2.0 days, iLike’s generous funding gave it a valuation of more than $50 million, which has also lost steam over time and as the economy has worsened.

In the last quarter of fiscal 2008, for example, Ticketmaster wrote down its $13 million investment by $6 million.

Tensions between its execs and iLike have gotten worse over time, although some thought at one time that Ticketmaster would buy iLike.

No longer, which is why the founders turned to Allen & Co., as MediaMemo reported as far back as November, to find another big investor or buyer.

Wrote Peter Kafka: “Delivering free music on the Web has so far proven to be a high-cost, low-revenue endeavor…”

So, the New York deal-making firm ginned up a small group of suitors, which included Facebook, Activision Blizzard (ATVI) and Microsoft (MSFT), as well as MySpace.

Of the three, Activision was most serious, with interest in integrating iLike’s community and technology tools with its Guitar Hero franchise.

But Activision never actually made a formal bid, said sources.

Both Microsoft and Facebook also considered the purchase, but sources said they would only offer stock in a deal. But iLike wanted cash in the deal.

The Partovis were also was wary about working at either place.

Both Partovis, for example, had worked at Microsoft (Ali after selling it LinkExchange in 1998 for $265 million; Hadi several times, once following Microsoft’s acquisition of Tellme Networks, which he co-founded).

As it has turned out, in its short life, iLike’s last, best alternative is apparently MySpace.

“Look, iLike has been shopped around for a while, and while the team and technology are great, it only has one choice and that’s to be sold,” said one person involved in the various scenarios. “The question for the buyer then is whether it was worth it to pay up or just move on and do it ourselves.”

So until the bean counters settle this IRS nightmare, here is my video interview with Hadi Partovi about a year ago at iLike’s HQ in the Capitol Hill section of Seattle, when times were a little more hopeful:

[ See post to watch video ]

And here is a very dark and very shaky video I did when iLike threw a fete in Silicon Valley to celebrate its start-up two years ago and to send some appreciation in Facebook’s direction–it is so dated that Facebook COO Sheryl Sandberg, who is in the video, is still at Google (GOOG).

(Full Disclosure: News Corp. also owns Dow Jones, which owns this site.)

BoomTown Decodes the Twitter-Is-Really-Serious-Folks-About-Not-Making-$$ Memo

Kara Swisher — Wed, 11 Feb 2009 08:00:56 +0000

In a blog post that comes as the polar opposite of a complete surprise, Twitter co-founder Biz Stone clarified a comment he made to a U.K. magazine that sounded like Twitter might actually charge for something.

Leaving aside the delicious irony of the name “Biz”–given Twitter lack o’ business model–fear not, Web 2.0 Bubblistas!

Because Twitter remains true to its nonrevenue principles, according to Stone in a post yesterday titled “Nothing To Report Just Yet,” stressing that the start-up-de-jour microblogging service would not squeeze companies for existing services–not no way, not no how!

Here’s the Stone post, along with BoomTown’s translation of his words:

Stone wrote: There was a sudden burst of news early this week surrounding some ideas we’ve shared publicly for quite some time. We’ve been thinking out loud for more than a year about the growing use of Twitter by companies, brands, and other commercial organizations. It’s great that both individuals and organizations are finding value in Twitter and there may be ways we can enrich the experience. In fact, we hope to begin iterating on revenue products this year.

Translation: The result of our loud thinking for more than a year? Gobs and gobs of hype and publicity for Twitter, with predictions that it will kill Google (GOOG), best Facebook and leap tall buildings in a single bound.

All in 140 characters.

By the way, “iterating” means “to say or do again” or “again and again.” So expect more loud–even deafening–thinking, even if we never ever come up with a way to make money.

Stone wrote: However, it’s important to note that whatever we come up with, Twitter will remain free to use by everyone–individuals, companies, celebrities, etc. What we’re thinking about is adding value in places where we are already seeing traction, not imposing fees on existing services. We are still very early in the idea stage and we don’t have anything to share just yet despite a recent surge in speculation. When we do, we’ll be sure to let you know.

Translation: Phew! That was close. Because money-making might actually require us to open a bank account, get an accountant and all do that tiresome stuff related to finances.

Until then, with our piles of VC cash and more to come (and in the immortal words of Robin Leach), it’s all champagne wishes and caviar dreams for Twitter.

Thanks for the dough, Fred and Bijan!

[Photo credit: Twitter]

Microsoft's Options Rendered Via YouTube Copyright Infringement!

Kara Swisher — Thu, 01 May 2008 00:31:51 +0000

While we wait for the Microsoft board to make its decision on what to do next in relation to Yahoo, here are some lovely ripped-off videos from YouTube to keep you entertained.

BoomTown might start only writing about this takeover battle from Hell with musical accompaniment to make things seem more pleasant.

The prospect of a price rise and some substantive talks, reported in The Wall Street Journal today and which BoomTown has been long advocating, is already a good sign.

In any case, the options:

Walking (Nancy Sinatra, “These Boots Are Made for Walkin’”):

Not Walking (Left Banke, “Walk Away Renee”):

More Money (Liza Minnelli, Joel Grey, “Money”):

Less Money (ABBA, “Money, Money, Money”):

Winning Yahoo and Defeating Google (Judy Garland, “Somewhere Over the Rainbow”):

Mint Guy Aaron Patzer Speaks!

Kara Swisher — Thu, 10 Jan 2008 08:03:26 +0000

OK, we’ll admit it–we just like the steady and non-hypey persona of Aaron Patzer, whom BoomTown has officially and forever dubbed “Mint Guy.”

While he is not exactly minty fresh–in fact, the founder and CEO of Mint is much more circumspect and cool than any 26-year-old I have met recently–Patzer does stand out in a sea of over-touting Web 2.0 entrepreneurs as someone who might actually have created a business with some substance to it.

Rather than offering dopey widgets that let you throw food at each other or yet another version of a social network or the umpteenth music download-share-compare whatever, Mint feels different.

The free Web-based service is aimed at a younger demographic interested in finding a way to manage money better, in learning about their spending habits, in being alerted to unusual activity and even in saving some cash by finding better rates on things like bank accounts and credit cards.

It might sound crazy in these frothy Web times, but the Mountain View, Calif.-based start-up certainly has the potential to be actually useful and relevant to consumers and has a doesn’t-make-me-scoff-out-loud business plan that focuses on lead generation for sponsors.

Mint now claims 100,000 users since its launch last fall and is expanding its features to allow users to track investments, student loans and mortgages soon too.

Mint has not escaped the bubble, of course, having received about $5 million in funding from Shasta Ventures, First Round Capital and a number of prominent angel investors, such as Ron Conway and former Yahoo exec Geoff Ralston. That’s a lot of money for a company with a lot of possible pitfalls.

While there are a few Web competitors, such as Wesabe, the biggest challenge is that Patzer is taking aim at desktop software packages like Intuit’s Quicken and Microsoft’s Money. The pluses of those solutions is that users feel more secure when financial data lives locally than they might loading it up to the Web.

More significantly, giants like Intuit are moving services online too, as with the recent Quicken Online, which makes for a mighty foe to Mint.

Still, Intuit has been woefully slow online and Patzer is obviously nimbler. And he counters that he is using heavy-duty encryption, as well as a number of methods to keep data anonymous, which make the information safe.

Well, we’ll see how it all turns out, as everyone is going to have to battle security concerns and convince people to trust them with important financial information on the Internet. But, it is clear that it is an interesting space to watch.

And, better still, it is–thank you, thank you–not a food fight.

Here is the video I shot with “Mint Guy” Patzer during lunch this past week at the Consumer Electronics Show in Las Vegas, where Mint was showing off its service a bit:

[ See post to watch video ]