Stand By Me by Chris Trayhorn, Publisher of mThink Blue Book, October 1, 2005 The last of the big independent affiliate and performance marketing networks was finally swallowed up by another large international conglomerate. In early September, Japanese e-commerce portal Rakuten took its first step into the U.S. market by agreeing to acquire privately held New York-based performance marketing network LinkShare for approximately $425 million in cash. Speculation was swirling around the online marketing community for several months that LinkShare, which has investors including Mitsui & Co. Ltd., Mitsui & Co. (U.S.A); Internet Capital Group, and Comcast Interactive Capital, an affiliate of Comcast Corp., was looking for a buyer. Enter Rakuten. The public company, with a market capitalization of $9.7 billion (as of September 5) was looking to break into the U.S. market and wanted to establish an immediate presence. Founded in 1997, Rakuten has several divisions and is involved in e-commerce, media, travel and financial services and owns a professional baseball team in Japan (the Tohoku Rakuten Golden Eagles). “LinkShare’s performance-based marketing expertise across affiliate, search and email capabilities provides Rakuten with an excellent first step to launch our U.S. operations and continue our international expansion,” said Hiroshi Mikitani, chairman and CEO of Rakuten. “We can leverage LinkShare’s client relationships and technology advantages worldwide, so that LinkShare will be able to achieve significant growth in the future.” For many big players in online marketing, pairing up with larger, more diversified companies that provide additional financial resources is nothing new. LinkShare rival Commission Junction was bought for $58 million in cash and stock by ValueClick in October 2003; ValueClick previously purchased affiliate network BeFree in March 2002 for $128 million in stock; Performics was acquired by DoubleClick in a cash deal estimated at $58 million (plus an earn-out of up to $7 million) in May 2004; DoubleClick was acquired in July 2005 by Click Holding Corp. in a deal valued at $1.1 billion. There are conflicting views on why LinkShare sold for so much more than its competitors. One poster on affiliate marketing forum AbestWeb.com called the sale price “An insane amount of money!!” while another wrote, “I was actually surprised they got it for as little as $425 million. Especially considering MySpace was purchased for around $580 million and Shopzilla.com went for around $560 million. I guess the going price for big sites like these is between $400 million and $600 million I can’t believe ValueClick paid so little for CJ; they certainly got a deal there.” Other industry watchers claim that the high selling price is a combination of a better economic climate and the growing popularity and desirability of performance marketing. “The price – especially compared to their competitors – is startling,” says Shawn Collins, a consultant. “But the economy is in better shape than a year ago. Affiliate marketing is more respected and on firmer ground. It’s a real testament that affiliate marketing is going well.” Haiko de Poel Jr., president of online affiliate community AbestWeb.com, says that affiliate marketing is only a little hotter than when CJ was purchased two years ago. “Even though the climate is better and affiliate marketing is a little hotter, it’s not enough to justify $425 million. There is no way you can tell me that LinkShare is worth twice what was paid for CJ and BeFree combined. There’s just something wrong with that. In fact, there are just too many things wrong with this whole deal.” LinkShare, which was established in 1996, has a network of more than 500 merchants including J.C. Penney, 1-800-Flowers .com, American Express, Avon Products and Dell. It has more than 10,000 affiliates in its network and claims that for 2004, approximately 2 percent of U.S. retail e-commerce, or $1.4 billion, passed through the LinkShare network. LinkShare’s chairman and CEO, Steve Messer, says, “By partnering with a successful portal with global aspirations, LinkShare has positioned itself to take advantage of the increasingly universal nature of the Internet and e-commerce.” Messer goes on to say, “Our merchants and our affiliates will benefit because taking the network worldwide can only increase volume, which means growth for everyone.” Messer, along with the rest of LinkShare’s senior management team, including President and COO Heidi Messer, will remain with the company. Affiliate Alan Townsend, marketing manager for PersonalizationMall.com, says the sale of LinkShare is bittersweet. “I can tell you that Steve Messer is passionate about affiliate marketing and LinkShare. I don’t think this deal is just about money. I think if anyone wants LinkShare to succeed, it’s him. I’m confident that he’ll help make decisions for LinkShare that will allow them to grow well into the future,” Townsend says. “With that being said, I think it’s always bittersweet to see a great company that you love get sold. It’s much easier to buy a company than it is to build one.” In the short term, affiliates are questioning everything. When will they be paid? How will they be paid? Who will pay them? What changes are going to be made? What improvements are going to be made? How will current issues be resolved? Townsend notes that continued communication with affiliates will be key for LinkShare’s future success. “I think LinkShare has to keep the affiliate community informed throughout this entire process. Affiliates deserve to know how this is going to impact their livelihoods,” Townsend says. “In the long term, affiliates are going to benefit. The new owners will want to see growth. LinkShare will be trying to expand into new markets quickly. Eventually LinkShare will have a global presence that will attract more affiliates and more merchants. As a result, LinkShare services, such as check processing, affiliate support, etc., will have to improve to meet the growing needs of these affiliates and merchants.” Filed under: Revenue Tagged under: 08 - Fall 2005, affiliate networks, Features, Industry Trends, International, Merger/Acquisition, mtadmin About the Author Chris Trayhorn, Publisher of mThink Blue Book Chris Trayhorn is the Chairman of the Performance Marketing Industry Blue Ribbon Panel and the CEO of mThink.com, a leading online and content marketing agency. He has founded four successful marketing companies in London and San Francisco in the last 15 years, and is currently the founder and publisher of Revenue+Performance magazine, the magazine of the performance marketing industry since 2002.