M&A Alert - February 11, 2010
Google Acquires Aardvark
Transaction Overview
On February 11th, 2010, Google (NASDAQ: GOOG) agreed to acquire Aardvark for $50mm.
Target Description
Aardvark is a social search engine that allows users to ask questions to their friends or friends of their friends within their social network, via an instant messenger or email or the company’s website. Aardvark analyzes users’ profiles, connections and location, when matching questions with respondents to ensure a good quality answer. According to Aardvark’s research publication, as of October 2009, Aardvark had 90,361 users, of whom 55.9% had created content (i.e. asked or answered a question). The site’s average query volume was 3,167 questions per day. 98.1% of questions asked on Aardvark were unique, compared with between 57% and 63% on traditional search engines. 87.7% of questions submitted were answered, and nearly 60% of them were answered within 10 minutes. Competitors include Wikia, ChaCha and Mahalo. Aardvark (formerly The Mechanical Zoo) was founded in 2007 by ex-Google employees including Max Ventilla (formerly in charge of Google’s marketing and monetization of AdSense and Web applications), Damon Horowitz, Nathan Stoll (former head of Google News) and Rob Spiro, and is based in San Francisco, CA. Since inception, Aardvark had received $6mm in funding from August Capital (David Hornik), Baseline Ventures and individual investors including Michael Dearing, Sep Kamvar, Marc Andreessen, Deep Nishar, Sean Fanning, Aydin Senkut, Upon acquisition, Aardvark will be incorporated into Google Labs.
Buyer Description
Google offers targeted online and mobile search advertising services to users and advertisers. Over the past several months, Google has made a substantial investment in playing a major role within real time search and social search services. In October 2009, Google announced its partnership with Twitter where Google integrated Twitter’s real-time-search results into Google search, as well as its experimental Google search feature called Social Search. On February 9, 2010, Google launched Google Buzz, a social networking service integrated with Gmail, allowing Gmail users to follow other users via Twitter and to share their Picasa pictures, Google News Feed Readers or YouTube videos. Johanna Wright, Google Search’s Director of Product Management was the key executive sponsor of the acquisition. Google was founded in 1998 and is based in Mountain View, California.
While transaction value was not disclosed, Google had reportedly started the discussion to acquire Aardvark in December 2009 for $30mm. Although Aardvark is reportedly a pre-revenue company, according to the Wall Street Journal and industry observers, Aardvark’s monetization strategy is to charge some users to serve as specialists in particular fields and provide “sponsored answers.” Aardvark also charges fees on transactions or services that occur through recommendations that are facilitated via Aardvark.
Strategic Rationale
Aardvark’s service appears to naturally complement Google’s search capabilities (which have already integrated Twitter’s real-time search features) as well as Google Buzz (which provides social networking services). This transaction marks Google’s transparent effort to bolster its search and social networking service capabilities, allowing Google to offer real-time search on user-generated content.
Architect Partners’ Observations
We view this transaction as well-aligned with Google’s strategic moves in search and social networking, two areas in which Twitter and Facebook have been key players. After Google Wave, Orkut and OpenSource. Google is now reviving its social networking services via its newly-launched Buzz. As Dow Jones mentioned, while social search has been long discussed, no competitors have the ability to connect users that are ranked by similar profiles to ask and answer questions to ensure the quality of the answers. It will be interesting to see how Aardvark is finally integrated into Google’s service offerings. For the time being, Aardvark is already listed on Google Lab’s blog.