The Social

If you stepped in late, it sounds awfully dull.

An announcement Tuesday tells us all that "certain assets" of a "white-label" online video service called Joost have been acquired by Adconion Media, which calls itself "the largest independent global audience and content network." The acquisition "will be able to provide advertisers, content owners, and Web site publishers with an end-to-end global video platform and cross-channel video and display ad-serving solution," according to a statement from Adconion CEO Tyler Moebius. Financial terms were not disclosed. Yawn.

But really, it's an exceptionally anticlimactic ending for Joost, a company so secretive and hyped that it was once known, James Bond-like, as "The Venice Project," and which was supposed to kill YouTube and that dastardly Cold War villain known as your cable company. It was a scrappy start-up with roots in lawlessness--founders Janus Friis and Niklas Zennstrom had built onetime file-sharing hub Kazaa--but major street cred, too, as they'd also founded Skype and sold it to eBay. There were impressive backers, too, including CBS (which owns CNET).

What went wrong?

Well, there was a big issue with Joost's downloadable peer-to-peer app. By the time it was released, Web-based video was advanced enough so that a required download was a barrier to entry, not a technical leg up. Some of the big-name content partners seemed to be putting in a halfhearted effort with Joost, offering up reruns and esoteric programs instead of the new programming that people actually wanted to watch.

But perhaps what really doomed Joost was something that was itself supposed to be a flop: When NBC Universal and News Corp. announced their plans to create an online video hub that would rival YouTube and address the rampant issue of piracy, it was referred to disparagingly as "Clown Co." We all know how that one turned out. The finished product, Hulu, was extremely well-received and continues to expand its video library.

There was, briefly, a time when it looked like there was a slight chance that things might turn up for Joost. It did, after all, beat most of its competitors to the release of an iPhone app, and a focus on niche content like Japanese anime seemed like a viable business choice as Hulu increasingly placed an emphasis on the mainstreamiest of the mainstream. Unfortunately, that didn't work either.

There was "a major retrenchment" as Joost reined in its lofty plans. Then it switched business models altogether to the far less glamorous "white-label video solutions" modus operandi.

And then the management debacles became evident. CEO Mike Volpi resigned and then was ousted by shareholders from his role as chairman. Oh, and then the company sued him. Nasty.

Sometimes hype plays out well. Sometimes it just doesn't, and Joost was one of those cases. In spite of the founders' prior successes, truckloads of venture capital dollars, and a few early and impressive content deals, it flopped. The end. Now, per Tuesday's release, it'll be "(adding) many dimensions to Adconion's existing video services and further will solidify its position in the online video and content syndication market."

That's a pretty nice way to put it.

The tractors, fuzzy pets, and mobster ambushes might be virtual, but the past few weeks have shown that the battle for social-gaming market share is very, very real.

Monday saw the long-rumored announcement of gamemaker Playfish's big-ticket sale to Electronic Arts, a big win for a product niche some had dismissed early on as faddish and silly. But it comes at a time when there's ongoing press blitz over how much social-gaming companies rely on lucrative but potentially misleading means of advertising in the form of lead-generating offers.

Both of these developments have changed the course of an industry moving at hyperspeed--but was anybody really sure where it was going in the first place? Playfish, arguably, was the safest buy in the space. Headquartered in the U.K., its revenues were solid--one analyst estimates it'll pull in $100 million this year--and it was less reliant on controversial third-party offer companies than many of its competitors.

Social-game manufacturer Playfish announced its acquisition by Electronic Arts on Monday.

(Credit: Playfish)

"I'd say hats off to EA," said Jeremy Liew of Lightspeed Venture Partners, which has invested in social-gaming firms like Serious Business and RockYou. "It's a much lower-fidelity product (meaning cheaper to produce) that appeals to a much simpler consumer (than the traditional gamer), but they recognized the risk that it poses to their business and they were willing to take a decisive action."

Playfish had a great exit, as they say in the venture capital world. Things might not go quite as smoothly for other social-gaming companies.

Here's some background. The social gaming craze grew out of an array of new time-wasters that involved neither a significant commitment nor a complicated set of rules. Companies like Zynga, Playdom, and SGN attracted millions of investor dollars, and word has it that former MySpace CEO Chris DeWolfe wants to roll up a bunch of smaller companies into another powerhouse. And now that EA has a big social-gaming company in its arsenal, other older video game manufacturers might push fast-forward on investments or acquisitions in the space.

Playfish, manufacturer of games like Pet Society and Restaurant City, was at the time of its buy either the second or third biggest company in the space--behind Zynga, but neck-and-neck with Playdom. Like most of its competitors, it makes money through a combination of advertising and the sale of virtual goods, which players can either purchase with real-world cash or can earn by completing offers and surveys from third-party companies like Offerpal Media or Super Rewards.

The industry common wisdom is that Playfish's revenue is less reliant on those offer companies than some other social-network gamemakers. That's a good thing, considering the bad press the likes of Offerpal have been pulling in recently. In a highly-publicized confrontation with Offerpal CEO Anu Shukla (who resigned from her post in a matter of days), TechCrunch blogger Michael Arrington launched a full-on assault against the business of social-game offers. They're no more than scams, he alleged, since many offers actually have hidden costs attached for consumers: entering your cell phone number to receive the results of a quiz you took, for example, may actually tack a charge onto your phone bill.

"The industry hasn't done, in general, as good a job as it could have of maintaining the offers' integrity to users," Jason Oberfest, a former MySpace executive who recently joined the executive team of iPhone and social-network gaming company Ngmoco. "(Playfish was) way more conservative in how they've used offers, and I'm sure, frankly, that their revenue per user has probably suffered a little as a result, but it's clearly played out well for them."

Even without the offers controversy, social gaming is a volatile industry: few if any of the companies in the space are older than five years. It's a hit-driven business, with companies needing to work around the clock to keep audiences playing and push out new games lest the current sensations grow stale. There's already a history of lawsuits and legal threats, often over rival gamemakers' extremely similar products. When bloggers started their keyboard assault on the likes of Offerpal, it was only adding to the sector's reputation for fast money, cutthroat competition, and occasionally shady business practices.

Playfish may have exited just in time. Some of the small to medium-size social-gaming companies are undoubtedly hunting for buyers, and Zynga has gotten so big that rumors suggest it may be looking to file for an IPO. With all the controversy over offers and whether social-gaming companies' revenues were inflated by misleading ads, there's a chance that their profits--and hence, their valuations to prospective investors or buyers--may take a significant hit.

Still, venture capitalist Liew doesn't think that will make a huge difference. "Zynga said 30 percent of their revenue comes from offers, and I think that's pretty representative of the industry," he estimated. "Let's say 20 percent of the offers are scammy, so that's 6 percent of the revenue of these companies that's at risk. It doesn't change the answer as to whether this is a valuable company."

Maybe so, but there are other complications. Facebook, the biggest destination for social games, continues to make alterations to its developer platform. Most recently, the massive social network announced some changes that limit games' and other applications' appearance in members' news feeds, a move that may make it more difficult for start-ups to enter the space as well as drive already-big companies to purchase more advertising space in order to get the word out about their latest games and keep acquiring new customers.

Social-gaming companies are already some of the biggest advertisers on Facebook, with the biggest one, Zynga, spending as much as $50 million this year on Facebook ads alone, according to estimates from industry insiders. If revenues are potentially going to decline (and no one can quite agree on how much) as a result of a crackdown on offers, but advertising costs may go up as companies attempt to increase their reach on Facebook, that makes their balance sheets look less sunny.

For all the ugliness of the Offerpal mess, it could have been much less pleasant if the scrutiny was coming from lawmakers rather than industry bloggers--like the several state attorneys general who were particularly vocal about stamping out misleading offers in display ads, but haven't yet targeted social networks. And changes appear to be imminent. Zynga CEO Mark Pincus announced Sunday that the company has blocked all cost-per-action offers until the situation calms down and it's easier to weed out scams. Playdom, too, says it is continuing to make its business less reliant on offers.

"Offers are an important industry issue, and particularly important for our players," CEO John Pleasants, a former high-ranking EA exec who left for the fast-growing company this summer, said of Playdom in an e-mail to CNET News. "When I joined as CEO, Playdom began a company-wide effort to deliver a quality user experience on our offer walls...We've dropped more than 1,500 offers that don't meet our standards. In tandem with these efforts, we have actively grown the direct payment portion of our business; offers, otherwise known as CPA advertising, currently account for less than 20 percent of our revenue and continue to shrink."

Social-gaming companies don't want to look like criminal operations, nor do they want to look like they're turning a blind eye to questionable third-party activity. While Zynga and Playdom are big enough to sacrifice that revenue, some other companies that are likely hunting for buyers might not fare so well. As a result, future acquisitions in the space could easily be much smaller. Price tags could be lower if revenues deflate, and now that EA's made its buy, the list of potential buyers who could actually pay $300 million is now one company shorter. There's a legitimate question as to who would actually be buying; even optimistic insiders say that this could get in the way of another Playfish-like exit.

"I think the more important question is who can pay. Because if you want to buy Zynga, it's way more than Playfish. If you want to buy Playdom, I think it's going to be equivalent, if not a little bit more than Playfish," Liew said. "There are a lot of people who want to get into social gaming that don't have the ability to write a check of that size, and so they are going to be looking at the next tier of companies. That's where I think we're going to see some action."

In other words, we still don't know who the next real winner will be.

Amazon's acquisition of shoes-and-more retailer Zappos is complete, the e-commerce giant said in a release Monday. The company in July had announced its intent to make the purchase, for about $850 million in cash and stock.

Zappos, which made a name for itself based on outside-the-box customer service principles, will stay independent from the Amazon.com brand and will continue to operate out of its Las Vegas headquarters.

Numbers released by J.P. Morgan Research in conjunction with the acquisition announcement predict that Zappos will post moderate, single-digit growth for the 2009 fiscal year after raking in $635 million in revenues last year.

Citizen news site NowPublic has been sold to another company in the "hyperlocal" space, Examiner.com, the two companies announced Tuesday.

The two sites will operate independently, but Examiner will integrate NowPublic's technology into its site and will encourage NowPublic's contributors to also write for Examiner--right now, the buyer says it has grown 200 percent since the beginning of the year (it launched in April 2008) and has 15,000 active contributors, hoping to hit 30,000 by year's end.

NowPublic's executives, including CEO Leonard Brody, will join the management team of Clarity Digital Group, parent company of Examiner.

"Every day, we hear discussions about whether hyperlocal content will ever be scalable, sustainable, or profitable as a business entity," Examiner CEO Rick Blair said in a release. "With the acquisition of NowPublic, we have the technology to further engage our community of more than 17 million unique visitors per month, and distribute our stories in new and innovative ways."

Was this a bargain-basement acquisition? The companies did not disclose financial terms. But an insider in the space told CNET News that NowPublic had been shopping itself to some pretty big media companies for some time at a higher price than potential buyers were willing to pay. The company had raised about $12 million in venture funding.

Many media companies have simply been launching their own "citizen journalism" initiatives, like CNN's iReport and blogging experiments from newspapers like the Washington Post, which could make an exit tougher for the smaller players.

Digital-media companies like AOL and InterActiveCorp have also made plays to dominate the local-news market--AOL recently acquired local-focused start-ups Patch and Going, the former of which was already a personal investment on behalf of CEO Tim Armstrong, and the Barry Diller-run IAC has been placing a big emphasis on business directory Citysearch.

MySpace CEO Owen Van Natta has confirmed in a Wednesday conference call that the News Corp.-owned social network has "entered into an agreement to acquire iLike," following rumors earlier in the week.

iLike's co-founders will remain at the company and stay headquartered in Seattle; the service will be "unaffected by the acquisition" in the short term.

Van Natta explained in the conference call that the acquisition is on behalf of MySpace Inc. rather than its MySpace Music division, a joint venture with the major record labels, because the company plans to extend its technology to other areas of entertainment such as gaming and possibly film. He highlighted the "discovery" technology that iLike has built and suggested that MySpace planned to integrate it into some of its other properties.

No terms of the deal were disclosed, but reports have indicated that iLike was sold at quite a bargain--something in the neighborhood of $20 million total--because its ad-supported, streaming music model failed to rake in the profits that investors hoped it would.

Van Natta denied that the deal had been delayed due to iLike board disputes or tax issues, as some reports had suggested.

But it's unclear as to how the deal will affect iLike's relationship with Facebook. The social network's developer platform has been home to much of iLike's activity, and now that it will be owned by Facebook's closest rival, there's a chance that Facebook could restrict or block the app. Van Natta, Facebook's former chief operating officer, said that iLike's apps are part of "a lot of different social networks' experience. We're excited about just continuing to expand that experience to other areas of entertainment that MySpace has assets in."

Meanwhile, Van Natta claimed that MySpace Music is "doing extremely well" and that "we absolutely expect MySpace Music to be an important part of MySpace...for years to come." Several months ago, rumors were swirling around the music industry that its performance hadn't been up to expectations.

This post was last updated at 12:13 p.m. PT.

News Corp.-owned MySpace is "close to acquiring" social music service iLike, according to TechCrunch.

The price tag is rumored to be in the neighborhood of $20 million. Representatives from iLike were not immediately available for comment.

The report comes within days of iLike launching a music download store--a development first reported by CNET News--with MP3s available from all four major record labels.

The deal, if confirmed as accurate, highlights the often complicated connections in digital media's elite ranks.

iLike, for example, rose to fame through its close ties to Facebook. The iLike application, since re-branded to simply Music, was one of the first big applications to launch on Facebook's platform at its debut. Its ad-supported streaming music service has become one of the most prominent in a packed field--it now has about 50 million users and just launched a suite of iPhone apps. But the streaming music niche has proven difficult to monetize and has left some players in the space reportedly hunting for an exit.

MySpace, meanwhile, has seen stagnant growth as the once-far-smaller Facebook has rapidly overtaken it in the social-networking race, thanks in part to the proliferation of third-party apps like iLike on Facebook's groundbreaking developer platform. As part of an executive restructuring earlier this year, MySpace installed former Facebook chief operating officer Owen Van Natta as its CEO, replacing co-founder Chris DeWolfe.

Attempting to refocus and return to its roots as a hub for music and pop culture, MySpace launched its own streaming music service, called MySpace Music, and hired MTV veteran Courtney Holt to run the division. MySpace Music, a joint venture with the record labels, does not operate its own download store but instead directs users to Amazon MP3 downloads through affiliate links. But MySpace Music hasn't received thoroughly positive reviews from the record labels hoping to profit from it.

Disclosure: CNET News is part of CBS Interactive, which also publishes Last.fm, a competitor to iLike.

Updated at 7:38 a.m. PDT with additional details and background.

Surprise! Facebook has acquired FriendFeed, a Bay Area-based social-network feed aggregation start-up.

"Facebook and FriendFeed share a common vision of giving people tools to share and connect with their friends," FriendFeed co-founder Bret Taylor said in a release. "We can't wait to join the team and bring many of the innovations we've developed at FriendFeed to Facebook's 250 million users around the world."

TechCrunch reported the news on Monday, a matter of minutes before Facebook confirmed the acquisition.

I'm going to go out on a limb and say it: This is not as ridiculously huge of a deal as the Silicon Valley hype machine is going to have you believe.

Basically, FriendFeed has been coasting on a lot of hype and not a lot of mainstream recognition, and it's not a bit surprising that it would be seeking an exit at this point. Facebook acquired it for its talent; prior to FriendFeed, Taylor was part of the team that helped launch Google Maps. So the real story here is that Facebook made the rather expensive hire (and we don't know the terms of the deal) of some very talented former Googlers. FriendFeed's co-founders "will hold senior roles on Facebook's engineering and product teams," according to the release, and the rest of the company's 12 employees will also join Facebook.

This would also be consistent with Facebook's minimal past acquisition history: the company bought little-known start-up Parakey two years ago with the primary objective of getting its founders, the creators of the Firefox browser, on board. It's also well-known that Facebook tried hard to acquire Twitter--which would've been a far more significant acquisition than FriendFeed--and was turned down. (Well, there was also ConnectU, whose assets Facebook acquired pretty much just to get that pesky lawsuit off the table.)

The release from Facebook repeatedly hinted that this is about talent more than product.

"Since I first tried FriendFeed, I've admired their team for creating such a simple and elegant service for people to share information," Facebook founder and CEO Mark Zuckerberg said in the statement. "As this shows, our culture continues to make Facebook a place where the best engineers come to build things quickly that lots of people will use."

Yup.

"As we spent time with Mark (Zuckerberg) and his leadership team, we were impressed by the open, creative culture they've built, and their desire to have us contribute to it," FriendFeed co-founder Paul Buchheit, another ex-Googler who was instrumental in building Gmail, "It was immediately obvious to us how passionate Facebook's engineers are about creating simple, groundbreaking ways for people to share, and we are extremely excited to join such a like-minded group."

But Facebook director of product Christopher Cox said to CNET News later, "I wouldn't call it a talent acquisition." He elaborated, "We really have a vision that's focusing on Facebook being not just a destination but being a service...We think FriendFeed's been focused on how that's going to work in an open way, and that's something we're excited about, not just the people but the product they've built."

FriendFeed earned praise from prominent voices in Silicon Valley--most notably Robert Scoble--but its aim to aggregate all of a user's social-networking activity feeds in one place didn't catch on with the mainstream. But Facebook eventually began to mimic the FriendFeed model through upgrades to its central "news feed" feature, letting members pull in select third-party updates.

Bret Taylor said that FriendFeed wasn't shopping itself around. "We weren't up for sale. We had a healthy amount of financing and a really efficient company," he told CNET News. "As we noticed our products were really converging in terms of product vision, we started having casual conversations with Facebook."

It's not clear what will happen to the FriendFeed service, because it sure sounds like Facebook is eager to get its team onto the engineering fast track. "FriendFeed.com will continue to operate normally for the time being," a post by Taylor on the FriendFeed blog read. "We're still figuring out our longer-term plans for the product with the Facebook team."

Taylor elaborated more to CNET News later on Monday: "Anything that we would do would be more of a transition, not shutting down. I think our users have invested in our product by putting their data in it, sharing it with their friends...We absolutely wouldn't shut (FriendFeed) down."

More to come...last updated at 2:04 p.m. PDT.

Nokia has signed an agreement to acquire Cellity, a small German company that creates social-network contact management and address book aggregation services for mobile devices.

Cellity's 14 workers will become Nokia employees. But the service will be shut down and existing user accounts will not be transferred to Nokia.

Cellity, which was founded less than three years ago, is based in Hamburg.

Terms of the deal have not been made public. The acquisition is expected to close in the current quarter.

Acquiring small start-ups is nothing new for Nokia. It acquired Plazes last year while the locator start-up was still in private beta, for example. The mobile conglomerate also has a history of willingness to rebrand. After acquiring a media-sharing site called Twango several years ago, Nokia ditched the start-up's moniker and folded it into a new software division called Ovi.

Whoa. This was unexpected: Amazon has agreed to a stock takeover of Zappos.com, a Las Vegas-based online retailer that has become famous for its unusual corporate culture.

While Zappos started out selling only shoes, it has since expanded to other products.

"This morning, our board approved and we signed what's known as a 'definitive agreement,' in which all of the existing shareholders and investors of Zappos (there are over 100) will be exchanging their Zappos stock for Amazon stock," a memo posted to Zappos by CEO Tony Hsieh read. "Once the exchange is done, Amazon will become the only shareholder of Zappos stock."

Until this point, Zappos was privately owned.

Amazon provided more details in an official release: The company will acquire all outstanding Zappos shares in exchange for roughly 10 million shares of Amazon common stock, which comes out to be about $807 million. Additionally, the transaction involves about $40 million in cash and restricted stock units to Zappos employees. The transaction is expected to be complete this fall.

"We think that there is a huge opportunity for us to really accelerate the growth of the Zappos brand and culture, and we believe that Amazon is the best partner to help us get there faster," Hsieh wrote in his memo, adding that he and other Zappos executives plan to stay on board. "Amazon supports us in continuing to grow our vision as an independent entity, under the Zappos brand and with our unique culture."

Zappos.com got a new look a little over a year ago, when it broadened its offerings beyond just shoes.

Hsieh has become a regular speaker on the tech and marketing conference circuit because of his offbeat way of running a company: encouraging employees to Twitter, offering prospective hires $2,000 to turn a Zappos job offer down, and placing customer service at the top of the priority list with free shipping and returns.

"As you know, one of our core values is to build open and honest relationships with communication, and if I could have it my way, I would have shared much earlier that we were in discussions with Amazon so that all employees could be involved in the decision process that we went through along the way," Hsieh wrote. "Unfortunately, because Amazon is a public company, there are securities laws that prevented us from talking about this to most of our employees until today."

Reports had circulated recently that Amazon was looking at acquiring movie rental outlet Netflix. It has a history of being quite acquisition-friendly. Last year, the company bought audiobook retailer Audible for $300 million, rare book site AbeBooks for an undisclosed amount, and book-centric networking site Shelfari (also for an undisclosed amount).

Amazon actually operates its own shoe and handbag retail site, Endless.com, which is mostly free of Amazon branding. The site launched early in 2007.

This story was last updated at 2:01 p.m. PDT.