Yahoo! mulling costly purchase of social site

Facebook is the latest Web site to have big media fulminating.

With the Wall Street Journal’s report Thursday that Yahoo! is considering paying as much as $1 billion for the social networking site aimed at college students, execs are starting to publicly question whether dot-com valuations are becoming as inflated as they were in 2000 while they still worry that they may miss the boat.

In an interview with the Financial Times, Time Warner CEO Richard Parsons said a $1 billion deal for dot-coms like Facebook or video-sharing phenom YouTube would require a “big leap of faith.”

It’s not hard to see why. While it does have the advantage of an almost exclusively college-aged aud, Facebook gets about one-fifth the traffic of MySpace.

Regardless of what happens to Facebook, just the fact that a $1 billion number is being bandied about shows how much heat, and hype, is surrounding the new generation of dot-coms. And if the No. 2 social networking site is worth that much, some may wonder, how much would anyone have to pay to get their hands on the Web’s No. 1 video site, YouTube?

Now that MySpace and IGN have been picked up by News Corp., however, Facebook and YouTube are the two biggest independent prizes left for congloms that want to buy access to young people who are doing more and more of their media consumption online.

News Corp. has already signed a five-year, $900 million search advertising deal with Google for its suite of Web sites, which cost a total of about $1.5 billion. With traffic up, and integration with other Fox properties continuing, Rupert Murdoch is generally believed to have spent wisely.

Many media companies — online and off — would love to gain access to the devoted young users of a site like Facebook. Most of the major players, including Viacom, Microsoft and News Corp., are known to have at least talked to Facebook about a deal.

Viacom, in particular, faces a tough situation with Facebook. After former CEO Tom Freston was given a very public booting by Sumner Redstone for not buying MySpace, losing out on Facebook could seem like another missed opportunity to follow the MTV demo onto the Net.

But spending so much more than the $580 million that News Corp. paid for MySpace could make it look like Viacom is overcompensating for its previous missed opportunity.

And buying it would violate new CEO Philippe Dauman’s recent assertion that he will focus on acquisitions under $100 million — though his No. 2, Tom Dooley, recently told Daily Variety that there are always exceptions.

The biggest risk of all, of course, lies in the nature of the Web. Just like social networking pioneer Friendster, Facebook, YouTube and even MySpace could disappear as quickly as they rose to prominence if a superior startup arrives.

Yahoo! knows the potential folly of big acquisitions particularly well. Back in 1999, it spent an astounding $5.7 billion to buy Broadcast.com. Today, Broadcast.com is just a dead link that sends visitors to the Yahoo! home page.

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