In the search business, the rich get richer. This is especially the case with Google (NASDAQ:GOOG), which has done a tremendous job in sustaining its lead in a fiercely competitive marketplace. But other major companies -- such as Yahoo! (NASDAQ:YHOO) -- have benefited from the surge in online advertising as well.
Yet, Wall Street has been particularly harsh on smaller search players, such as MIVA (NASDAQ:MIVA), Mama.com (NASDAQ:MAMA), and Interchange (NASDAQ:INCX).
How to deal with the problem? One approach is to follow the strategy of AskJeeves. That is, fatten up with acquisitions and then sell out to a big company. In this case, the buyer was IAC InterActiveCorp (NASDAQ:IACI ). The strategy seems to have worked, because AskJeeves has not suffered the kind of price deflation others have.
In fact, taking the AskJeeves approach may be imperative for smaller players. While Google and Yahoo! gain more, there are also new upstarts popping up seemingly every day.
Actually, to keep growth moving, many of the smaller search engines have been engaged in aggressive acquisitions. And the latest deal-making comes from ValueClick (NASDAQ:VCLK), which offers products and services for online marketers. This week, it agreed to purchase two companies.
First, there is the transaction for Web Marketing Holdings (doing business as Web Clients), a privately held company. The price tag came to about $141 million.
Essentially, Web Clients is an online lead generator. This is accomplished through more than 100 promotional websites like www.opportunity247.com, www.americanbeautysweepstakes.com, and so on. Last year, the firm posted roughly $59 million in revenues and was profitable (though profit numbers were not disclosed).
Next, ValueClick agreed to purchase E-Babylon, also a privately held firm. The company is an e-commerce play that sells ink and toner products and operates 123Inkjets.com and 411Inkjets.com. Last year, the company generated revenues of $17 million and was profitable. The price was $14.7 million.
Web Clients fits in ValueClick's portfolio of properties, which include Commission Junction, Hi-Speed Media, Search123, and Pricerunner. However, the E-Babylon purchase is less synergistic. Why does ValueClick want to be in the ink business? In fact, with E-Babylon in the fold, it will now operate a 24,000 square-foot fulfillment center.
Well, ValueClick wants to venture into the e-commerce business. But, just like the search business, e-commerce is fiercely competitive and requires much more scale than a 24,000 square-foot fulfillment center.
These acquisitions seem to highlight the challenges at ValueClick. Continuing to find companies to buy -- especially at good valuations -- is no easy feat, as is finding ones that actually yield value on a consistent, long-term basis. At some point, ValueClick may decide to follow the strategy of AskJeeves and eventually sell out.
Fool contributor Tom Taulli does not own shares mentioned in this article.
