America Online to Buy Internet Chat Service for $287 Million (1998)

http://www.nytimes.com/1998/06/09/business/america-online-to-buy-internet-chat-service-for-287-million.html

by ski • 12 years ago

239 140 12 years ago

nytimes.com

WaterSponge• 12 years ago

Either 300mill was a steal for AOL or Valuations are out of hand?...

Which one is it?

chongli• 12 years ago

A steal? Nobody uses ICQ anymore. AOL ended up selling ICQ for $187 million in 2010, a big loss on that deal!

ulfw3• 12 years ago

And where is the guarantee that ten years from now people will be using Whatsapp?

sirkneeland• 12 years ago

Although with our ridiculous tax scheme they probably got to claim a fat tax deduction from the loss or something...

majormajor• 12 years ago

Well, 300M for 12M users, which is a lot fewer than the services that get bought for big numbers today.

But magnitude of the money aside, has an online messaging service ever been able to really turn a huge profit? chongli points out that AOL eventually sold ICQ for less than they paid, and I can't think of any others off the top of my head (AIM didn't prevent AOL from being overtaken by Facebook, say). They seem to be very un-sticky in terms of user retention by their nature.

ama7292• 12 years ago

Apparently it wasn't a bad according to wiki (but the source is in German, so I can't confirm if it's true):

Orey Gilliam,[6] who also assumed the responsibility for all of AOL's messaging business in 2007, ICQ resumed its growth and turned into a highly profitable company, and one of AOL's most successful businesses.

https://en.wikipedia.org/wiki/ICQ#History

aryastark• 12 years ago

has an online messaging service ever been able to really turn a huge profit?

You could make the argument that Tencent did, as some are apparently doing when comparing them to Snapchat and seeing visions of billions dancing in their muddled heads.

But that ignores the Asia factor. Where it's not uncommon to find one conglomerate company making toasters, lamp shades, bars of soap, and rockets. Tencent makes video games and they also run the equivalent of PayPal. And, of course, they pimp out their cuuuuute mascot. Since, you know, it's Asia. WhatsApp has a generic-looking icon and no mascot. They are pretty much doomed.

MichaelTieso• 12 years ago

Is it bad that I can still remember my 7 digit ICQ number? It's probably been over 14 years since I've used it. I use to judge everyone that used AIM but eventually I switched over to AIM because all my friends in school had AIM.

fletchowns• 12 years ago

I just knew one of the first comments was gonna be about "my x digit ICQ number". (mine was 6)

F1reman• 12 years ago

Sorry to ruin the party... but I had a 5 digit ICQ number. I used to work there.

nobodysfool• 12 years ago

I have a 6 digit also. It's kind of funny because I had forgotten my password but remembered the number, and I saw that I had my old ISP's email address in there so I couldn't reset it. What I did was sign up for a trial dialup account on my old ISP so I would get assigned the same email address, and then did the password reset and cancelled the ISP account. Just so I could keep my 6 digit icq number.

porter• 12 years ago

Ha, nope. I still remember my number too. Crazy.

p4bl0• 12 years ago

Damn. Now I wish I could remember mine too. I don't and I have no way to find it back.

slg• 12 years ago

I assume the motivation for pulling this out of the archive is the WhatsApp purchase. However, I don't think this comparison is truly fair. Not only is WhatsApp monthly adding over twice the userbase ICQ had at the time of purchase, but it is also actually collecting revenue from them. WhatsApp is a real company with real monetization strategies.

alaskamiller• 12 years ago

To contextualize requires relativity.

ICQ in 1999 had about 45 million users. There were only 248 million internet users back in 1999. That's 18% of mostly international users.

AOL was optimistic. So much so this is the actual response when they beat the street during their earning reports.

"(ICQ is) growing like a weed," said AOL President Bob Pittman. "Monetizing it" will be "relatively easy," he added.

WhatsApp has 450 million users where there are 2.7 billion internet users. 16%. Of mostly international users. Where, again, monetizing it, should be relatively easy.

But then again, why does any of this matter?

Genie's out of the bottle. The game has changed. We're playing a game of scaling now. Less than a hundred dedicated folks can change the world.

That 19 billion is a clarion call to attract even more people to what it is most of us here have been doing for decades.

If there is to be a singularity moment for the generation that grew up remembering the difference between real life and internet life, we have arrived at the internet life.

10593577

codezero4• 12 years ago

This is key. People seem to forget that 15 years ago the Internet was new and not many people used it or had access to it.

I imagine that in 15 years (fingers crossed) we'll reflect the same situation where we assume everyone has access to the Internet and not just several billion people :)

Implicated• 12 years ago

10554049

how do I remember that?

nerfhammer• 12 years ago

I want to believe. But a smaller amount of people making exponentially greater returns means luck is the new god.

alatkins• 12 years ago

Latecomer!

3743309

yarone2• 12 years ago

I win with 104006.

Was offered job as employee #1. Didn't take the offer. I was 15 y/o.

gingerlime• 12 years ago

ICQ was revolutionary at the time. Both in terms of early-game instant messaging, and the deal these guys struck with AOL. I remember everybody talking about it in Israel at the time. (iirc) Four founders in their early twenties each making around $40mil was quite a shock.

Even though it's a bit sad to see things didn't really evolve much since then, the bubble bursted a little later, and those kind of eyeballs-based "business-models" collapsed. I wonder if these kind of deals are the canary of another bubble bursting?

136093

ama7292• 12 years ago

WhatsApp is a real company with real monetization strategies.

Yes and no, they only got 20 millions in revenue last year, not even profit:

http://www.forbes.com/sites/parmyolson/2014/02/19/exclusive-...

ggreenbe• 12 years ago

I'm not sure that's a fair comparison to make. Most of their revenue comes after the first year. With the growth they had last year and current growth, their revenue should exponentially rise over 2014 and 2015.

Also, I wonder if being bought by facebook could help reduce hardware costs by utilizing facebook's infustracture

higherpurpose• 12 years ago

Whatsapp makes extremely little revenue right now - like it would take Facebook hundreds of years to recuperate what they paid [1]. Even if it doubles in user-base and grows by an order of magnitude (on top of that) through some magic Facebook monetization strategy, it would still take them decades.

But if we discount the fact that Facebook mostly paid their own "worthless" (mostly overhyped/overvalued) stock for this overvalued Whatsapp acquisition, then maybe with an order of magnitude profit, they could recover the money somewhere between 10-20 years.

For Facebook's sake, they better hope some other new disruptive technology doesn't come along in the next 10-20 years, because they won't be able to keep this sort of acquisition strategy for long.

I've noticed some articles call Facebook/Zuckerberg "smart" for noticing Whatsapp is disrupting them - if you can call noticing a disruption so late in the game that you now have to pay $19 billion to buy it, and with almost zero expectations of recovering the bulk of the money in the next decade.

What would be much smarter is using your own engineers to build that next disruption, or at least buy the ones appearing very early in the game. Zuckerberg could've bought tens of such apps in their early days a few years ago, and he'd still be much better off today. He could've owned Whatsapp, Kik, Viber, Line, and many others for much less.

[1] - Analysis of Whatsapp's revenue and profit when it had half the user-base it has today:

http://www.quora.com/WhatsApp-Messenger/How-much-revenue-is-...

corresation3• 12 years ago

"What would be much smarter is using your own engineers to build that next disruption"

Could they, though? Facebook's DNA is information accumulation. As is Google's.

WhatsApp is the antithesis of this, and the likely outcome of this acquisition is the gradual decline of the product as people flock to whatever new, unburdened, anonymous replacement comes along.

But for a while it will boost the stock price because it keeps user engagement seemingly high.

jgalt212• 12 years ago

I dunno about that. If you adjust for the number of internet connected people in 1998, ICQ was then just as much of a big deal as WhatsApp is now.

pyvpx• 12 years ago

the rate should be a function of internet users/devices. ICQ (aka 1998) was a very different time in terms of total internet devices and users.

corresation3• 12 years ago

WhatsApp had revenues of $20 million last year -- clearly much lower than their userbase -- and from reports on here most people were unaware any $1 per year thing even existed. Their site doesn't seem to even mention the $1 thing, but instead declares -- without time restriction -- that it is entirely free.

Kluny• 12 years ago

Is this an ironic comment on Facebook's recent purchase of Whatsapp?

almosnow2• 12 years ago

naaah

securingsincity2• 12 years ago

$19 billion and whatsapp has 465 million users, and ICQ was purchased for $287 million had 12 million users at the time. $40 dollars per user vs $24 dollars per user.

Now if the goal were to acquire users. its far more likely that facebook would have a huge overlap in the number of users it has already and those on whatsapp. That means maybe a cost of acquisition at let's completely speculate $100 dollars per user(maybe more). It seems kind of silly. but then you think about their penetration in developing markets and network effects... I don't know I'm not zuck.

BUT on a complete tangent of my comment. I should start an Israeli chat company. they've had some big exits.

securingsincity2• 12 years ago

oh and the fact that whatsapp actually is very profitable

klochner• 12 years ago

not very profitable compared to the acquisition price.

josu• 12 years ago

20 million in revenue last year is very profitable? Twitter makes that in a day.

MichaelGG3• 12 years ago

If you can call a P/E of 800+ "very profitable"? Making $20M a year profit is no small thing at all, and I'm sure if it was bought for a billion, you'd see far less comments on the subject.

colinbartlett• 12 years ago

Are you sure there is such a big overlap between WhatsApp users and Facebook users?

The US is Facebook's biggest market but I would bet the US is no where near the top of WhatsApp's market list.

JoshGlazebrook• 12 years ago

I still remember back in 2000 when we still had AOL. I was eight or nine and I had my own aol account. You could have a dozen or so sub accounts on the main one. And because it was a "kids account" there were chat rooms for kids. Being the lovely kid that I was, of course I went into one and was like "how the f*ck are you all?"

Well the kid chat rooms were moderated and our entire AOL account was disabled. My mom had to call to have it re-enabled and of course they told her what I had said.

Fun times...

codezero4• 12 years ago

A fun read on AOL's moderated chatrooms: http://en.wikipedia.org/wiki/AOL_Community_Leader_Program

By 2000 you probably missed the volunteers, but still interesting.

bcsmith• 12 years ago

I remember I used to enter the chat rooms by saying "Ever dance with the devil in the pale moon light?" Being a popular quote from the original Batman movie and it went well with my screen name (xsatanx) it usually got a laugh...

... until I stumbled into a religious chat room.

Got my account disabled and had to have my mom call as well.

gcb02• 12 years ago

when my folks got me a modem, the only thing my father made me understand was the phone bill values... i was 7 or younger. learned all about initialization strings and the minimal about terminal emulation to get to the message and mud games part of some bbs. after that it was downhill.

elektronaut• 12 years ago

I developed a serious internet addiction when I was a teenager. My parents were working class and struggling to make ends meet, and I was always dreading the day the phone bill arrived. After a couple of confiscated modems (I had a secret backup box of old 28.8s), I realized I could just trade my web skills for money and pay the bills myself. I guess that's what I've been doing since.

polemic• 12 years ago

Heh, good times making ASCII art for a local BBS here :)

nailer• 12 years ago

40979067. I don't even know how I remember. I haven't used ICQ for 15 years.

codezero4• 12 years ago

338589

Probably we remember because the client made you type it to log in? I forget, but I feel like this is true :)

jaredsohn• 12 years ago

I think it was due to how you tell people to add you as a friend. There was a search you could do but if you had a common name there would be multiple matches (and I don't think there were photos or a count of mutual friends to help you figure out which one) and perhaps it might have been easier than telling someone to look you up via email (especially since email addresses were often random words rather than first.last@gmail.)

NDizzle• 12 years ago

274231.

I no longer have access to the @r33t.org email address, nor do I know the password. Unfortunate.

edit: Looking at the profile it seems that a Russian hacked/took over the account who knows how long ago.

codezero4• 12 years ago

I don't even know what email my account uses, but I was able to log in to my account via the web UI, I'm more surprised that I remember my password than I am that I remembered the account number :)

jforman• 12 years ago

http://www.icq.com/people/159272/en

Thought about selling it on ebay, since six-digit accounts used to fetch a non-trivial amount of money. But decided it wasn't worth the $100.

Brandon0• 12 years ago

How is it we all still remember these numbers however many decades later??

http://www.icq.com/people/20687859/en

w1ntermute• 12 years ago

Why didn't they allow strings for username? Technical limitations?

aylons• 12 years ago

Actually, the uin was not that important. You could be identified by your email, for instance, or name and surname.

But people had the habit of exchanging UIN and this was it.

24811423

kaivi• 12 years ago

180662 - I am still using mine.

krstck• 12 years ago

52535425. And then I was so angry when that "children under 13 can't use the internet" or whatever act went into effect and I got locked out of it (young and stupid enough to put my real birth date!). I made a new account but can't remember the ID, I stopped using it pretty quickly after that.

grigory2• 12 years ago

316666. Haven't used it in many years. Obtaining that number was fun, as well :)

Kiro3• 12 years ago

How did you obtain it?

mads• 12 years ago

3333801 - actually managed to login. Wow...

drawkbox• 12 years ago

It was mainly purchased for the ICQ instant messaging patents rather than userbase: http://www.haaretz.com/print-edition/business/u-s-awards-icq... AOL still owns that patent, HTTPS/SSL from Netscape and the cookie from netscape as well. They loaded up on patent nukes in '98: http://news.cnet.com/2100-1023-218360.html

notastartup• 12 years ago

I actually didn't notice the date on this, and thought after Whatsapp, another one?!

We are in a bubble now I presume.

solarmist• 12 years ago

33493376

_of• 12 years ago

1369500 :)

ninive• 12 years ago

1315453 - A great collection of memories, indeed ;)

hazelnut• 12 years ago

There are still people out there who try to sell their ICQ numbers: http://www.ebay.com/sch/i.html?_trksid=p2050601.m570.l1313.T...

digz• 12 years ago

I haven't used ICQ since 2000 or so, but as soon as I read your comment, I immediately remembered my old number!

For context, I rarely remember my anniversary.

EDIT: I just logged in. Out of the hundreds of contacts I had, there's one sad guy still online.

booleanbetrayal• 12 years ago

243121 <3

jcurbo• 12 years ago

7-digit ICQ number here, but since I'm seeing people post 6-digit ones, I'm guess I'm not that special :) Still have my 3-digit Slashdot UID though!

bane• 12 years ago

I really wish valuation was a measure of how much value you can get out of a company and not how much somebody is willing to pay for it.

MichaelGG3• 12 years ago

If someone is willing to pay that much money for the company, then you can get that value of it.

BlakePetersen• 12 years ago

12834982 -- can't believe I can still remember it. I haven't signed on in well over a decade. Kinda proud, not gunna lie. And according to Google, my last nickname was "Blake's Alright", must have been going through some teenage melancholy at the time, haha

efuquen• 12 years ago

Someone mentioned about trying to find out if their have ever been any other chat services that have really made a lot of money on it's own, and it sparked memory of an acquisition that didn't happen quite that long ago, Microsoft buying Skype in 2011, and here is a good recent article about it:

http://www.theguardian.com/technology/2013/aug/30/skype-micr...

The bullet point that stands out for me is this:

• Problems monetising it: revenues at the time – $860m for the year, losses of $7m – amounted to just $1.30 per user per year

So, here we have a company, at acquisition, that was making close to the $1 per year per user that WhatsApp is charging. At the end of 2010 skype had 663 million users and was acquired for $8.5 billion. That's $12.82 a user.

Then, as now with WhatsApp, people are questioning whether Microsoft would ever make enough money to justify such a price. Then, as now, people justified the price based on the sort of intangibles (getting rid of a competitor, strengthening the brand, tapping new markets, etc.) the WhatsApp acquisition is being justified with now.

But there is still the big difference that Facebook, with a business in a similar space (obviously still different but they both are chat/communication based), with a similar revenue model per user per year, but only 3 years later purchased it for $42.22 per user. That's almost 4x the price for a similar acquisition 3 years apart.

And people thought Microsoft was crazy for the price they paid for Skype ... it kind of makes you wonder what the hell is going on.

jgreen10• 12 years ago

It seems these types of transactions have nothing to do with potentials profits, but with power over users, or "lying on a bed of weeds and ripping them out before they strangle you".

justincormack• 12 years ago

And with not paying tax - Microsoft has all this money sitting in Europe that it has to pay tax on if it returns to shareholders, or it can waste it on buying companies instead.

andreyf• 12 years ago

Even if user numbers were comparable, the number of users for WhatsApp is still curving upwards:

http://cdn-static.zdnet.com/i/r/story/70/00/026526/screen-sh...

I would also argue that being installed and used on mobile devices is more valuable than being installed on a desktop is.

keypusher2• 12 years ago

They already have 400 million users, and their growth might continue. But there are only 7 billion people on earth, they are running out of room to prove that valuation. Even if they literally sign up every single person on earth, that's still more than a few dollars per person in revenue required to make the $20 billion valuation worthwhile.

shuw• 12 years ago

Skype has 663 million "accounts", very few of these were active.

According to http://www.statisticbrain.com/skype-statistics/, only 31 million Skype users are active as of 2012.

jeffdubin• 12 years ago

Only?

coldtea3• 12 years ago

The statistics sounds BS (as a lot of them are).

FWIW, I don't know anyone (across 5 countries of friends and business partners) who doesn't use Skype.

swombat2• 12 years ago

Big difference: Skype had many more than the handful of employees needed to run WhatsApp. Their cost base was hundreds of millions.

WhatsApp seems to run lean and mean, and that makes a big difference in terms of keeping it profitable.

001sky2• 12 years ago

This is slightly misleading in that a business with no revenues doesn/t have that much work to do.

aleem• 12 years ago

WhatsApp is much better than Skype as an acquisition.

1. It's a single-purpose, specialised application which makes it hard to compete against. Once you can't subtract anymore from a software you are left with the essence of it. If you build that rock-solid you can eliminate any competitive threat on the product front. Kind of like unix utilities.

2. On the network front they played smartly by going after your phone book which makes them network agnostic (Skype, FB, Google, iMessage, BBM are all stuck within their own walls). At this point WhatsApp can just sit back and let network-effects do the work (they have spent 0 on marketing to date).

Between 1 & 2, competing with WhatsApp is hard and they are resilient to disruption. That's a great relief for any tech acquisition.

Another thing I like about WhatsApp is that they didn't do a whole lot other than fixing SMS. They did this by adding group messaging and reducing costs. And for now at least, I don't get any marketing spam on WhatsApp like I do over SMS.

Skype's shelf life was always questionable to me. It was and will remain relatively easier to disrupt.

PakG12• 12 years ago

Fixing SMS is the interesting thing. GroupMe was bought by Skype for many millions, and the key thing about GroupMe was supposedly fixing SMS. But I have no idea what happened to GroupMe after that acquisition. Like many startups, perhaps acquisition was death for them, although it seemed to me that would make little sense for Skype's motivations. I don't think they would have been simply looking for talent the way acquihires usually do.

glomph• 12 years ago

Is it insane to speculate that pressure is coming from government agencies? In a talk at Fosdem Poul-Henning Kamp talks about the pretty insane timeline with skype and how much it potentially benefited the NSA.

http://youtu.be/fwcl17Q0bpk?t=9m45s

brianbreslin• 12 years ago

One thing many people failed to take into account in the skype deal was that was cash sitting in overseas accounts and had microsoft repatriated those funds they would have been hit with a 30% tax or something on them. By buying an overseas asset they effectively got a huge discount on their money.

lostlogin2• 12 years ago

It was 30% off, I saved a fortune!

twelvechairs• 12 years ago

Speculation - pure and simple. its an easy sell at the moment to executives and financial types who don't understand how computers work. The reality is that all these services (just like icq) are simple to replace and will only become moreso. if you try to make more than a trickle of income users will turn away. it won't pan out long term for many of these big purchases.

im3w1l• 12 years ago

I wonder if IAP could work for social... "You used all your daily premium smileys. Click here to buy more!"

iamsalman• 12 years ago

Just a naive comparison, AOL paid ~24MM/user for ICQ. Facebook is paying ~42.3MM/user for WhatsApp. That's about 76% more. IRC wasn't making any money when it was acquired. WhatsApp was making some.

jetsnoc• 12 years ago

575061 ;)

MichaelMoser123• 12 years ago

It's funny how these ICQ like messenger applications always end up being bought out with heaps of money. When you see it all over for the nth time than its just funny.

I mean: you are supposed to learn a real profession so that you will be able to create real value, whereas real value is actually assigned to messenger apps.

coltr• 12 years ago

Wow, I forgot about Tripod. Had a few sites on there.

petercoolz• 12 years ago

what exactly happened to ICQ? i haven't used it in years and years

beagle3• 12 years ago

And since this is HN, you probably wonder where the ICQ founders are now? As far as I know, 3.5 out of 4.5 (one quit early) are busy having fun and enjoying life, and the remaining one has since started and sold companies for $100m each at the rate of about one per two years.

eyeareque• 12 years ago

I remember when this happened. I was quite the upset teenager :)

chris_wot• 12 years ago

So was I! Funnily enough, I was right, AOL killed ICQ. Then again, AOL killed most everything they touched.

gee_totes• 12 years ago

I'm going to speculate that this is a very strategic move from Facebook. Remember BlackBerry Messenger? one of the early selling points of the phone was that BBM let you communicate for free, instantly, with people all over the world. It was pretty revolutionary at it's time.

Facebook is already becoming the world's phonebook. Connect with someone and you have a way to contact them.

Facebook is also heavily pushing it's messaging app on the main Facebook app. I think that WhatsApp will be integrated with (or replace) Facebook messenger.

This combination builds a powerful base for an eventual Facebook phone with a free data/voice plan (the phone would have a base price, but service would be free thanks to the sale of ads ala Kindle Special Offers). Think about it -- if you could call, text, and message all of your contacts, for free, from within the Facebook app, why wouldn't you do it?

If Facebook follows that strategy, they will get their 19 billion out of this deal for sure.

alexeisadeski3• 12 years ago

BBM let you communicate for free, instantly, with people all over the world. It was pretty revolutionary at it's time.

It was not.

cmarschner• 12 years ago

They will have a phone

America Online to Buy Internet Chat Service for $287 Million (1998)

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