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Yahoo Snaps Up Associated Content for $90 Million to Compete With AOL and Demand Media

Yahoo, in a clear attempt to get deep into the social content space and better compete with both AOL and Demand Media, announced the acquisition of Associated Content.

Sources close to the situation said the price was $90 million in cash, which is a solid outcome for Associated Content, a start-up that found itself in an increasingly crowded space for cheaper content.

There are no earn-outs and no restrictions, sources added.

Yahoo (YHOO) declined to provide the financial terms of the deal and said it expected to complete this acquisition in the third quarter of 2010.

In the deal, which the pair have been talking about for some time, the code name for the New York- and Denver-based company was Atlantic.

And, indeed, Yahoo is aiming to garner a massive sea of content by buying the company, which said it has 380,000 contributors and many millions of pieces of content.

It has about 16 million unique monthly visitors, according to recent surveys, and has signed several distribution deals with major media partners.

“This is really about our commitment to providing high-quality content that is relevant to users and also advertisers,” said David Ko, who heads Yahoo’s media efforts, in an interview with BoomTown just before the deal was announced.

For Associated, said founder Luke Beatty, it was a need to get access to Yahoo’s huge pool of consumers for its content, provided by armies of freelancers. It was founded in 2004, he noted, with the tagline: “The People’s Media Company.”

“We invented the category, thinking about this idea that there should be a democratization of content,” he said. “Being part of Yahoo increases our scale to a completely different level.”

Ko said Associated Content was “far superior than any competitor.”

It was a sentiment countered by Demand CEO and co-founder Richard Rosenblatt:

“The fact that Yahoo–which has historically sourced content from storied brands like Reuters, Associated Press and entertainment deals with Hollywood–is now ready to bring user-generated content to its advertisers is fascinating,” he wrote in an email to me. “Demand Media’s approach is certainly different than either AC, Yahoo or the combination. We think that our approach is differentiated due to our large professional content creator network, rigorous editorial processes, strong technologies and algorithms and distribution on a combination of owned and partner sites.”

Yahoo’s Ko also called Associated Content a “pioneer” in the space to make bank from crowd-sourced, search-optimized content efforts for media about more mundane topics like back pain.

And, indeed, that is true.

Yet Associated Content’s efforts have been overshadowed recently by those of Santa Monica, Calif.-based Demand Media, which is heading for an IPO at a multibillion-dollar valuation, as well as AOL (AOL), which has put a lot of muscle behind both its low-cost social content at its Seed unit and higher-priced premium content efforts.

As MediaMemo’s Peter Kafka wrote:

“Associated Content looks and acts a lot like Demand Media, the Santa Monica-based “content mill” that’s drawn a lot of attention in the last year or so–though both companies bristle when you compare the two. It’s also thematically related to AOL CEO Tim Armstrong’s push to automate the production of content at that company.”

And while Beatty had said Associated Content was not for sale, many other sources inside and outside the company said it has been shopping itself for a while now, including to both Demand and AOL, in fact.

It hired Allen & Co. earlier this year, after AOL talks went nowhere.

Ironically, Armstrong was an angel investor in Associated Content, which is also backed by Canaan Partners and SoftBank Capital. It had raised a total of $21.4 million.

Another irony: In the past, Yahoo has taken a look at acquisitions of both AOL and Demand, deeming both too pricey.

In addition, the relationship between Demand and Yahoo has gotten testy of late, with Demand poaching top exec talent from Yahoo, such as U.S. ad sales head Joanne Bradford, among others.

People close to Associated Content say it’s on a $15 million run rate, up from $4 million earlier in the year.

Still, settling in at Yahoo and for a solid price is a good outcome for Associated, whose staff will now be integrated with the Silicon Valley Internet giant.

“Combining our world-class editorial team with Associated Content’s makes this a game-changer,” said Yahoo CEO Carol Bartz in a statement. “Together, we’ll create more content around what we know our users care about, and open up new and creative avenues for advertisers to engage with consumers across our network. These are important aspects of building engaging consumer experiences on Yahoo!, and one of the reasons why we’re one of the most visited destinations online.”

Here is a video that Yahoo posted on its Yodel Anecdotal blog of Beatty (good lord, you really don’t need to kiss up to your new bosses with purple socks, Luke!):

And here is the official press release from Yahoo about the deal:

Yahoo! to Acquire Associated Content

Extending leadership in content with the addition of 380,000 contributors

Sunnyvale, Calif.–May 18, 2010–Yahoo! Inc. (NASDAQ: YHOO) today announced it has signed a definitive agreement to acquire Associated Content Inc. This strategic move extends Yahoo’s ability to provide high quality, personally relevant content for the benefit of more than 600 million users as well as tens of thousands of advertisers. As Yahoo! enhances its social, mobile, local, and media offerings, the acquisition of Associated Content reinforces the company’s longstanding promise to offer the best of the Web–by combining Associated Content’s approximately 380,000 contributors who provide rich and varied content on a broad array of passion points, with Yahoo’s leadership in partnering with established content brands and the award-winning team of editors and experts from Yahoo!.

“Combining our world-class editorial team with Associated Content’s makes this a game-changer,” said Carol Bartz, CEO, Yahoo! Inc. “Together, we’ll create more content around what we know our users care about, and open up new and creative avenues for advertisers to engage with consumers across our network. These are important aspects of building engaging consumer experiences on Yahoo!, and one of the reasons why we’re one of the most visited destinations online.”

“The Associated Content team and our 380,000 contributors are looking forward to joining Yahoo! and to the opportunities that being part of a global Internet brand presents,” said Luke Beatty, Associated Content founder and president. “Combining our crowd sourced content with Yahoo!’s distribution, world class editorial team and online marketing leadership will accelerate our growth as we continue to leverage our best-of-breed platform to deliver high quality compelling content on more than 60,000 topics.”

For advertisers, this deal will expand Yahoo! into more topic areas and real-time content generation. The combination promises to offer advertisers even more opportunities to engage groups of passionate consumers in ways they will find uniquely appealing to their interests and tastes. Having insight into user intent through its leading search products enables Yahoo! to identify topics important to advertisers and users. Yahoo! plans to use Associated Content to create content around those topics and leverage Associated Content to contribute content to existing media properties. Associated Content also provides more opportunities for Yahoo! to partner and collaborate with publishers who can help the company shape the tremendous variety of content coming in, into something bespoke and even more engaging.

While current Associated Content content is U.S.-centric, Yahoo! expects to scale the platform globally.

Associated Content was founded by Luke Beatty in Denver, Colorado, in 2004. Associated Content receives more than 16 million unique users per month (comScore) and the editorial staff reviews more than 50,000 pieces of content per month, including articles, images, audio and video.

Yahoo! expects to complete this acquisition in the third quarter of 2010. Financial terms were not disclosed.


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