Now that MySpace has finished its acquisition of iLike, what it’s going to do with it? Don’t think music, MySpace CEO Owen Van Natta stressed in a press conference today, think about “socialization of content.”

What does that mean? Pretty vague, which, I gather, is Van Natta’s intention.

But in short, what Van Natta is saying is that he has bought a 26-person company–for $19.5 million–because it has engineering talent that is good at building stuff that 1) helps users find content and share it with one other, and that 2) works on multiple platforms.

Van Natta did make a point of downplaying iLike’s ability to help MySpace build out its music offering, though. Which makes sense, because MySpace already has a music platform that it owns in a separate joint venture with the big music labels.

And because while iLike is known as a music platform, it really isn’t. It doesn’t have deals with the music labels that let users listen to full songs, and it only recently launched a way for users to buy songs. What it does do is recommend music based on stuff you like, and lets you share your likes and recommendations with friends.

You can see how the people who built the iLike platform–primarily on the back of Facebook, where Van Natta was formerly COO–could be useful for MySpace, which is in the midst of a drastic overhaul.

Van Natta was brought in to run the once-hot social network at the behest of corporate owner News Corp. (NWS) earlier this year, and has been busily hiring and firing since then.

The iLike deal is Van Natta’s first major acquisition since he came on, but it is essentially a hiring move, too. The plan is to keep all of the company’s key talent, including CEO Ali Partovi, President Hadi Partovi and CTO Nat Brown. (All three are in the picture at the top of this post, along with Van Natta and MySpace COO Mike Jones. From left to right: Ali Partovi, Jones, Van Natta, Brown and Hadi Partovi.)

Speaking of that talent: Asked about All Things Digital’s report about tax issues slowing the last stages of deal, Van Natta declared that “this was actually one of the smoother sailing deals that I’ve been involved in.”

Which may be true, but it doesn’t mean there weren’t tax problems for the company he was acquiring, as well as a delay.

In one email to the entire iLike board on Monday afternoon, titled “late-breaking tax issues with iLike/MySpace merger,” Co-founder Hadi Partovi wrote, referring to his brother and also Co-founder Ali:

“Ali & I recently learned about a potential tax liability that could be significantly disadvantageous to us as a result of the merger.

“We don’t have definitive info yet, and we’re just as disappointed as anybody to learn this at the 11th hour.”

Then, Hadi Partovi sent yet another email to Gregg Winiarski, GC at IAC (IACI) yesterday, titled “potentially significant tax risks for iLike common shareholder (esp Partovis).”

Before IAC had spun off Ticketmaster Entertainment (TKTM) last year, which was one of iLike’s big investors, Winiarski had apparently been involved in some iLike issues around compensation.

So Hadi asked him: “gregg, do you have any thoughts on this? since the structure of moving into common-stock (to avoid income tax) was your idea, I was hoping you [would weigh in].”

Winiarski–in several exchanges, in which Hadi’s brother and also Co-founder Ali Partovi even asked if IAC and Ticketmaster might indemnify them if problems arose–politely declined to weigh in, presumably since IAC was no longer an investor in iLike.

Ali Partovi intently asked for a call “TODAY,” but Winiarski did not bite on that or the indemnification request.

In the end, Ali Partovi wrote: “We’re moving forward with the deal, mainly because Hadi and I are not the types to hold up a deal over this. But I’d appreciate if you’d be open to a discussion about the risk exposure we’re sustaining here.”

Apparently it did not hold up the deal.

Maybe someone can ask Van Natta about that in the all-company meeting MySpace has scheduled for next week, which he mentions in this internal memo announcing the deal:

Hi everyone,

I’m pleased to announce this morning that MySpace has entered into an agreement to acquire iLike.

iLike is a social music discovery service that in just two years has become the largest, most comprehensive music application across all social networks. With 55 million users and 1.5 billion monthly impressions, their growth speaks directly to the usability of the product, the technology behind it, and the great team that built it.

One of the great things about MySpace is that its openness enables discovery–we’re going to take that strategy one step forward by also allowing users to experience content on the distributed Web.

On MySpace, users connect with the content they love in a centralized and social environment. On iLike, users can access the content they love in a highly distributed environment across their favorite websites. This shared vision around content distribution is a key component to the future of MySpace.

What the iLike team has done with music is applicable to all of the areas that are important to MySpace users today such as entertainment, video, and games. Because we view the opportunities of this acquisition beyond the music category, MySpace Inc. will be making this acquisition separate and apart from the MySpace Music joint venture.

The company’s current management–CEO Ali Partovi, President Hadi Partovi, and CTO Nat Brown–will continue to lead iLike’s future. I’ve known Hadi and Ali for almost 10 years and the two of them, along with Nat are talented entrepreneurs with a strong track record for building world class product.

Just to give you a sense of their history and professional achievements:

· Ali established himself as an entrepreneur by co-founding LinkExchange, which started as the web’s first and largest banner-advertising network and grew to become the web’s largest small-business portal before being acquired by Microsoft in 1998. In 2002, Ali became CEO of Garageband.com and then iLike.

· Hadi co-founded Tellme Networks, a leading provider of voice/telephone technology and services, where he ran product and technology, and later spearheaded the company’s shift from consumer services to enterprise call-center automation for AT&T, FedEx, and E*TRADE. Tellme Networks was acquired by Microsoft in 2007. Both acquisitions (LinkExchange and TellMe) rank as two of Microsoft’s biggest deals to date. Hadi was also an original group program manager for Internet Explorer, a general manager of MSN.com, and he incubated Start.com (now Live.com).

· Nat has a deep and respected history as an early architect at Microsoft. He rapidly earned a reputation as one of Microsoft’s foremost technical minds by creating and evangelizing the ActiveX/COM object model in the early 90s. He went on to play a seminal role in the creation of XML, DHTML, and as a primary architect of the first XBox. After retiring from Microsoft, he served briefly as CTO at CAC Media and has informally advised numerous startups.

In addition to this great management team, iLike has 26 employees in various technical and business functions including a market leading development team that will join MySpace. iLike will remain headquartered in Seattle but our teams will be working very closely. I’m excited to see the great things that come out of the collaboration between our management teams, employees, and cultures.

We have an all-company meeting next week and I look forward to seeing everyone and answering any questions you might have.

Please join me in welcoming Ali, Hadi, Nat and everyone at iLike to MySpace.

The board of iLike planned a meeting earlier tonight to go over a buyout offer by MySpace, several sources close to the situation said. But it was suddenly canceled because of some thorny tax implications related to the talent-retention part of the deal to purchase the social music start-up.

This does not mean the pending acquisition is in jeopardy, sources said, and it could be on track to be signed as early as today, barring any more complications.

That is what both iLike and MySpace execs are hoping, said sources, one of whom described the outstanding issues as a “technicality.”

What’s also been unclear is the actual price the social networking giant is paying for iLike, which has been reported as about $20 million.

In fact, only $13.5 million will be paid upfront in cash, with about $8 million of that money likely going to one of its major shareholders, Ticketmaster Entertainment (TKTM), due to its preferred shares.

Another $6 million has been promised by MySpace in forward payments to retain some key employees–including iLike co-founders and twin brothers Ali and Hadi Partovi.

Although those employees can remain in Seattle, where iLike has its HQ, they must stay employed at Beverly Hills, Calif.-based MySpace for two and a half years to get their money.

It’s that talent part of the deal that caused the Partovis to cancel the iLike board meeting, which they explained to key investors was necessary due to some confusion over how the money paid to these employees would be taxed.

A person briefed on the issue said that if it was taxed as compensation, it would have a much higher tax rate than if it were considered long-term capital gains.

The Partovis said in the email that they were working on the problem with their advisers on the sale, Allen & Co., as well as with lawyers and accountants.

Tax snafus in the middle of a sale are not exactly the way the entrepreneurial Partovis envisioned it was going to go for iLike (see my various video interview related to iLike below) when they created the compelling music sharing and recommendation service in 2006.

After only a few years, the innovative start-up claims it has 50 million registered users overall.

A lot of that growth was due to iLike quickly becoming one of the most popular widgets on social networking sites like Facebook, where it has also been the top music application, with 10 million active monthly users.

The Partovis–who once were close with execs at Facebook (see my party video below), particularly founder and CEO Mark Zuckerberg–placed great faith in its growth lifting all Web 2.0 boats.

It did not turn out that way, though, especially from the important financial point of view, and iLike scrambled to diversify.

The iLike service recently began offering a music downloading service, for example, as well as other such features, all of which would be attractive to the music-centric focus at MySpace.

Once an Internet sensation, MySpace has been struggling to restructure itself after losing momentum and buzz in recent years, as well as a huge advertising revenue drop in its most recent quarter.

Its owner, News Corp. (NWS), replaced its founders with new management four months ago, including former Facebook exec Owen Van Natta as CEO.

After making major staff layoffs and rejiggering management, Van Natta and his new team have been working on an overhaul of the MySpace product and seem to be refocusing it to become a global music and entertainment service.

MySpace also has a joint venture with major music labels, MySpace Music, which has been trying to attract consumers and build a viable business. Sources said MySpace Music could also buy into the iLike deal or simply license its technology to improve its features.

Thus, purchasing iLike would fit in well with MySpace’s overall plans.

And iLike has also been in need of a fix itself.

For all its popularity, especially on Facebook, it has moved slowly toward profitabilty, and its $17 million in funding has been dwindling, as has its viability as a standalone company.

Back in more frothy Web 2.0 days, iLike’s generous funding gave it a valuation of more than $50 million, which has also lost steam over time and as the economy has worsened.

In the last quarter of fiscal 2008, for example, Ticketmaster wrote down its $13 million investment by $6 million.

Tensions between its execs and iLike have gotten worse over time, although some thought at one time that Ticketmaster would buy iLike.

No longer, which is why the founders turned to Allen & Co., as MediaMemo reported as far back as November, to find another big investor or buyer.

Wrote Peter Kafka: “Delivering free music on the Web has so far proven to be a high-cost, low-revenue endeavor…”

So, the New York deal-making firm ginned up a small group of suitors, which included Facebook, Activision Blizzard (ATVI) and Microsoft (MSFT), as well as MySpace.

Of the three, Activision was most serious, with interest in integrating iLike’s community and technology tools with its Guitar Hero franchise.

But Activision never actually made a formal bid, said sources.

Both Microsoft and Facebook also considered the purchase, but sources said they would only offer stock in a deal. But iLike wanted cash in the deal.

The Partovis were also was wary about working at either place.

Both Partovis, for example, had worked at Microsoft (Ali after selling it LinkExchange in 1998 for $265 million; Hadi several times, once following Microsoft’s acquisition of Tellme Networks, which he co-founded).

As it has turned out, in its short life, iLike’s last, best alternative is apparently MySpace.

“Look, iLike has been shopped around for a while, and while the team and technology are great, it only has one choice and that’s to be sold,” said one person involved in the various scenarios. “The question for the buyer then is whether it was worth it to pay up or just move on and do it ourselves.”

So until the bean counters settle this IRS nightmare, here is my video interview with Hadi Partovi about a year ago at iLike’s HQ in the Capitol Hill section of Seattle, when times were a little more hopeful:

And here is a very dark and very shaky video I did when iLike threw a fete in Silicon Valley to celebrate its start-up two years ago and to send some appreciation in Facebook’s direction–it is so dated that Facebook COO Sheryl Sandberg, who is in the video, is still at Google (GOOG).

(Full Disclosure: News Corp. also owns Dow Jones, which owns this site.)

]]> http://allthingsd.com/20090817/sale-of-ilike-to-myspace-135-million-in-cash-6-million-for-talent-retention-delayed-over-tax-issues-reallyplus-the-list-of-other-suitors/feed/ 4 http://allthingsd.com/20081124/web-2o-music-pioneer-ilike-looking-for-buyers/ http://allthingsd.com/20081124/web-2o-music-pioneer-ilike-looking-for-buyers/#comments Mon, 24 Nov 2008 23:14:03 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=1393 iLike, the Web start-up that made a name for itself by becoming Facebook’s de facto music service, is looking for a buyer, according to multiple sources. I’m told that iLike is actively soliciting a list of buyers that include RealNetworks and Ticketmaster, which already owns 25 percent of the company.

It’s conceivable that iLike, led by brothers Hadi and Ali Partovi, is simultaneously pursuing funding options. But my understanding is that much like competitive music service iMeem, which is also on the block, iLike’s executives and investors are worried about keeping the company afloat as a standalone entity. Delivering free music on the Web has so far proven to be a high-cost, low-revenue endeavor, and that’s a difficult path to choose in this environment.

My sources couldn’t tell me what sale price iLike is hoping to get. It has raised about $16 million in two years. Most of that came from Ticketmaster (TKTM), which has now split off from Barry Diller’s IAC and trades as standalone company. A smaller slug came from Bob Pittman’s Pilot Group, which has taken a stab at other Web music start-ups, including a recent investment in Project Playlist. I’ve asked the Partovis and their PR rep for comment, but haven’t heard back.

Ticketmaster’s existing ownership makes it an obvious buyer. The company also has a relationship with RealNetworks (RNWK), which began powering a free music service for iLike this summer. And while I don’t have confirmation that the two companies have actually talked, the third very obvious buyer would be Facebook, which is responsible for the company’s success to date.

iLike originally started out as a music discovery service that promoted the homegrown music found on Garageband.com, another Partovi brother music start-up. But it really hit its stride with the launch of Facebook’s open developer platform in the spring of 2007. Since then it’s become one Facebook’s most popular apps, with more than 5.4 million active monthly users.

That hasn’t translated into huge revenue: The company hasn’t expended much effort trying to sell advertising on Facebook, which is a challenging environment to begin with. And while it generates referral fees when it sends concertgoers to Ticketmaster, those sales haven’t been significant enough to register on the company’s SEC filings so far.

Now Facebook is looking to create its own music service, and it’s conceivable that iLike could step in and take on that role for the company. One big problem: Facebook wants to provide users with a service that gives them the ability to listen to songs in their entirety, à la MySpace Music. But Facebook doesn’t actually have licenses with the big labels that allow it do that. Instead, it provides users with 30-second clips.

All Things Digital’s Kara Swisher visited with Hadi Partovi this summer; below the two talk about iLike’s history and ambitions.

]]> http://allthingsd.com/20081124/web-2o-music-pioneer-ilike-looking-for-buyers/feed/ 0 http://allthingsd.com/20080723/kara-visits-ilike-in-seattle/ http://allthingsd.com/20080723/kara-visits-ilike-in-seattle/#comments Wed, 23 Jul 2008 21:39:22 +0000 Kara Swisher http://kara.allthingsd.com/?p=2404

On my recent trip to Seattle, I visited the offices of iLike in the Capitol Hill section of that lovely Pacific Northwest city to take a video gander at one of the more interesting start ups to emerge from the social-networking arena.

The music discovery site, unlike a lot of others in its sector, has been plugging away for several years with much less funding–about $16 million from the founding Partovi twin brothers, former AOL (TWX) wunderkind Bob Pittman and a big slug from Ticketmaster (IAC)–but with a lot more impact.

Like its competitors, such as Last.fm, it has forged its popularity by focusing on linking its users with one other and musical artists via what they like to listen to.

Kind of like that old shampoo cliché: She told two friends and she told two friends and so on and so on and so on.

It’s actually quite an infectious app and also Web site, with 30 million registered users, and it’s one of the few that is useful on social-networking sites like Facebook, hi5, Orkut and Bebo.

So useful, in fact, that Facebook has selected the service as one of only two “preferred” partners, a designation Facebook announced today at its second developers conference in San Francisco.

iLike was the brainchild of Ali and Hadi Partovi, longtime Web entrepreneurs who have also worked at big companies like Microsoft (MSFT), and whose interest in music and online delivery was the inspiration for the site.

To make money, iLike has a number of businesses.

First and foremost it is essentially a lead-generator for sites like Amazon (AMZN), iTunes, Ticketmaster, and more recently, the Rhapsody subscription music service, with which it just added a somewhat restricted full-song playback offering.

And iLike has just launched an ad platform for concert promoters.

The brand itself, although focused on music right now, obviously has extension possibilities (iLike movies? iLike TV? iLike tacky theme parks?).

Most observers of iLike assume it will sell to a larger entity eventually, such as Ticketmaster, for whom the site has become a major referrer.

But the Partovis–who have sold start ups before–insist they want to build the iLike brand.

Here’s a video interview with Hadi Partovi in which we talk about all this and more, along with a tour of iLike’s offices:

[ See post to watch video ]

]]> http://allthingsd.com/20080723/kara-visits-ilike-in-seattle/feed/ 2 http://allthingsd.com/20070907/a-tale-of-two-parties-in-silicon-valley-part-2-ilike-kisses-up-to-zuckerberg/ http://allthingsd.com/20070907/a-tale-of-two-parties-in-silicon-valley-part-2-ilike-kisses-up-to-zuckerberg/#comments Fri, 07 Sep 2007 08:49:20 +0000 Kara Swisher http://kara.allthingsd.com/20070907/a-tale-of-two-parties-in-silicon-valley-part-2-ilike-kisses-up-to-zuckerberg/ Why shouldn’t the Partovi brothers–Hadi and Ali, both longtime serial tech entrepreneurs who sold their previous companies for big scores–give a little love back to that nice boy, Mark Zuckerberg of Facebook?

So, last night, they threw a party to celebrate their start-up called iLike and also send some appreciation in Facebook’s direction.

After all, their social music discovery service is one of the most popular third-party applications on the hot social network, with seven million Facebook users (out of 11 million total), hypercharging the Seattle-based iLike.

Funded by Ticketmaster (IAC), Khosla Ventures, Bob Pittman and with a cast of top tech players as advisers, it is one of the widget wonders of the moment.

Facebook founder Zuckerberg was at the party, as well as many others in the Facebook widget universe, which is ruling Silicon Valley at this moment, with their zombie bites and silly polls and cartoonifying software.

They partied in the backyard of a tricked-out house in the fancy Silicon Valley neighborhood of Atherton–the home of Elevation Partners’ Marc Bodnick, an iLike board member.

There, a much hipper and younger demographic than the earlier August Capital party had a late dinner of salmon and all manner of other treats under the stars.

That was capped by a concert from San Francisco’s popular band, Third Eye Blind, which has had many big hits including “Semi-Charmed Life.”

By the looks of things at the iLike party, it is a completely charmed one for the Partovis.

[ See post to watch video ]

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