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Should Yahoo Buy Six Apart?

When Six Apart bought blogging community LiveJournal in January, it acquired an extra 5.5 million users and serious gravitas. But can it make it as a standalone business?

News of the Six Apart-LiveJournal deal caused David Jackson, editor of the Internet Stock Blog, to make the provocative prediction that Yahoo would buy Six Apart within six months.

When fourth-place search service Ask Jeeves this week bought Bloglines, a feed aggregator and provider of blog search and creation tools, eyes turned again to Six Apart as the last free-standing blogging service.

Should it be? Can Six Apart survive on a mix of hosting fees and contextual ads? And is Yahoo missing the boat by not offering users tools and blogs?

"Six Apart is not in conversations about being acquired by anyone," David Hornik, a Six Apart board member and a partner in August Capital, told internetnews.com. August Capital recently threw $10 million into Six Apart, which offers free blogging software and hosted, subscription-based blogs and tools.

Yahoo already has a thriving feed aggregation service. Scott Gatz, Yahoo director of personalization, recently told journalists that a few million users had added RSS feeds to their My Yahoo services. But Ask Jeeves' purchase of Bloglines leaves Yahoo as the only major search provider without blogging tools on hand.

There are a few reasons why Yahoo might want to add blog authoring to its own portfolio.

First, blogging tools might soon be seen as de rigueur for any serious player. Second, blogs can push traffic to the main search service. They also provide a cheap and nearly infinite source of fresh content. Finally, Six Apart's community of 6.5 million hosted blogs could help Yahoo's Overture advertising service extend its reach.

Blog services are strategically important for all major Web content providers, said Lance Podell, CEO of Kanoodle, a blog advertising network that recently signed on to provide ads to Six Apart blogs.

"You want to make sure that trends that feel real are trends you are attached to. When you have them in-house, you can incubate them, help direct the future of the market and try to monetize them," he said.

Jim Lanzone, Ask Jeeves' senior vice president of search properties, believes RSS and feed aggregation is a best-of-breed way of monitoring and consuming content. "It's an important product or feature for a search engine or portal to offer," he said.

A hosted blogging service also can feed traffic back to main search, according to Lanzone. Bloglines may be a great traffic funnel, he said, because Ask Jeeves search now appears on the Bloglines site. Lanzone said Bloglines' share of the feed aggregation market was the most attractive feature, with the blog authoring tools a distant third. "Aggregation makes more sense than offering a platform for people to write," he said.

Rich and Easy Content

Blogs have an important role to play for media sites, as a bottomless source of fresh content -- and with content comes more space to sell ads.

"The top search providers are exploring their futures as media companies, and it's a logical direction," Kanoodle's Podell said, pointing out that user-generated content requires little internal resources.

According to Jackson, "category killer" blogs -- tightly focused niche sites that are the best source on a single topic -- already are siphoning traffic from mainstream Web media.

Many industry watchers believe there's a growing shortage of ad inventory -- even as blogs hypertrophy the amount of online content.

If the theory is correct, Overture could soon be scrambling for inventory -- and falling behind blog-ad-friendly Google .

Jonathan Rosenberg, vice president of product management for Google, told analysts recently that blogs are "a very fundamental change in the way content will be created that was spawned by AdSense." And Google has raked in profits from those micropublishers, while Yahoo's Overture has focused on large advertisers.

While Google reaps the rewards of do-it-yourself advertising on blogs via AdSense, The Internet Stock Blog's Jackson said, "there has been an incredible failure of Overture to get any kind of competitive service up there."

Yahoo executives were not available for interviews.

Yahoo could easily build its own blogging tools or buy a small software company. But buying Six Apart could get Yahoo there quickly, increasing regular search traffic and helping Overture compete against Google's AdSense, Jackson said.

Six Apart's Options

While buying Six Apart could be good for Yahoo, Six Apart could reject suitors, go public and try to build a business based on ad revenue and hosting fees.

"Blog software is a very real business with a real business model. It is totally different than an RSS reader," said Jason Calacanis, CEO of Weblogs, Inc., a network of ad-supported blogs. He said the growing interest in blog advertising puts Six Apart in a viable position.

"SixApart could be a standalone company for some time to come ... and it could be profitable," he said. "There is room for two or three stand-alone software plays in the space. So, I don't think they need to be bought. If anything, I see them going public."

Six Apart executives refused comment. But the company's lead investor seems to agree.

"This generation of the Web has demonstrated that contextual advertising is a meaningful source of revenue," August Capital's Hornik said. While some companies are more feature than product, he said, it's easier today for companies like Six Apart to grow, even if they offer services that consumers won't pay for.

Still, Hornik said, "Over time, there are opportunities to evolve your business and determine what is the appropriate going-forward plan."

Ask Jeeves might be interested in buying Six Apart -- along with plenty of other companies. "There's a lot of things we'd consider buying -- or partnering for or building," Lanzone said.

If Yahoo or Ask Jeeves came knocking with, say, $40 million in stock, what would Hornik say?