Internet giant Yahoo Inc., scrambling to parry a takeover bid from Microsoft Corp., yesterday said it has purchased broadband video start-up Maven Networks Inc. of Cambridge for $160 million, in the biggest acquisition yet of an Internet video toolmaker.
The deal gives Yahoo a beachhead in the Boston area, where until now it has operated only a small sales office. Rivals Microsoft and Google Inc., which have been vying with Yahoo for dominance of the Internet, both have been beefing up their own operations in Kendall Square, where Maven has about 70 of its 80 employees.
Maven, which sells video publishing systems and toolsets that let companies play, distribute, syndicate, and monetize broadband video, is part of a cluster of venture-backed video technology start-ups in the Boston area. Its acquisition was hailed as a coming of age for the sector, which Forrester Research projects will be generating more than $4 billion in advertising annually within the next three years.
"Internet video, while it was pioneered by a bunch of start-ups, is on the cusp of becoming big business," said Hilmi Ozguc, the chief executive of Maven, which has raised about $30 million in venture capital since 2002. "Billions of dollars in advertising are at stake."
The deal could also raise the profile of the area's other Internet video players, including Brightcove Inc. of Cambridge, PermissionTV Inc. of Waltham, ExtendMedia Inc. of Newton, and Gotuit Media Corp. of Woburn, said Will Richmond, president and founder of Broadband Directions, an Internet vid eo market intelligence firm in Newton.
"It's a validation of Maven's strategy of focusing on the ad-supported part of the broadband market," Richmond said of the Yahoo deal. "At the broader level, it's a validation of the broadband video market as a whole. I think it's a terrific fit for both companies."
While talks between Yahoo and Maven had begun before Microsoft made its unsolicited $44.6 billion offer for Yahoo on Feb. 1, the takeover bid briefly called into question the fate of the negotiations. "The antacid quotient went up," said Woody Benson, general partner at Prism VentureWorks in Needham, one of Maven's backers. "Yahoo told us it was business as usual, and they were true to their word."
Maven's other venture financiers were General Catalyst Partners of Cambridge and Accel Partners of Palo Alto, Calif. Its investment banker for the Yahoo deal was Jefferies & Co. of Waltham.
The deal, which didn't require regulatory approval, closed yesterday, with Maven now operating as a wholly owned subsidiary of Yahoo.
Ozguc said he and the entire Maven staff will remain with Yahoo in Cambridge but will work with video engineers at Yahoo's headquarters in Sunnyvale, Calif., and its video hub in Dallas to integrate Maven technology. "They plan to invest in Maven and expand it," Ozguc said.
Yahoo, which has about 14,000 employees worldwide, will use Maven's technology to power video on its own news, sports, and entertainment websites while also marketing it to other companies. Maven already sells its technology to giant media and entertainment customers such as Fox News, Sony BMG, and CBS Sports.
"Maven is going to focus on doing what it does best," said Becca Paoletti, the Yahoo director of video strategy sales. "We're trying to leverage their technology to extend our video capabilities and to give other video publishers the tools to monetize their content."
Paoletti said it was premature to say whether Yahoo could use Maven as a springboard for a major presence in the Boston area. Google, which started with two engineers and a handful of sales people in Boston at the end of 2005, now employs more than 150 people in Kendall Square. Microsoft, which recently opened a new office overlooking the Charles River, has nearly 800 employees in Massachusetts and plans to open a basic research lab in Cambridge this summer.
In a blog post reacting to the Yahoo-Maven alliance, Adam Barry, senior vice president of marketing and strategy at Brightcove, a Maven competitor, said his company was "looking forward to continuing to grow a strong, independent company in 2008."
Yahoo's Paoletti said her company's deliberations over Microsoft's takeover offer, which Yahoo has formally rejected, were entirely separate from its talks with Maven. "We were working on the Maven deal long before the Microsoft deal surfaced," she said.
But with Microsoft expected to sweeten its offer for Yahoo, there's a chance Maven will wind up in the hands of the Redmond, Wash., software goliath. If so, Maven's backers think its technology could prove an important asset in Microsoft's struggle to catch up with market leader Google in Internet search and advertising.
"Video is going to be a big thing on the Internet, and it's going to be a game played by the titans," said Benson at Prism. "There are 50 to 75 big media and entertainment companies in the world. And they're all going to need to have a broadband video solution."
Robert Weisman can be reached at weisman@globe.com.
