Web Companies Bent on Get Rich Quick
By John Dodge, PC Week - June 27, 1999 9:04 PM PT
Many Internet companies sermonize that, because they are in their formative
evolutionary stages, making money is secondary--if not further down the priority list.
Profits would be the wrong emphasis, they contend.
What hogwash! At least that's what I glean from the six-month melodrama
involving CMGI, the powerful Internet seed firm; Lycos; AltaVista; and USA Networks.
CMGI, as you will recall, deep-sixed the proposed merger between Lycos and USA
Networks, of Barry Diller fame, arguing that the valuation for Lycos was too low. CMGI
owns 18 percent of Lycos and stood to lose a sizable chunk of its biggest investment if
the deal went through.
However, the USA Networks-Lycos merger was, on paper, a strong strategic fit in
an industry where inexplicable deals are the rule. The 30 million unique visitors (source:
Media Metrix) going to Lycos' bevy of sites each month would be plugged in to USA
Networks' proven commerce engine, namely The Home Shopping Network and Ticketmaster
Online. There appeared to be great synergy. After all, the ability to conduct high-volume,
big-dollar commerce is often the missing link at some of the most-frequented Web sites.
CMGI Chairman David Wetherell led the successful assault on the deal, which died
May 12. It was assumed that Wetherell would find another suitor for Lycos that was willing
to pay a higher per-share premium, but so far, he's come up empty-handed. Reportedly, CMGI
is interested in taking over Lycos, but the scotched USA Networks deal was a bitter pill
for Lycos CEO Bob Davis to swallow. Getting Davis behind a CMGI takeover would be hard to
do.
Now, CMGI has turned its sights on The AltaVista Network, which today plans to
announce a revamped search engine, a shopping site and something called Micro Portals.
AltaVista CEO Rod Schrock late last week was talking up the deal with CMGI, suggesting
that consummation was not far off, although he wasn't saying for sure if or when.
"We would not be in discussion if there wasn't a strong synergy,"
Schrock said.
There again, the very public negotiations between AltaVista and CMGI could be
the bait that lures Lycos--which, according to Media Metrix, is almost three times bigger
than AltaVista--back to CMGI's table.
The hypocrisy about profit lies with Wetherell. He chants the anti-profit
homily, claiming that the Internet needs to be nurtured and grown. Yet, he kills the very
promising USA Networks merger with Lycos over inadequate stock valuation.
As I see it, stock value is little different than profit. Oh sure, if you hang
on to a stock for umpteen centuries, you're increasing the value rather than taking
immediate profit, but what savvy Internet investor isn't buying and selling like a jack
rabbit? In fact, a quick check of Lycos' stock since March shows the highest volumes when
the stock is peaking or tanking. That's pure profit-taking or loss-cutting.
Internet companies are hellbent to launch IPOs and cash out before the big top
comes crashing down on the show. Building long-term value may be a byproduct of what's
occurring today with electronic commerce, but characterizing the goal as anything other
than a get-rich-quick scheme is, in many cases, pure nonsense.
Are Internet companies interested in building solid, long-term value or a
cash-out-quick scheme? Let me know in the talkback below.
Top of Page
