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Have cc'd below the really good TMF interview with Russell Horowitz that Chuck just brought to our attention...
Thanks Chuck for finding it!
KLP
fool.com
TMF Interview With
Go2Net CEO Russ Horowitz
With Brian Graney (TMF Panic)
February 7, 2000
The last time we talked with Go2Net (Nasdaq: GNET) CEO Russ Horowitz in the
autumn of 1998,
the Seattle-based company was primarily known as a collection of
community-oriented websites.
That really isn't the case anymore as Go2Net has evolved since then into a provider of
services in
three online areas: consumer services, business services, and enabling technologies.
We talked with
Mr. Horowitz about the company's evolution and the opportunities that lie ahead.
TMF: How does your recent deal with National Discount Brokers (NYSE: NDB) fit
into the
consumer services segment, and specifically with your Silicon Investor site?
Horowitz: This is one that really cuts across both the consumer services
and the enabling technology spaces. With the relationship with National
Discount Brokers, a couple of things happen. One, on the consumer
services side, Silicon Investor as a product has significantly improved as
the
first in the space to have an integrated traded platform where users can
now
have all of the benefits that they've historically had with Silicon Investor.
[They] are going to be able to trade in a co-branded environment without
feeling like they ever left the site.
On National Discount Broker's side, they now have access -- through our licensing of
the technology
platform and the database on Silicon Investor -- to the richest discussion community
around stocks,
so their product gets a whole lot better. So you have the consumer element of it in
terms of Silicon
Investor as a product getting much better. Then in the enabling technology segment,
you have a
contribution by taking this technology platform and licensing it to a strategic partner.
One of the key differentiators that we would really distinguish with our enabling
technologies is these
are really mission-critical sorts of functions that we formalize partnerships with. If you
look at
Hasbro (NYSE: HAS), clearly games.com is their Internet initiative and is really
strategic to them
and Go2Net is the provider. In the broadband space, Paul Allen and Vulcan Ventures
and Charter
Communications (Nasdaq: CHTR) could have gone anywhere, but they came to
Go2Net for the
broadband services and content. We provide a corporate portal to Allegiance
Telecom (Nasdaq:
ALGX), a multibillion-dollar CLEC. And now with NDB, we're giving them the
foundation for a
community that they can offer to their account holders and we're benefiting as well by
having a
leading commerce platform in the investing space to bring to our members.
The difference is there are a lot of people out there that kind of offer licensing of
services, but the key
thing with us that these are mission-critical technologies and functions that these
companies are
coming to Go2Net for.
TMF: Do you see these exclusive relationships replacing the broad-based ad revenues
that have
traditionally been driving your consumer sites?
Horowitz: In these deals, some elements are exclusive and some aren't, but we haven't
done any
deals that really limit our ability to go out and further license these technologies. We
are continuing to
rapidly grow our advertising revenue streams, although we are making a conscious
and concerted
effort to balance that with recurring revenue streams like licensing. So I don't
necessarily think it will
replace it. That's the last thing we want it to do.
What we want it to do is supplement our growth by it being an even faster revenue
stream in terms of
the revenue contribution, and with that, have balance across our various segments. To
the extent that
we're able to accomplish that, it adds great visibility to our operating results, which
makes us as a
management more comfortable and we think Wall Street pays a premium for [that].
TMF: Turning to the broadband initiative, how do you see that opportunity evolving?
And is there
any chance for a company like Go2Net to build dominance in that area or do you
think it's a market
that is destined to be made up of several competing players?
Horowitz: I think that there are very few segments on the Internet where there will just
be one
dominator and you're going to continue to see segments with a couple. Clearly, being
number one in
any space commands a premium. But if you look forward to broadband and the
implications of that,
when you have multiple Internet appliances and various forms of broadband, I do
think there's going
to be a few different leading players and that Go2Net will be one of them.
The nature of distribution through broadband is a lot different than it has been
historically on the
Internet, where a lot of the growth and usage has gone through kind of a general
public Internet on
narrowband, to sites like Yahoo! (Nasdaq: YHOO) or to sites that are part of the
Go2Net network.
But in broadband, it's a lot more similar to the AOL (NYSE: AOL) model, where
based on having
an integrated experience or an integrated broadband portal, you have an opportunity
to get much
closer to your users. And unlike on the public Internet and narrowband, these cable
companies are
able to exert some level of control as to what their users are able to see and not see.
So, for us to be
in a position that we're a provider to one of the leading cable companies [Charter
Communications]
and at the same time to other broadband providers such as an RCN (Nasdaq:
RCNC) or even an
Allegiance Telecom, we think that puts us in a position to be a leader.
The other component of that is we are currently focused through our
broadband partners on delivering a broadband TV set-top box portal to
the
marketplace this year and we think we have an opportunity to be a
first-to-market. So to the extent that we've been able to build a meaningful
distribution channel by virtue of this strategic relationship with Vulcan
Ventures and with Charter in the formation of broadband partners, we
think
that's a great first step. The second is you've got to deliver the product
and
we're also in a position to do that now. The combination of that I think
does
position us to be a leader as we continue to move toward broadband.
TMF: What's it like to work with a partner like Paul Allen?
Horowitz: It's been a tremendously positive relationship. I think that
today's
announcement with NDB is a perfect example where Go2Net and NDB
are
able to formalize a real key strategic relationship between the companies.
And we can also co-invest alongside Paul Allen and Vulcan Ventures and
in
some sense show that we're working in tandem.
And we can benefit through their expertise and their commitments as well. We've
done that
previously where we invested in Commtouch Software (Nasdaq: CTCH), which is a
leader in the
e-mail and communications space. That has worked out really well for us. But to have
a partner that
can step in and help us further our strategic initiatives and bring resources that we
otherwise would
not have access to as well as intellectual capital is a pretty unique and special thing.
TMF: Your HyperMart small business-to-business unit has been growing very fast.
Does the growth
in that market surprise you in any way?
Horowitz: Not really. We made what we felt was a definitive move into the small
business space
when we acquired HyperMart in August 1998. At the time, the industry was not yet
focused on the
opportunity associated with small businesses coming online. We felt that it was one of
the major next
waves and it's done nothing but fulfill our expectations.
Incredibly, now the perceptions of this category is substantially different than it was in
December of
1998 and people realize that this one of the major opportunities on the Internet. That's
been
consistent with our belief from almost two years ago. What we are continuing to do is
look to extend
our position in that space and be benefactors of being one of the early movers into it.
So, you have a
company like Go2Net that's been able to build a rapidly growing business and at the
same time
couple it with a highly profitable and scalable business model. We wouldn't be able to
make that
statement if it weren't for seeing opportunities like HyperMart and the small business
phase before a
lot of other people may have.
We further that decision in terms of the small business space with our acquisition of
Authorize.Net in
this most recent summer, which gives us a base of 60,000 transacting merchants. Right
now, we're
looking at a bundled solution to take to our small business members that allows them
to
commerce-enable their businesses on the Web by virtue of our hosting storefront, the
Authorize.Net
gateway, and also merchant services. So this is an area that we've been focused on for
a long time
and we recognize that HyperMart is a tremendous platform to leverage by virtue of
the magnitude of
the audience. Now with Authorize.Net and with other partnerships and acquisitions
we'll be making
going forward, we want to leverage the value of that distribution.
The interesting thing about distribution is that it transcends any industry. Whether
you're in the
Internet or any other industry, once you've got critical mass in distribution,
incrementally unlocking the
value is a function of figuring what products and services to bring into it. We've got
critical mass in
distribution and now it's a function of just bringing more products and services into that
marketplace.
TMF: Speaking of critical mass, you've often talked before about scale and the
importance of scale
for Internet companies. You're now a Media Metrix top 10 company. I think the
market is finally
waking up to the importance of scale with valuing Internet companies. What are your
thoughts on
what we've been seeing in terms of scale and how Web companies are being valued?
Horowitz: I agree. It's really important in any industry, but particularly in one that
moves and is
continuing to evolve as quickly as the Internet is.
This is something that we recognized in early 1999. We continued to be an
independent company
without any real strategic relationships and we wanted to be able to compete for a
first-tier position.
And that's what led us to formalize a relationship with Paul Allen and Vulcan Ventures,
which gave us
the resources so that we could achieve scale both through internal growth and
continued acquisitions.
Clearly, achieving a top 10 position gives you some initial benefits of scale, but this is
not an industry
where you can rest on your laurels or take anything for granted. And so we're
continuing to look at
each of the businesses we're in, each of the segments that we have positioned
ourselves in for ways
to achieve greater scale. Anybody that's not taking that focus, aside from not being in
a position to
really incrementally create value, is putting whatever value exists today at risk.
TMF: What scares you the most about doing business in this environment? What is
Go2Net's
greatest worry?
Horowitz: There isn't necessarily a specific worry. This is a case where there is an
industry evolving
right now from what I'd characterize as the second generation. The first generation
was 1994, 1995
when you had some first movers and really what emerged as portals whether that was
Yahoo! or
Lycos (NYSE: LCOS) or Amazon (Nasdaq: AMZN) as a shopping portal. The
second generation
has largely been characterized by growth of Internet companies that have some
greater level of
specialization. When you talk about vertical destinations and things along those lines, I
think that's
largely been the greatest growth.
I feel like we're approaching an inflection point where now you're going from the first
two
generations, which were characterized by Internet usage for the PC and a narrowband
environment,
to one where you're going to see a third generation characterized by multiple Internet
appliances and
broadband access. And if that means TV set-top boxes, PDAs, cell phones, other
Internet
appliances in addition to the PC, everybody needs to figure out what that means to
them. If you've
got content services that have been created for a narrowband environment but you
haven't really
thought about the implications of broadband, you, again, have some significant risks in
your business.
Go2Net has been proactive about going out and positioning ourselves with distribution
and thinking
about our content services and how they'll thrive in an environment with multiple
Internet appliances
and broadband access. I think that's allowed us to start to position ourselves to take a
step forward
as it relates to being a leader. But I think if there's a worry for companies in general --
and ours
included -- it's thinking about what the evolution of the industry toward the
environment I just
described means to them. And I think there's a lot of companies that have been
narrowband winners
that face similar risks to what offline companies did when the Internet emerged.
We look back now on companies that were successful pre-Internet and we wonder,
"What
happened?" Their market share was taken away, the profile of their business was
radically changed
with the emergence of the Internet. Well, what it took to be a narrowband winner isn't
necessarily the
same profile that will cause you to be a winner in the broadband environment with
multiple Internet
appliances rather than just the PC. And I think we're at a similar point to the extent of
narrowband
companies may face those similar risks. And some will come through and a whole lot
of them won't.
So, if there's a worry, it's that. But I do feel like we have our eye on the ball in terms
of what this
means.
TMF: Some interesting thoughts. Thank you very much for sharing them with us
today.
Horowitz: It's been a pleasure to be with you.
Related Links:
Go2Net website
Go2Net message board
Go2Net StockTalk, 11/23/98 |
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