And here is what Mr. Briody said in July 2000...
Infospace takes Go2Net out of the shadows
By Dan Briody
Redherring.com, July 28, 2000
redherring.com
Not too many people really understand what Infospace (Nasdaq: INSP) does. And when the company announced this week its intent to acquire little-known Go2Net (Nasdaq: GNET) in a deal initially valued at about $4 billion, investors didn't know what to think.
What Wall Street did understand, however, was that Infospace had agreed to offer Go2Net shareholders 1.82 shares for each Go2Net share, representing a 45 percent premium at the time of the announcement Wednesday. Infospace's stock took a beating Thursday, shedding nearly 28 percent of its value on an overall down day for tech stocks. Concerns about the price Infospace was paying for Go2Net overshadowed the company's announcement of record second-quarter revenues of $24.6 million, more than three times that of the same quarter last year.
Wall Street analysts say the reaction was not entirely surprising given the premium Infospace paid. But they also say the acquisition is strategically sound and makes sense for the long run. It's just a matter of investors figuring that out.
"Most people don't know Go2Net all that well, and when someone steps up and pays a few billion for a company that nobody knows, that can be a problem," says Vik Mehta, vice president covering the mobile Internet for Goldman Sachs. "I don't care how synergistic it is -- if people on Wall Street don't know what it is, it can get into trouble."
WHAT IS GO2NET?
As it turns out, there is a good deal of synergy between the two companies. Infospace provides outsourced content delivery and front-end e-commerce services to wireless carriers and merchants wanting to do business on the Web, but who are unwilling to subvert their brand to the likes of Yahoo or America Online. Go2Net does much the same for the broadband marketplace, with the addition of some gaming applications and back-end transaction processing for e-commerce.
Infospace is presenting itself as the answer to wireless carriers afraid of losing their brand relevance to big brand-name content providers, and Go2Net will become the broadband arm of its overall strategy.
One of the more compelling aspects of the deal is the involvement of Paul Allen's venture capital company, Vulcan Ventures. Mr. Allen's controlling interest in Go2Net will translate into an 8 percent stake in Infospace, although Infospace founder and chairman Naveen Jain will remain the largest shareholder in the company.
Infospace's brass made it clear that they intend to take advantage of other companies in Mr. Allen's portfolio, like high-speed Internet service provider RCN (Nasdaq: RCNC), cable giant Charter Communications (Nasdaq: CHTR), and High Speed Access (Nasdaq: HSAC), all of which will provide new channels for its services.
"[Go2Net's] got some relationships that are very interesting, with Vulcan and Charter and RCN," says Arun Sarin, CEO of Infospace. "And we really wanted to buy the company before they had 80 percent of the market."
Mr. Allen's vision of a "wired world" has been used as the basis for his investing strategy. Infospace now figures to be a content and infrastructure provider in that scheme, joining a number of telecommunications, cable, wireless, and content providers.
IS CONTENT KING?
Looking at specific content, wireless and broadband gaming in particular seems to have a lot of potential, and is a particularly interesting part of the deal. Go2Net owns Playsite.com, a popular online gaming site, and, during a live chat on Redherring.com last month, Mr. Jain hinted that wireless gaming was an area of future growth. In response to a question about wireless content, Mr. Jain said that while wireless chats did not seem like a killer application, "interactive games are a different story. As the bandwidth increases, you'll be able to do more interactive graphical games."
In fact, there was another merger in the online gaming sector Wednesday. Online entertainment company Uproar (Nasdaq: UPRO) agreed to buy privately held lottery site Iwin.com.
On the commerce side, Infospace will combine its front-end one-click buying e-commerce technology to Go2Net's transaction processing for an end-to-end solution. And by adding Go2Net's 1.1 million merchant customers to its own base of 600,000, Infospace is looking to gain a greater foothold in the mobile commerce explosion they believe is coming.
The new entity hopes to bring local businesses into the Internet fray as well, by enabling everyone from dry cleaners to pharmacies to issue electronic coupons to the mobile devices of passersby. But they won't be alone.
"I think Yahoo and AOL recognize the importance of mobile commerce, and there is a lot of juice here, a lot of profitability," says Mr. Mehta.
Now if Infospace can find a way to capture some of that juice, investors may yet forgive them for paying a premium to acquire Go2Net. |
