The lead article in the Seattle Post-Intelligencer:
seattlep-i.nwsource.com
InfoSpace + Go2Net = Net company to be reckoned with
$2.7 billion stock deal hopes to seize the broadband and wireless arenas
Thursday, July 27, 2000
By DAN RICHMAN AND JOHN COOK
SEATTLE POST-INTELLIGENCER REPORTERS
Two of Seattle's most prominent Internet companies yesterday agreed to come together, attempting to capitalize on what they see as the next Internet revolution: broadband.
In a $2.7 billion stock deal announced after the markets closed, InfoSpace Inc. of Bellevue said it will buy Seattle's Go2Net Inc.
Broadband, which simply refers to a high-speed data connection, is the spark expected to ignite Internet commerce and entertainment.
InfoSpace and Go2Net want to light the match, making it easier to buy and sell goods, services and entertainment on a variety of devices, including desktop computers, cell phones, personal digital assistants and television.
"Four years ago, we were convinced wireless would be a big opportunity," said Naveen Jain, InfoSpace's founder and chairman. Now that the company is the nation's foremost provider of wireless services, "it's becoming crystal clear the next big thing will be broadband," he said.
Russell Horowitz, Go2Net's chairman, chief executive and co-founder, added, "Together, we will create the industry's premier global infrastructure company, which will lead and drive the convergence of the wireless and broadband Internet."
Broadband is often associated with interactive television. But Jain said it is already benefiting home PC users through DSL Internet connections and will next enlarge the capabilities of wireless devices.
The newly merged company will operate under the InfoSpace name. The Go2Net name may be used as a brand.
InfoSpace, an Internet infrastructure services company, hopes to profit from selling wireless phone companies the means to provide customers with e-mail and Internet access from cell phones. That allows checking stocks, weather and traffic conditions from any location, for example.
InfoSpace's wireless-Internet services are used by eight of the nine biggest cellular carriers in this country, and it also holds 40 percent of the market in Europe.
But Jain said InfoSpace lacks online games, high-quality financial services and a top-drawer search engine to help direct consumers to goods and information. He said it also can't provide online merchants the ability to handle customer payments.
No coincidence: Go2Net is developing broadband versions of some of those very services. The company generates revenue from licensing applications used by other companies on their Web sites, selling ads on its own Web sites and the 1 million small-business sites it hosts, and taking a cut of sales made from those sites.
Microsoft co-founder Paul Allen last March invested $750 million for a 30 percent stake in Go2Net, and the company began work developing broadband versions of a search engine, financial-services site, game site and small-business site for Allen's Charter Communications cable company, said Go2Net President and co-founder John Keister.
"InfoSpace doesn't have a broadband initiative yet, and it would be 12 to 18 months" before it could develop one independently, Keister said.
Together, the companies plan to exploit what they see as an unparalleled opportunity. The market they're targeting -- the sale and advertising of goods, services and entertainment over the Internet, from cell phones, personal digital assistants and other wireless devices -- is huge.
More than 400 million people use wireless phones today, said Aurn Sarin, InfoSpace's chief executive. By 2003, 1 billion will be in use worldwide, and more people will access the Internet from wireless devices than from PCs, Sarin predicted.
"Everything they do must be a single click away," he said. People will be able to find the closest movie theater with one click and buy tickets with another click, he said. In an example of what could be a controversial aspect of the wireless Internet, AT&T wireless subscribers will soon see advertisements appearing on their cell phones, which they can use offline or online, he said.
Go2Net will retain all of its 510 employees, said company spokesman Mark Peterson. The company will relocate, as planned, to its new Pier 70 headquarters. InfoSpace, with more than 500 employees, recently moved into a new headquarters in Bellevue.
Jain and Horowitz have been friends for years, but it took the intervention of InfoSpace's new chief executive, Arun Sarin, to make the deal happen.
"I met Russ rather quickly one day when I was on my way to the airport, and within five minutes, I realized just how the business models were so complementary," Sarin said. "When I left I told them that I needed to see them come together when I got back from my trip. And so they did."
Jain and Horowitz hashed out a deal in just three weeks. Sarin will become vice chairman and chief executive officer of the combined firm, while Horowitz will serve as vice chairman and president. Despite the different titles, the three men expect to work in concert to lead the company.
"I couldn't be happier than to be working with these two," Horowitz said. "The chemistry and the vision are there."
Though the two companies were formed just months apart, they have taken different paths in the business world.
Jain, a charismatic former Microsoft manager who is known for his shoot-from-the-hip speaking style, built InfoSpace on his own during the early years, signing deals left and right while shying away from venture capital. Jain, who is frequently quoted as saying that his business goal is to be sued by the Department of Justice, has focused his company's efforts on the wireless Internet.
Go2Net, on the other hand, has taken a lower-key approach, mirroring the nature of co-founders Horowitz and Keister. The two executives, who are in their early 30s and played soccer together while attending Seattle's Lakeside School, are not as flamboyant as Jain but are equally as driven, say analysts who follow the company.
By building and acquiring a number of diverse Internet properties including the Silicon Investor financial news network and PlaySite gaming portal, Go2Net has quietly grown into one of the largest Internet networks on the Web. The company ranked 13th in Internet traffic in June, with 12.3 million unique visitors.
John Graves, an analyst at SG Cowen Securities Corp. who follows both companies, believes InfoSpace and Go2Net are a good fit. He called the management teams two of the best he has ever seen.
"They both have a lean-forward, aggressive style," Graves said. "They are possessed about what they do and possessed about scaling the model."
Jain agrees. "I've never met people in my life who were culturally more suited for InfoSpace."
Financially, the purchase is expected to benefit both. "We'll nearly double our revenue this calendar year and will have very high growth margin," Jain said.
The combined companies' cash balance will exceed $450 million.
"We'll be poised to go out and do anything we want to do," said InfoSpace Chief Financial Officer Rance Rosenberg.
Under yesterday's agreement, InfoSpace will issue 1.82 shares of common stock for each share of Go2Net common stock. The transaction, which is subject to approval by shareholders and regulators, is expected to close by year-end.
Vulcan Ventures, Paul Allen's investment vehicle, along with Horowitz and other Go2Net management, said they will support the acquisition. They represent 40 percent of Go2Net's shares.
Go2Net sprang up $8.41, to $68.97 a share, in after-hours trading. InfoSpace dropped $7.50, to $40.25. Matt Finick, an analyst with Thomas Weisel Partners in San Francisco, said investors might be trying to figure out what kind of company the merger will produce.
"InfoSpace is paying a premium for Go2Net, so (Go2Net) is naturally going to trade up." |
