Worried Web Players Rush
To Pair Up in a Mating Game
By KARA SWISHER
Staff Reporter of THE WALL STREET JOURNAL
Jeff Bezos, chief executive officer of Amazon.com Inc., seemed to have a
bad day. Some major competitors had joined forces Tuesday against the online
book and music merchant. Wednesday, Amazon's stock fell 14%.
But Mr. Bezos, whose net worth still tops $1.8 billion, remains upbeat. An
accelerating stream of Web-related mergers and partnerships, he argues,
proves a few big, pioneering players such as Amazon will grow and get
stronger, while small rivals fade. "What is happening is that people are finally
realizing that these Internet businesses are scale businesses," Mr. Bezos said in
an interview. Further consolidation, he added, "will be increasingly common
for the industry."
He is pushing the trend along. Seattle-based
Amazon has spent about $235 million this year
to buy five Web companies. Another aggressive
deal-maker, the search service Excite Inc., has
carried out four acquisitions and partnerships
that collectively cost $226 million in cash and
stock.
"By the time the year 2000 rolls around," said George Bell, Excite's CEO,
"there will be a lot fewer independent players standing."
Pressures to Combine
Indeed, a series of pressures is making Web players pair up like desperate
singles at the end of a dance. Many companies are convinced time is running
out to build audience and grab market share. Building a brand in crowded
Internet markets will require ever-larger spending on advertising and
marketing -- just as a slide in the stock market makes investors more skeptical
about Web companies that are far from turning a profit.
On Tuesday, for example, German media giant Bertelsmann AG joined forces
with Amazon's biggest rival, paying $200 million for a 50% stake in the
online division of bookseller Barnes & Noble Inc. Both companies also said
they will contribute $100 million each to their joint venture, increasing its
war chest to try to catch up to Amazon.
Let's Make
A Web Deal
Bertelsmann pays $200 million for half of Barnes & Noble's Web
book division, whcih pulls public offering.
CDnow and N2K in talks to combine their online music-selling
businesses.
Lycos agrees to pay $83 million for Wired Digital, which operates
news and information sites.
USA Network's Ticketmaster unit merges with local Web service
CitySearch and files for public offering.
Disney buys 43% of search site Infoseek, for stake in Starwave and
$70 million.
Similarly, Web music sellers CDnow Inc. and N2K Inc., which recently began
facing competition from Amazon, confirmed that they are in talks about a
transaction that could merge their operations.
Expecting stronger competition, investors reacted by selling off Amazon
stock, sending it down $14.875 to $93.4375 in Nasdaq Stock Market trading.
The atmosphere wasn't helped by a warning from SportsLine USA Inc., a big
operator of Web sports-news sites, that third-quarter revenue will fall short
of expectations and that the company is paying more than $23 million to
expand a marketing deal with America Online Inc. Shares of SportsLine fell
53%, or $8.6875, to $7.6875 on Nasdaq, and other Web-related stocks also
slid. Excite fell 12%, or $4.75, to $33.9375 on Nasdaq, and AOL dropped
5.8%, or $5.625, to $92 in composite trading on the New York Stock
Exchange.
Where the stock market once seemed to reward most Internet efforts,
investors are placing more-selective bets about which companies will grow
into big, sustainable franchises. "Public markets funded an awful lot of small
companies in the last couple of years that will find it increasingly
challenging," said Lise Buyer, an analyst at Credit Suisse First Boston in Palo
Alto, Calif. Bigger players, she argues, tend to increase their competitive
advantages over time, in a phenomenon that economists call increasing
returns.
Size Matters to 'Portals'
Nowhere is the rush to get big more evident than among "portals," those Web
services that are vying to become central destination hubs. Besides Excite,
rivals include Yahoo! Inc. AOL, Microsoft Corp. and Lycos Inc. In this
arena, many of the deals are aimed at placing links that funnel Web surfers
from one popular site to another, increasing traffic figures that drive higher
advertising rates.
"Portals need to build subscribers that stay there longer and longer in order to
generate more revenues, so very big distribution deals are increasingly
important," Excite's Mr. Bell said. "Everyone is trying to figure out the best
ways to become more prominent as the options to do so become smaller."
Lycos, for example, since the spring has spent hundreds of millions of dollars
in stock to acquire several Web companies. This week, it paid another $83
million to buy closely held Wired Digital Inc., the onetime sibling of Wired
magazine. "More distribution is critical to our efforts to establish ourselves as
a national network," said Bob Davis, Lycos's chief executive.
Not everyone feels the same amount of pressure. Yahoo, the No. 1 Web
portal, has been approached by a wide range of companies, such as Walt
Disney Co., to discuss possible deals. But Yahoo has more often generated
new services internally or purchased small technology companies.
"Most of the time, the best decisions we have made concerning deals is to say
no," said Ellen Siminoff, Yahoo's vice president of business development and
planning. One danger of multiple partnerships, she argues, is that the Yahoo
brand name could be diluted or confused by connections with too many
partners.
Amazon's Mr. Bezos said he is also trying to be selective. "It's important to
remember that while good acquisitions can save you six months in the market,
that a bad one can slow you down just as much," he said.
Over the long term, Mr. Bezos added, consolidation pressures will tend to
leave at most three or four major brands in each Web market. But one
company won't necessarily kill all the others. "This is also not a
winner-take-all game," he said. "The Internet is just too big for that."
-- Nick Wingfield contributed to this article. |
