The following is from the Raging Bull Cyberstock Investor report.
WHAT CHEAP DATES ARE LEFT FOR THE BIG PORTAL DANCE?
So Who Sells Out Next?
With Excite now under the wing of @Home/AT&T, NBC an investor in C/Net's Snap,
and Infoseek under the watchful eye of Walt Disney, where does this leave the
two remaining portal plays - Lycos and Yahoo? And what of Alta Vista, the
pioneering search engine that came under Compaq's control after Compaq acquired
DEC last year?
The following is merely my educated guess on how this portal acquisition
shakeout/investment game may play out. I have no special knowledge or insider
sources on any of these "deals."
1) Bertelsmann and Lycos
Bertelsmann is currently the world's 3rd largest media company, with over
60,000 employees in 53 countries and 600 individual companies. The German media
giant is already Lycos' joint-venture partner throughout Europe and has been
quite successful with AOL Germany. This is the prime opportunity for
Bertelsmann to establish their foothold in the U.S. online market with an
organization they know.
Further, Bertelsmann is AOL's primary investor and partner in AOL Europe and
Compuserve overseas. The two companies also teamed up last October to launch
AOL Australia. While Bertelsmann's roots may spring from the pulp publishing
world, this media giant "gets the Web." Few media companies can brag that they
have Steve Case & Co. as international partners. Bertelsmann maintains a direct
equity stake in AOL worth over $1 billion in stock.
Bertelsmann has also been aggressive on investing in the Internet overseas and
already maintains online holdings ranging from a TCP/IP network (mediaWays) and
content offerings (Sport1, GameChannel) to a well known multimedia agency
(pixelpark). More importantly, Bertelsmann could provide the necessary capital
and offline resources to make Lycos a top-tier player. Book, music, magazine
promotions - you name it, Bertelsmann can deliver.
The direct marketing and sales synergies in a Lycos-Bertelsmann combination are
awesome. As one of the world's largest book publishers (Random House and Bantam
Doubleday Dell, among others) and music labels (BMG Music-Arista Records, RCA
Records), Bertelsmann is uniquely positioned to move a vast number of books and
CD's over the Web. All they lack is a highly trafficked portal as a funnel for
their products. Enter Lycos.
Here's the rub. Lycos has publicly stated they are looking for an investment
partner to take up to a 35% stake, yet Bertelsmann likes to take a controlling
position in their ventures. Thus, we turn to Microsoft, CBS and News Corp. as
the next most likely suitors.
In October, Bertelsmann purchased a 50% stake in barnesandnoble.com for $200
million from book seller Barnes & Noble. Interestingly, the actual filing for
the barnesandnoble.com IPO has been delayed until next month. Would a Lycos and
barnesandnoble.com combination be lethal? Could it take e-commerce via a Web
portal to the next level?
You bet. That's a scenario that Yahoo! and Excite are hoping never comes to
pass.
2) Compaq's Alta Vista and Time Warner
Compaq's future plans for search engine Alta Vista (acquired in Compaq's
acquisition of Digital Computer) have been discussed for months. Speculation
has ranged from an investment in Alta Vista by Yahoo! or another portal, to a
buyout of Alta Vista by a leading media company. Heck, its surprising that Avie
Glazer, fish oil turned wannabe Internet mogul and the ZAP bunch didn't make a
run at it.
More recently, the rumor mill suggests that Compaq may spin off their Alta
Vista unit in a separate IPO. But Compaq surprised many when they announced
last week that it was acquiring troubled e-tailer Shopping.com for $220 million
in cash and combining that site with Alta Vista.
According to Compaq Sr. VP Rod Schrock: "Our intent is to make AltaVista the
leading guide for both information and e-commerce on the Internet."
Now, the obvious question is, Is Compaq bolstering Alta Vista for an IPO or are
they simply primping the veteran search engine for a quick sale?
I tend to think that Compaq wants to be a portal/e-commerce player for the long
haul. If Compaq wanted out of the search engine game, there would have been
little value in acquiring Shopping.com and then peddling off the two Web
properties to the highest bidder. After all, it will take months to properly
integrate the search and shopping functions of Alta Vista and Shopping.com -
which is the value of the pairing. Much like the
barnesandnoble.com/Bertelsmann/Lycos speculation, this deal revolves around
converting millions of eyeballs into e-commerce shoppers.
A report by David Faber of CNBC which appeared on MSNBC.com
(http://www.msnbc.com/news/233333.asp) Tuesday entitled "Compaq Eyes Major
Internet Transaction" notes that Compaq "still lacks the content that might
also draw users to its offerings." The article explains that "rumors range
from a deal with the likes of a media company that can offer content to another
Internet company that might offer Compaq distribution for its Alta Vista and
Shopping.com services."
This article drew my attention to Time Warner as a prime candidate for a deal
with Compaq's Alta Vista unit. Time Warner has been rumored to be involved in a
number of Internet-related deals in the past three months. Most recently, Time
Warner is said to have plans either to acquire or make an investment in online
music retailer cdNow.
Compaq's Alta Vista and Time Warner New Media's Pathfinder Network established
a search engine partnership last April. Alta Vista now provides the search
capability for Pathfinder's network of sites, which include such household
names as Fortune, Time, Money and People magazine. The two companies share in
the advertising revenue generated on the Pathfinder-Alta Vista powered search
pages.
More importantly, Compaq is also a joint partner with Time Warner in ServiceCo
(formerly named RoadRunner), the high speed cable Internet provider that
directly competes with @Home. Investors in ServiceCo include Time Warner,
Microsoft, MediaOne, and Advance/Newhouse. Compaq chunked up $212.5 million in
June for a 10% stake in ServiceCo. As a strategic investor in the venture,
Compaq has agreed to begin selling "RoadRunner ready PC's" equipped with cable
modems in areas where ServiceCo's broadband service is available.
The benefits of a further Time Warner-Compaq partnership are clear. Time Warner
controls perhaps the world's greatest selection of high quality content and
established media brands. Meanwhile, variety of content is lacking on
AltaVista. Why not quickly remedy the deficit?
Despite the content shortcoming, Alta Vista remains one of the Web's most
trafficked sites and could provide enhanced distribution for Time Warner's
Pathfinder sites. Co-marketing or combining Pathfinder's content and Alta
Vista's search engine and eyeballs would strengthen both companies' Internet
positions.
Compaq's Shopping.com, in combination with Pathfinder and Alta Vista, would
provide the e-commerce aspect that Time Warner was looking for in the often
rumored cdNow deal. Looks like a sensible match.
Compaq has also recently cut content deals with Internet companies like Talk
City, Planet Direct, and Yahoo for their Presario Internet line of PC's. These
units have an "Internet keyboard" featuring four "Internet buttons" that take
the user directly to various sites on the Web. Why not strike a deal with Time
Warner's Pathfinder to launch a "Pathfinder powered by Alta Vista" from one of
these buttons? Why not try to grab as much of the e-commerce/portal pie as
possible?
Far from being a media company, Compaq, one of the world's top three PC
sellers, can wield a very strong hand on the Web as a helpful guide for first
time Internet users. Time Warner could provide just the media expertise that
Compaq sorely needs. This partnership would be another
"distribution/connectivity" (Compaq) and "content" (Time Warner) play.
News reports today suggest that Time Warner and Compaq spoke earlier this week
about some type of partnership, though discussions between the two have since
broken off. Both companies deny they held any Alta Vista related discussions.
Time Warner, wake up. Alta Vista is still a cheap date for the Portal Dance.
Imagine how investors would salivate over a Pathfinder-Alta Vista IPO? Don't
sit around while Viacom, News Corp. or Sony beats you to the punch.
The Craps Game of Predicting These Deals
Alta Vista-Time Warner and Lycos-Bertelsmann... Is it just wild speculation on
my part? Speculation yes; wild, perhaps not.
Other portals and online communities now sitting pretty as M&A bait are private
companies such as search engine LookSmart, online communities Fortune City and
Talk City, and directory site Switchboard. After @home's $6.7 bil. bid for
Excite, you can rest assured that these company's pre-IPO valuations have
skyrocketed. Public Internet companies to throw into the mix include online
communities theglobe.com and XOOM.com.
Will I get lucky and bat 1-for-2 on these predictions, or by wild chance hit
the nail on the head with both?
Time will tell.
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