The Incredible Converging Web
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Regular readers of StockTracker Daily know all about the record number of Internet IPOs launched this year, especially in the past three months.
Venture capital investments in Internet start-ups also are increasing at an unprecedented rate, according to the latest quarterly surveys from PricewaterhouseCoopers and VentureOne.
Together these trends have dramatically expanded the Internet universe in just a few short years, giving investors an almost overwhelming range of options.
But another trend is hard at work to restore order to the chaos. A new study by Web start-up consulting form New Media Resources shows that in the first half of this year, merger and acquisitions activity by Web media companies increased 22 times over the first six months of '98.
While we all know consolidation is gripping the Internet industry, these astonishing figures bear witness to comments Wednesday from Merrill Lynch analyst Henry Blodget, who said three quarters of all existing Internet companies will be acquired or fail.
Particularly vulnerable, Blodgett said, are the companies "that are third, fourth or fifth in their particular market segments."
In Wednesday's morning report on the rumor of a Yahoo! buyout of Excite@Home, I made an almost identical observation: "Sooner or later there will be convergence in this space." Better to join forces with another company and run a strong second than go it alone as a distant runner-up. After all, in the end the market rewards sector leaders, not the plucky fourth- and fifth-place contenders."
Five companies have accounted for 76% of all Web M&A activity in the past 18 months. The biggest shark has been Yahoo!, with five deals totaling $10.5 billion (26% of the dollar amount in the past year and a half). At Home place second with just one buyout, when it bought portal Excite for $6.7 billion.
The favorite target among acquirers in the first half of the year was mainstream content sites, which accounted for more than 50% of total spending. Community and e-commerce Web sites also were popular, eachcomprising 15% of total spending.
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