RealTime IT News

Internet Marriages on the Rise?

The supercharged IPO market has spawned a large number of Net companies, many of which are fighting fierce battles trying to dominate their respective spaces.

However, many of these companies will soon realize that it is better to join forces -- through mergers and acquisitions -- then to destroy each other.

There was evidence of this on Tuesday, when bamboo.com (BAMB) announced a merger with Interactive Pictures (IPIX). Both companies are recent IPOs and are in similar businesses.

At bamboo.com, users can get 360-degree panoramic virtual tours of homes. Interactive Pictures uses so-called spherical pictures to allow for virtual tours, focused on such industries as travel and entertainment. Thus, with the merger, not only did the companies eliminate unnecessary competition, but also expanded their markets.

In fact, there was another such consolidation on Monday, when Digital Island (ISLD) merged with Sandpiper Networks. The companies both provide hosting and intelligent network services. With the merger, the companies were able to expand their customer bases, as well as technology infrastructures. For example, the new company will have 1,200 Web servers within 21 countries. On the news, shares of Digital Island soared 15-11/16 to 38-11/16.

Expect the consolidation wave to run strong, as companies attempt to reduce competition, add to their customer bases and product lines. This raises the question: What are the areas to look at for investment opportunities?

Here's a look:

Advertising Networks: CMGI (CMGI) has been acquiring companies in this space at a furious pace, attempting to one-up DoubleClick (DCLK).

One juicy target is 24/7 Media (TFSM). The company has a run-rate of revenues of $40 million per year, as the company has been signing many large customers, such as Goto.com (GOTO) and MGM.

Interestingly enough, 24/7 Media had a reach of 57.3 percent of online users in the U.S. (according to Media Metrix). TFSM's stock ran up to nearly $50 recently on rumors of a merger with DoubleClick, but nothing has been announced. However, I don't think we've heard the last of 24/7.

Healthcare: True, the online healthcare industry is huge. But do we really need so many companies? We've already seen consolidation between WebMD and Healtheon, but I suspect there will be others.

My number one pick: drKoop.com (KOOP). The stock has been languishing, yet it has a strong online brand and in September, logged 14.7 million page views, making the site the No. 1 for healthcare. It would make an attractive acquisition target at its current valuation.

Music: The clear market leader in online music is MP3.com (MPPP), which sports a $2.8 billion market capitalization.

To compete against this colossus, the competition will need to quickly consolidate. These companies include eMusic, Musicmaker,