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Internet Deal Tally: $21 Billion & Counting

Internet deals have been announced or closed in the few short months of 1999. The average paid per monthly unique user was $255. Paul Allen's agreement March 15 to acquire up to 53% of Go2Net (NASDAQ:GNET) looks like it could value each unique monthly user at about $142, depending on terms of the convertible preferred.

That's in the neighborhood of what Yahoo agreed to pay for GeoCities at $187. @Home's $6.7 billion bid for Excite leads the value hunter premiums with a $368 per user value. It's all coming together in the value vortex:

Hunter Target Offer (mil.)
@Home Excite $ 6,700
AOL Netscape $ 4,200
USA Networks Lycos $ 6,600
Yahoo GeoCities $ 3,600
  total $ 21,100
  average $ 5,275

The simple truth is that buying a user--which represents a repeat customer--is more economical in my view than trying to pay customer acquisition fees via ads on portals perpetually. Consider that if you own the platform then you have a e-commerce and e-content flow that's ongoing. Similar to how ABC, NBC or CBS has constant household reach for its offerings.

ABC doesn't, for example, advertise its Fall lineup on Fox. Fox doesn't tell you to catch the NFL via ads on NBC. The Web is more fluid and co-opetition has opened up new ways of both competing and cooperating with rivals.

But I think just as what occurred in TV with the networks owning major market affiliates and Disney buying ABC, Viacom-Paramount-Blockbuster, Westinghouse-CBS-Infinity, Fox-Metromedia, etc., that a move is underway in the Internet space to marry content/commerce with distribution under the same company.

At a certain threshold the economics of owning both content/commerce and distribution overwhelm one or the other. The Internet, more than any other medium, doesn't tolerate inefficiencies. The fabric of theTCP/IP protocol, in fact, was designed to go around snags in the network.

It follows that the businesses now riding that super-structure are either consciously or unconsciously following that network protocol: moving towards efficiencies. That's why Yahoo's look and feel today resembles nothing like the Yahoo I used to visit when it was Jerry and David operating from their dorms at Stanford.

No more than Netscape's first browser would fit in. Netscape 5.0 yes. What AOL sees in Netscape.com, for example is distribution, a spigot for AOL's core competency of aggregating content and people. Content and distribution.

@Home-Excite is the same deal in reverse: distribution buying content. Ditto for Yahoo-GeoCities. USA Networks-Lycos-TicketMaster Online-CitySearch seeks to marry content-commerce-distribution.

On the latter deal the problem for some observers has been the valuation.

On the face of it valuing LCOS users at $232 seems in line with comparables. I don't think LCOS shareholders would have an argument there. In my opinion the pro forma equity percents are where the problem exists.

In a combine our assets and then draw straws basis LCOS coming up with 30% pro forma of the combined tongue-twister merger seems low. Why? It's the difference between what I'll call "downhill commerce" and "two-way commerce."

Downhill commerce is a one-way mechanism flowing from top (seller) to bottom (buyer). Think Home Shopping Network, a one-way avenue. Two-way commerce is simply that, two way. Wrap content and context around it and even at 14.4 KBPS I think it's more dynamic than one-way.

Regardless on any deal structure, more importantly in the Internet space is the impending marriage of content and distribution. By the time the year's over $20 billion may seem small.


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