eMailbag Monday: CDNow Or When? Lycos, Broadcom, Red Hat

First reader up writes:

“Have you any information on the status of the IPO for BUY.COM?”

Reply: Buy.com hasn’t filed yet. Softbank invested a reported $40
million last November to keep it floating. With its 2.2% reach in home and
work, however, Buy.com should consider how it will pay for marketing and
more customers.


“How long is this market going to ignore the CDNW/NTKI duo? It seems to me
that post-merger this is going to be the Number 2 e-tailer behind
Amazon…They’ve got exclusive rights to damn near every portal and
significant site online…As of yesterday, AMZN was trading at 30x sales
and CDNOW was near 8x and NTKI was about 5x…..

Granted, AMZN has superior brand recognition but CDNow is gaining name
momentum each day…

It seems to me that post-merger this combo is also a
nice takeover candidate for someone looking to instantly jump into the
e-commerce arena…I understand that music margins are razor-thin, but
sooner or later they (or
whoever buys them) will also be able to leverage the eyeballs and customer
base (pushing 2 million combined). Am I totally off-base here?”

Reply: I believe companies which sell just one product may be in
store for a hammering from the traffic leaders who will 1) charge them high
real estate fees or 2) sell their category to their users at margins that
could actually be negative cost. In that scenario even Amazon.com
(NASDAQ:AMZN) could feel the heat.

CDnow-N2K have a customer base and we
agree that’s valuable. Now they must consider selling that base to a larger
buyer. Scale matters. We think consolidation of customer databases is on
the horizon, that the brand matters less and less while the bargain or deal
matters more and more. Only three or four shopping brands may survive this
roundup.

Spiders Web

” Re: the Lycos deal, the market is now trashing Lycos. If one believes
this hook-up is a good one for long term development of a
multimedia, etc strategy by the including the net element – and by a man
who seems to understand media evolution and change and executes
aggressively, –what which is the best to buy and when — lcos, usai, buy
now, wait for more discounting, etc., etc.?”

Reply: I believe Lycos’ (NASDAQ:LCOS) full value per its reach on
the Internet hasn’t been brought out by USA Networks or Wall Street yet.
AOL, Microsoft, Yahoo and Lycos. Those are the top four consolidated Web
properties according to Media Metrix.

In this case I think the reach is
more important than the Lycos brand, since Lycos has several branded
elements: Lycos, Tripod, Angelfire/Whowhere and Wired Digital/HotBot. I
also think that HotBot is a under leveraged asset, that it could be
redesigned and grown into a sizable portal in its own right, focused on a
younger demographic. Lycos and Ticketmaster Online-Citysearch (also part of
the USA deal) have what looks like more than 50% Web reach by our estimates.

Broadly Chipping

“Let me ask you a
question: In your opinion, is not the coming “bandwidth revolution” with
the Internet in some ways analogous to the paradigm shift that occurred
with the advent of the television? Before television, people
were perfectly happy with radio. And then the black and white television
came along…and color t.v. didn’t really come along en masse until the
late 70’s. I guess my point is: don’t you think growing bandwidth will be
a very gradual evolution? And do you think the Internet will affect our
lives more than the television has?”

Reply: The Internet is both a consumer and business phenomenon.
In that regard I believe it has and will affect our lives more than T.V.
Also, the Internet is more dynamic and versatile — it can be business to
one person, investing to another, entertainment to yet another and
communication to another. Or all of these to everyone. And the Internet is
interactive while T.V. is a one-way brain dump.

USA Bay To Bay

“Steve, USA NETWORKS has some of the best prime time TV shows. Monday
night ” WWF ” RAW ” has taken most of Monday night viewers away from ABC.
The wrestling is the number 1 ranked show on television right now. With
over 25 countries watching it. USA also has new original programming with
shows like the Net, Pacific Blue, La Femme Nikita, Silk Stalkings,
Baywatch, USA High, Highlander, and lots of others.”

Reply: Now readers know what USA Networks is known for, besides
being the one that made the offer for Lycos (see above), which caused LCOS
shares to fall from prime time. I think the value was fair for LCOS share
on price basis but question the valuation given USA’s Internet assets and
Ticketmaster, maybe they should adjust their TV sets or stand by for
station identification.


Red Is The Color Of IPO

“Have you heard if REDHAT is going to go public? If so
when?”

Reply: No word yet on Red Hat Software’s IPO plans. The
Linux software firm received investment from several big PC and Internet
heavyweights. As the focal point for much of the Linux brigade Red Hat has
garnered much attention. We like Red Hat’s ‘service over software’ model
and believe the model of open source code development is superior to the
proprietary one. Will Linux ever threaten Microsoft? Doubtful but it has a
chance.


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