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

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

At, 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
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
has been acquiring companies in this space at a furious pace,
attempting to one-up

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

My number one pick:
. The stock has been languishing, yet it has a strong online
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
, 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, Liquid Audio
and Launch. Of these, Liquid Audio looks the strongest, with a
stable of 4,700 artists, 750 record labels and 37,000 songs.

Online Brokers: To compete, online brokerage firms need to provide many
new services, such as distributing IPOs to individual
investors. Friedman Billings Ramsey (FBR)
has been growing its innovative online investment bank, located at

Since starting six months ago, the site has distributed 19 offerings, such
as RedHat, Cysive and Jupiter Communications. This expertise would be a
nice addition to an online broker trying to distinguish itself in the
highly competitive cyber world.

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