Lycos, Post Cubic Zirconium

The ‘I’ll dance a fast dance but not a slow dance’ proposed merger between USA Networks and Lycos (NASDAQ:LCOS) seems to be coming closer to being called off. The market has voted already as LCOS shares rallied on a Diller-less future for the Web guide.

What exactly is a fast dance? It’s the notion that tossing in one aging cable shopping channel for 60% of a pro forma enterprise would appeal to LCOS shareholders. I opposed the deal from the start in this report over and over. I also showed my support against the agreement when I spoke with CMGI chairman and Lycos shareholder Dave Wetherell shortly after the merger was announced.

My comments were basically that shopping is now an asynchronous exercise — exactly the opposite of the TV shopping model which is a chronological shopping model.

What does that mean? shoppers want what they want, when they want it, and for the price they want it. On the Web that’s as simple as point and click and buy. Ka-ching.

With Home Shopping Network you have to watch and wait for the goods to appear at a scheduled time, call in and go through a lengthier experience.

While the two retail/etail experiences are complementary in some ways consider that if broadband Internet becomes de norm then who’s watching chrono-based TV shopping? In other words, the future of shopping is hyper-shopping, not TV shopping.

That’s why deals between Web and TV firms that are cleaner cut marketing reach for equity have found more favorable outcomes. CBS with Sportsline and MarketWatch for one.

Not that Home Shopping Network isn’t valuable because with more than $1 billion annually sold here it’s a machine unrivalled in many places. Yet at the same time (NASDAQ:AMZN) already throws off considerable sales itself, $293 million in 1Q alone.

To get there Amazon leverages the entire world’s telecom infrastructure for next to nil. Home Shopping Network rides the pay to play cable carriage wire where the cable cowboys extract dollars at every headend.

Let’s look at it yet another way: which is more valuable, the customer or the store? In this case the customer (or potential buyer anyway) is on Lycos (Tripod, Angelfire, HotBot). While there is value in a backend etail system that HSN has mastered I would argue that the value is always tilted in favor of the customer.

The customer may not always be right but their wallet certainly is. The challenge I believe for LCOS shareholders is a difficult one: how to not build too much deal expectation into the shares as they hope a white knight comes along to rescue this fair maiden from those that know only disco beats and cubic zirconium promises.

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