Guest column: Business lessons from the portal merger mania

These are certainly heady times in the portal business. This year, we have already seen industry leader Yahoo acquiring GeoCities and announcing a major alliance with Fox, @Home Network's bid to acquire Excite and, most recently, the planned merger between USA Networks and Lycos.

Last year, Disney grabbed 43 per cent of Infoseek and NBC took 19 per cent of Snap, while America Online acquired Netscape. You might call this a trend, but that would imply some sort of direction. Let's just say the herd has moved.

It's easy to scoff at the huge valuations being placed on these still-tiny companies. But maybe this really is just the beginning. Maybe portals will be the places we go to for customised information, news and entertainment, where we can get free e-mail, word processing, spreadsheet and other software services, and where we will house our shopping agents and other bots.

Maybe portals will help us synchronise our calendars, addresses and other personal information. And maybe portals really will be the force that topples Microsoft's desktop-centric empire. Maybe.

But beyond possibilities, little is certain. Consider that the deal between the Fox TV network and Yahoo is largely one of mutual promotion, while Lycos has apparently tied its fate to that of the Home Shopping Network.

In contrast, @Home wants to use Excite to develop an integrated mix of transmission and service capabilities, while AOL bought Netscape to better reach the business and computer-literate communities. And I still can't figure out what Disney and InfoSeek are up to with the Go Network.

Can all of these diverse strategies make sense? Historically, the most successful IT industry acquisitions have occurred when a big company bought a smaller one in a closely related market. Call this the Cisco approach.

The least successful have been those involving two big companies in neighboring layers of the industry value chain. Remember the AT&T/NCR and IBM/Rolm debacles?

Finally, the least consequential have occurred when one company buys another in an entirely different end of our business. Did it really matter that Sony acquired Columbia Pictures?

By this logic, the most dubious deals seem to be those made by AOL and @Home. Each is paying big money for a company well outside of its key area of competency. In contrast, the most natural deal is Yahoo's purchase of GeoCities. All the others are based on some hoped-for content, brand or advertising sales synergy between television and the Web. Network TV executives clearly feel the need to be in the Internet business, but do the portal companies really need to be in the television business?

The answer is no. Just as Barnes and Noble needs to be online but Amazon.com doesn't need to own stores, the Home Shopping Network needs the Web whereas an eBay doesn't need TV. It's that lack of mutual dependence that makes acquisitions such as USA Networks' of Lycos or Disney's of InfoSeek seem so forced, even random, whereas the Yahoo/Fox and Microsoft/NBC alliances appear much more natural. It also helps explain why the two strongest portals -- AOL and Yahoo -- have managed to remain independent.

But beyond the world of portals, media and advertising, there's a wider lesson. If your company comes from the pre-Web era and you're considering buying or aligning yourself with a pure Web-based rival, remember this: You probably need them more than they need you.

When combined with the compelling potential of the Web, this can easily become a formula for substantial -- but perhaps necessary -- excess.

Caveat emptor.

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