Last week I made one of the most controversial calls I've ever made in this newsletter, calling Robert Davis of Lycos "Clued-in" for agreeing to combine with Barry Diller's USA Networks . Wall Street turned thumbs-down on the deal, hammering Lycos shares until David Weatherall of CMGI, whose company holds 20% of Lycos, indicated he might oppose the combination. (USA and Lycos both insist it will go through.)
I'm not going to get in the way of anyone's attempt to get a "sweetener" from Diller, but regardless of the final figures this deal is smart.
On CNBC, James Cramer of TheStreet.Com summarized the fears well. If this is just home shopping, why are we giving e-tailers these incredible multiples, he asked. It's true that throwing USA's Home Shopping Network (HSN) cable channel, and its related Internet Shopping Network Web site, into Lycos will give Diller's parent 60% of the new company, USA/Lycos Interactive Networks. But these assets also provide Davis three things Lycos needs in the long run, namely the front-end and back-end of a complete e-business, and the cash flow to build one. Here's why.
The new Lycos can draw people via HSN, as well as Diller's SciFi Channel and USA Networks. It can then offer a full range of Internet services. Then it can sell all sorts of goods and (again through HSN) fulfill those orders. More important, Davis gets to run the show. Let Barry Diller have the good seats on Oscar night - the show runs too long anyway. Davis now has a company with sales of $1.7 billion, and cash flow of $100 million.
However, the best aspect of the deal is that many of these assets are not doing well, yet those problems can be solved through the branding, marketing, and operations skill Lycos has already demonstrated. (Consider that four years ago Lycos was a piece of software running out of Carnegie-Mellon University in Pittsburgh. Now it's being valued at $6.4 billion.) ISN isn't nearly as good as rival QVC, and First Auction can't hold a candle to eBay.But how much better can they be when they have both a portal and three cable networks driving traffic toward them? This is real synergy leading to growth, not the fake synergy of, say, a banking deal that's just a synonym for lay-offs.
Finally, there's this bit about the stock market. Two things could have happened when this deal was announced. If the Street had loved it, Davis would be fabulously rich. Since the Street hated it, Davis has the leverage he needs to make the deal better. Maybe Diller could give Lycos a bigger cut of the new outfit, or throw his whole company into the mix, not just some pieces. (Don't expect Davis to get the Oscar tickets.) And what's wrong with popping the stock bubble enjoyed by rivals like Yahoo? Davis already has his cash flow.
All in all (I have to ask) where's the downside? How can Robert Davis lose? Instead of the premium his shareholders wanted on a take-out, he got all the upside a thriving Web site could want, plus the cash to do deals after other Internet stocks crash. The worst thing that can happen is this deal gets undone and he makes another, even richer deal, maybe with another partner.
So, I ask you, is Robert Davis crazy? You bet he is -- he's crazy like a fox.
SSP (Shameless Self-Promotion)
You can bookmark A-Clue.Com on the Web, and see each week's issue any time you want (without my smiling face) by pointing your browser to http://www.a-clue.com/newsletter.
The work done at A-Clue.com becomes the basis for a host of real columns in real publications which real editors pay me real money for. In addition to EcommerceTimes , for which I write a daily "viewpoint," there are monthly columns for NetMarketing, Datamation, Boardwatch and Intellectual Capital.I also write occasionally for Advertising Age . Buy my book here .
A-Clue.Com is sent via e-mail to over 1,200 Clued-in subscribers each week, and it's the Monday e-commerce column of Andover.News. You can subscribe (or cancel your subscription) through an e-mail to firstname.lastname@example.org or (for .txt) email@example.com. If you don't get service please write me personally, at firstname.lastname@example.org. (If you'd like to sponsor A-Clue.Com, a note to the same address will start the process.)
Remember that it's still journalism -- checking the news, calling people, listening carefully, writing on deadline -- which keeps the Clues coming. If you're looking for excellent work, give me a call at 404-373-7634.
Now back to the show...
Back in 1995, a lot of people were buying the domain names of big companies, expecting to make their fortunes by "selling" those domains to their rightful owners. I'm glad that game ended, but maybe we're about to swing too far the other way.
Mattel has sued an Oregon company which is trying to re-sell domains related to Mattel's Barbie dolls, like "badbarbies.com." Toys R Us has gone after a hobbyist named Gus who launched a site called "Toysrgus." . ICANN , the new organization that's supposed to manage Internet domain names, says it will crack down on "cybersquatting" . A grass-roots organization has been formed to fight corporations in this area, but their chances of success aren't great.
Maybe all this is OK . But should trademark owners be able to protect against people using satires of their names in domains? . That may be going too far.
What's definitely going too far, in my opinion, is this move to protect trademarks as common names in searches, not just editorially but on the ads displayed alongside results. Not one but two suits have been filed recently on this issue, and the attorneys in both cases are playing hardball. But there's a way for Excite, Yahoo and the other search engines to play hardball right back. What law or precedent states that a search engine must find a site whose keyword is entered? If the engines blacked-out the sites that are playing the trademark protection game a little too hard, the lawyers crawling over the Net might be brought to heel.
Department of No Surprises
Two news items crossed my desk last week proving how quickly penalties must be paid for Internet mistakes.
First, this item from News.Com on AOL , which cancelled its "multi-level marketing" campaign, AOL Select, apparently without notice. AOL insists that Monument Communications, which was running the show, will refund everyone's money. But Monument itself has no Web site. A Web site dedicated to the project, at www.online-select.com, had already gone dark as this was written. If AOL doesn't follow through with those who trusted it (by signing with Monument) and guarantee they're made whole, the stain will be on AOL's name and reputation. Those stains can be like semen on the blue dress, and at this writing they seemed to be spreading.
Second, CMP Media has hired Lazard Freres & Co. to shop itself. (The exact phrases from CEO Michael Leeds, son of the company's founders are to "explore strategic alternatives" and "maximize shareholder value," but on Wall Street those are often code words for "take us outta here.") I love CMP dearly, but they never really understood the Internet, and aggressively resisted every attempt I ever made to educate them on it. Since going public investors have turned thumbs-down on the company. I hope this story turns out well, but I'm not betting on it.
The Old Oversell
With falling clickthrough rates and growing impatience in corporate boardrooms for measurable results, a lot of major sites have begun a process I call overselling, something which is actually damaging their effectiveness as marketing tools.
I'm not talking here of Hewlett-Packard's printer ad that turned editorial pages black-and-white until users clicked on them, or even Amazon's questionable sale of its recommendations. I'm talking instead of something more basic, a constant demand that users buy, or give up something valuable, before they can get meaningful service.
A lot is made of Europe's stringent privacy directives, for instance, but most European newspapers, like the Sunday Times simply refuse to provide service unless you register with them, giving them the power to track you and re-sell that data to advertisers. (The New York Times does the same thing here.) As a result, papers like the Electronic Telegraph are cleaning up in that market. (USA Today dominates among print papers here.) My 7-year old son has found the same problem at Disney.Com which is constantly throwing pop-ups and other sales gimmicks at him before he can reach the games he wants to play. As a result, he spends all his time at Nickelodeon , where he plays video games that fortify his Rugrats brand loyalty.
Do you catch the Clue? It's the service that builds the brand, and a good relationship. It's the relationship that drives long-term sales.
Clued-in this week is the St. Paul Pioneer Press , which correctly figured out why Federated bought Fingerhut.
Clueless this week is Yahoo , for selling "expedited" reviews of submissions for $199. The integrity of Yahoo's index was vital to its business, just as the integrity of Amazon's editorial recommendations was vital to its success. The fact that both are for sale gives "Meat Space" companies all the excuse they need to take over.
A Special Completely Clueless award to Microsoft and Lycos, for settling the Ticketmaster-Sidewalk suit on terms favorable to Ticketmaster. The result is to encourage bullying by lawyers, including demands that search engines (like Lycos and MSN) hand over control of trademarks in keywords for both advertising and editorial purposes.