State of the Web: And the Winners Are... By James J. Cramer 7/29/01 11:00 AM ET

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Well, what do you know, we do have four category killers on the Web, and they'll begin to make big money accordingly. And the winners are: eBay (EBAY:Nasdaq - news - commentary), USA Networks (USAI:Nasdaq - news - commentary), TMP Worldwide (TMPW:Nasdaq - news - commentary) and Homestore (HOMS:Nasdaq - news - commentary).

I know, if you're like me, you're thinking, "Wow, that's all we have to show after eToys, Amazon (AMZN:Nasdaq - news - commentary), Planet RX, Buy.com (BUYX:Nasdaq - news - commentary) and whatever the heck else was out there during the craziness? But these four are winners and they're going to make a ton of money being winners.

All of them, no shocker, are able to use the Web to sort massive databases in a way that is better than can be done off-line. To use language that is universal: eBay trumps yard sales and classifieds because it's cheaper and global; TMP Worldwide trumps newspaper classifieds because it can get results and pull the ad after it is filled; Homestore owns the classified home and apartment market, and USA Networks owns the ticket market, for both events and airlines.

eBay solidified its stand this year as category killer by taking huge share from Amazon's and Yahoo!'s efforts to have garage sales. TMP won by buying competitor HotJobs.

Homestore bought all of its competitors and USA Net bought all of its in event tickets. There's competition on the airline front for USA, but this Expedia purchase could mean the game will soon be over.

The amazing thing about these category winners is that they all come at the expense of old media, specifically newspapers. The classified section has been decimated and you don't need the entertainment, sports and leisure sections because it's better to go right to the source for those events.

That the newspapers of the country let this happen is sheer insanity and shows how backward-looking so many of them are. Gannett, Knight-Ridder, The New York Times, Tribune, The Washington Post -- any one of these could have bought any of these companies when they were struggling. Instead, they all have these raggedy sites that no one really goes to to order anything but archives. No transactional revenues are in the cards.

I think the incredible aspect of this game, set, match by these Net companies was that in all cases the newspaper companies showed such arrogance not once, but twice: They could have created these sites, but they didn't, and they could have bought these sites when they were selling for nothing, but they didn't.

Now, once category dominance is established, we will see the inevitable margin expansion, as these companies can actually raise prices. Right under the noses of those who should know better!

In the meantime, there are some categories that are still up for grabs: an integrated news and brokerage site that allows people to read and trade, a true killer app that no one has pulled off; a sports site where you can read and bet, another necessity for most consumers that will be a reality soon; and a way to buy books online that is cheap and profitable (that can only happen when someone buys Amazon and crunches the debt).

Newspapers have done their share to cover the dot-com boom (which they did, kicking and screaming until the ad revenues came in) and the bust (which they do, daily, with pure joy behind the letters). But they are the biggest losers of the whole enterprise, as their most profitable areas have been stolen. If it weren't for display ads, which work terribly online right now, these companies would be faced with far worse economics. They exist as good investments only because sanctioned monopolies are always good investments. Just think about it, though, they could have been unbelievable investments if they had thought of the Web as a friend instead of the enemy.

Oh well, better luck next time.

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