Goldman Sachs Conference: Looking at Lycos

The Street took a dim view of the news that USA Networks (USAI) was buying portal company Lycos (LCOS). Despite talk of synergy and better opportunities for e-commerce, investors and traders sent Lycos shares tumbling 33 3/16, or 26.1%, to 94.

At the Goldman Sachs Technology Investment Symposium in New York, the reaction amongst money managers and technology chief executives was one of puzzlement. Christopher Lord, senior analyst with Amerindo Investment Advisors, was happy about the buyer but not so pleased with the structure of the deal as he understood it.

"Barry Diller is a good partner to have, because he's got a ton of media experience," said Lord. (Amerindo has stakes in both Lycos and Ticketmaster Online-CitySearch (TCMS).) But, he added, "it's a convoluted deal. I definitely wish it were cleaner."

Part of the problem, he said, was "you don't know what the valuation is on Lycos. And the stock is telling you it's not a great valuation."

Inktomi (INKT) CEO David Peterschmidt said, "I don't think it comes as a surprise to any of us. Everybody's been talking about consolidation for a long while." Peterschmidt said his business would be unaffected. "It could give us fewer in the portal space," he said, "but what drives my revenue is the number of clicks. If there's 20 instead of 30 out there, it's still the same amount of users and the same amount of clicks."

One fund manager, who asked not to be identified, said that the deal fit in with his vision of the Internet in a few years -- that people would access it through their computer or through their TV. In a few years, he said, you could imagine watching USA Networks' Home Shopping Network TV channel and not picking up the phone to make an order, but clicking on the remote control. "This is a step toward that. This is the beginning," he said. "There's no such thing as dialing up on a telephone and ordering things anymore."

It's not just the technology that merges, but the companies, too, said the fund manager, as TV networks and other media companies buy up Internet portals. Eventually, "these portals won't exist," he said.

AOL and @Home Sniping

Forget about standing room only -- there wasn't even that for the crowd at @Home's (ATHM) Tuesday afternoon presentation. Unlucky latecomers were condemned to hovering outside the doorway, straining to hear over the music piped into the hallway.

@Home CFO Ken Goldman ran through the numbers for the room, explaining how the company expected to go from the 331,000 homes it's in today to the 5 million subscribers it hopes to have in 2002 or 2003.

The numbers sounded good: After 22 months in a market, the company ends up with about an 8% penetration rated of homes passed.

He expected the Excite (XCIT) deal, announced last month, would add as much as 15% to 20% more subscribers in 2001 or 2003 than the company had previously expected.

Helping to fuel the growth of the service, he said, would be the growing availability of cable modems, which by midyear will be sold by independent manufacturers and year-end will start arriving as standardized modems packed inside new PCs.

Think of @Home, he told the audience, as "unquestionably the leading broadband portal."

Not so fast, was, in effect, the response of America Online (AOL) CFO J. Michael Kelly, whose presentation immediately followed @Home's. (The crowd was just as big, if not bigger, for AOL's presentation, but at least the hotel management knocked out a temporary wall for additional seating room.)

He led off with good news: The AOL service just hit 16 million subscribers, adding one million since Dec. 28 -- the quickest the company has ever passed its regular add-a-million milestones.

That's a heck of a lot more than any other media company, such as @Home's major shareholder Tele-Communications (TCOMA), which showed 10 million subscribers in AOL's bar graph.

Though he didn't address @Home directly, Kelly did badmouth the idea of broadband on its own. "Consumers buy services, they don't buy technology," he said. "Speed is not a service -- it's a factor of the service."

This is getting to be an interesting little tiff.

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