In Bold Shift, CNet Will Seek to Be Everything to Net Shoppers

Today technology, tomorrow the world.

CNet(CNET Quote), which has established itself as a major starting point on the Internet for researching technology purchases, now wants to be the place all online shoppers visit before they buy anything.

The company unveiled the shift Thursday in announcing its acquisition of online shopping comparison service mySimon, which allows visitors to search for products in 250 different categories of merchandise -- everything from cigars to guitars to tea. Investors don't appear to have bought into CNet's plans just yet, though the company has made a habit of meeting its growth and profitability targets. CNet shares slipped 11/16 Thursday to close at 62, well off its 52-week high near 80, set in December.

Dominance

The move represents a huge change in strategy for the company, which apparently had given no public indication that it was planning to expand its focus beyond the technology market. That makes the company somewhat similar to Amazon.com(AMZN Quote) in its early days, when it was thought of only as an online bookstore.

"We have seen ourselves as the most dominant company aggregating technology buyers," says CNet Chairman and CEO Halsey Minor. "Now we see ourselves becoming the dominant company aggregating all buyers. Period."

Minor says the decision to move beyond the tech market isn't part of a long-held strategy, but something the company decided just two or three months ago. "I just sort of take this industry one day at a time," he says. CNet, which has a market cap of $4.6 billion, is issuing stock valued at around $700 million to acquire closely held mySimon.

"Maybe the market's not reacting because the market's not really clear on what's going to come out of all of this," says Brian Salerno, portfolio manager with the Munder (MNNAX Quote)NetNet fund, a longtime holder of CNet. But "every time I listen to [CNet executives], they strike me as knowing exactly where they're going. . . . They have earned the trust of investors. And that's probably why I would tend to be optimistic."

Synergy

As part of the new strategy, CNet said it was renaming the company CNet Networks. The company will continue to operate the CNet and mySimon sites, keeping the CNet brand limited to technology. Other than integrating administrative functions such as human resources, the companies said the two properties would operate separately.

Unlike other shopping destinations on the Web, CNet has distinguished itself as a site that doesn't seek revenue from selling products or taking a cut from product sales. Instead, the company -- which draws users to its site with tech news, product reviews and other information -- sells advertising on its site and charges online merchants for each potential buyer, or prospect, who moves from CNet's site to the merchant's.

That's the same business model used by mySimon, according to its president, Josh Goldman, which is one of several reasons the executives said the deal made sense for their companies.

Numerals

CNet's chief financial officer, Doug Woodrum, told analysts that the mySimon service, which had revenue of less than $5 million in 1999, would likely show revenue of $15 million and an operating loss of $25 million in 2000, improving to $50 million in revenue and "very close to breakeven" status in 2001. CNet, which reported revenue of $74 million for the first nine months of 1999, has been aiming for 45% operating margins, Minor says, and he believes mySimon should be no different.

Until now, CNet has stood out as one of few Internet media companies to have become profitable, though it abdicated that status last summer when it launched a $100 million ad campaign to publicize its brand. In the first nine months of the year, the company showed an operating loss of $21.9 million, excluding a gain on investment sales of $122 million, compared with a $684,000 loss a year earlier.

Minor said he believed investors were waiting to learn more about the transaction, adding that he thought that was a step in many major deals.

But, he continued, "I can't imagine anyone not viewing this favorably."