Diller Likes the View Atop LendingTree

The Internet, of course, was supposed to eliminate the middleman.

But Barry Diller has been building a tidy business for himself by ignoring that prevalent -- and, in hindsight, mistaken -- wisdom since the dawn of the commercial Internet.

The latest development in Diller's surprisingly consistent and onetime contrarian strategy came with Monday's announcement that his USA Interactive ( USAI) has agreed to acquire online lending and real estate facilitator LendingTree ( TREE).

The deal, expected to close later this year, adds yet another dimension to Diller's ongoing strategy of playing a middleman's role in different businesses that are making significant, if not total, shifts to the Internet. Though USA already operates in what look like a number of disparate online businesses -- for example, event ticketing via Ticketmaster.com, online dating via Match.com and online travel via Expedia ( EXPE) -- the different operations are bound by the common theme of USA's role as a middleman, as well as their partial online migration.

"This transaction is totally consistent with everything we're about," USA Vice Chairman Victor Kaufman told analysts on a conference call Monday. "We are a fee-based business operating in the middle."

What It Means

The irony, of course, is that the early forecasts of most Internet seers in the mid-1990s was that the Internet would eliminate all the people standing between buyers and sellers, eliminating the pesky proverbial middleman and his markup.

That proved to be only half true. Yes, the flesh-and-bone or brick-and-mortal middleman is losing his or her foothold, but not to an unfettered transaction between buyer and seller. They're being routed through the online middleman instead, one who can match buyer and seller with a few clicks of the mouse.

People are still buying concert tickets through Ticketmaster, for example, but they're buying a greater percentage of them online at Ticketmaster.com, rather than from the clerk at their local record store.

And while offline travel agents are suffering from ongoing fee squeezes, revenues at Expedia and Hotels.com ( ROOM) -- two of USA's majority-owned subsidiaries that it's planning to buy in completely -- are seeing their revenue grow apace.

Not every venture of Diller's along these lines has worked out. The 2000 acquisition of Web store developer Styleclick.com, for example, went nowhere.

But to Diller's credit, his faith in the rise of e-commerce came early. Back in 1996, Diller was saying that the Internet would be a key area of growth for the Home Shopping Network. "This could be an absolutely huge business," he told The New York Times. In February 1997, he talked up the middleman angle in an article in Time about a service he was launching to make it easier to match consumers with marketers who could address their tastes. That particular venture, Consumer's Edge, never became a household word, but its theme remains.

How to Play It

This being Wall Street, chatter immediately turned to what Diller's next move might be. The speculation in some circles was that, having placed himself firmly in the middle of the online travel boom, the executive might next focus on building on the foothold that the LendingTree deal gives him in finance.

Going by this thinking, Diller might next expand his reach in the Web-based financial services market via an acquisition of an online broker such as Ameritrade ( AMTD), E*Trade ( ET) or Charles Schwab ( SCH). Shares in all three rose Monday as investors continued to favor low-priced stocks: Ameritrade rose 71 cents to $6.39, E*Trade rose 35 cents to $6.21 and Schwab added 13 cents to $9.26.

But Diller's comments on Monday's conference call suggest he might not be eager to take on the market risk that comes with being a broker -- the risk associated in being a party in a major financial transaction, rather than just a facilitator. Asked, for example, if the company might start originating loans once it takes control of LendingTree, Diller on Monday replied, "No. Absolutely not."

With USA mostly holding its ground Monday, down $1 at $33.96, and LendingTree jumping 40% to $20.70, the chatter was predictable. Of course, that's something Diller himself has rarely been.

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