As Yahoo! Sets GeoCities Buy, Portal Consolidation Beckons

More mergers lay ahead as companies scramble to differentiate themselves.
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You ain't seen nothing yet.

The portal consolidation is set to continue. That is the view within the technology industry as analysts and executives chew over the latest blockbuster Net deal, between

Yahoo!

(YHOO)

and

GeoCities

(GCTY)

.

"The frenetic pace of deal-making is only going to increase," predicts Patrick Keane, a senior analyst with

Jupiter Communications

. "The deal frenzy is just getting started."

Most Web watchers agree that

Lycos

(LCOS)

is the now the most likely acquisition target. Lycos, the only remaining pure portal site that hasn't been gobbled up, is the fourth most visited site on the Web, with more than 26 million unique monthly visitors, according to a December 1998 report by

Media Metrix

. Ironically, Lycos sparked the roll-up trend within the portal space by purchasing a host of properties over the last year, including online community

Tripod

, Web directory

WhoWhere.com

and Web publishing pioneer

Wired Digital

, which launched the first commercial Web site eons ago in 1994. Now the sharks seem to be circling Lycos.

"Bob Davis says he wants to maintain Lycos' independence," says Jupiter's Keane, speaking of Lycos President and CEO Robert Davis. "But I wouldn't be surprised if someone invested in them or outright acquired them." Shares of Lycos rose 11 5/8 to close at 123 1/8 Thursday.

"It just turns the attention to Lycos even more," says Daniel King, an analyst with

LaSalle St. Securities

. "If they don't come up with a new deal, or a linkup with a major partner, or a buyout, it would be surprising." King, whose firm does no underwriting for Lycos, has a core buy on the stock, the firm's second-highest rating.

The underlying force driving the consolidation trend is a perception that portals have essentially become commodities, barely indistinguishable properties that must compete on the basis of brand and not quality. Equally important is the pressure to continue building audience share, known as reach in the parlance of Web measurement firms. And the quickest way to do that is to purchase audience.

That is why such community sites

Xoom.com

(XMCM)

and

theglobe.com

(TGLO)

, as well as streaming-media leader

RealNetworks

(RNWK) - Get Report

, are mentioned as possible acquisition targets. Private companies such as electronic card publisher

Bluemountainarts.com

, the 10th most visited site with more than 12 million unique monthly visitors, or Web directory

LookSmart

, the 21st most visited site with nearly 5.5 million unique monthly visitors, are also seen as possible targets.

Yahoo!'s purchase of GeoCities, for instance, marks an attempt by the directory pioneer to solidify its lead on the Web as other media and technology giants combine forces.

"Yahoo! hasn't had to buy reach," says Keane. "They've aggressively built the Yahoo! destination. With this deal, they're effectively buying reach."

Even

Compaq

(CPQ)

can't resist the pull of portals. The No. 2 computer maker unveiled plans Tuesday to spin off its

AltaVista

search engine and create another all-in-one site that can compete with the Yahoo!s of the world and capitalize on the run-up in Net stock prices.

Last week,

@Home

(ATHM) - Get Report

, which provides high-speed Internet access through cable-TV networks, made an unexpected bid to acquire the No. 2 portal site,

Excite

(XCIT)

, for $7.6 billion.

Lurking in the background is

Disney

(DIS) - Get Report

, which purchased 43% of portal company

Infoseek

(SEEK)

. And don't count out

NBC

, a unit of

General Electric

(GE) - Get Report

which bought a stake in the online media company

CNet

(CNET) - Get Report

and

Snap!

, its portal site.

With today's deal, Yahoo! is keeping the pressure on

America Online

(AOL)

, the world's largest online service. Last year, AOL agreed to pay $4.3 billion to acquire

Netscape

(NSCP)

.

"It's a very competitive space in which the players do the exact same thing," says Jupiter's Keane. "It's a question of branding -- a

Coke

(KO) - Get Report

-

Pepsi

(PEP) - Get Report

thing. It's not a question of whether Yahoo! has a better search engine. Whoever can outmarket and outbrand will win the battle."