As Yahoo! Sets GeoCities Buy, Portal Consolidation Beckons
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
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. 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 RealNetworks Inc. 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
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, 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
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, which purchased 43% of portal company
Infoseek
(SEEK)
. And don't count out
NBC
, a unit of
General Electric
(GE) - Get General Electric Company Report
which bought a stake in the online media company
CNet
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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
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-
Pepsi
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thing. It's not a question of whether Yahoo! has a better search engine. Whoever can outmarket and outbrand will win the battle."
