CNet's

(CNET) - Get Report

deal to acquire

ZDNet

(ZDZ)

hints at an

Imelda Marcos

-sized closetful of shoes waiting to drop.

The planned $1.6 billion merger of the Internet's two biggest technology sites raises the question of whether smaller technology-focused sites can continue to compete on their own. That suggests consolidation among Internet content sites, in this sector and others, could be in the wings.

Investors took 10% out of CNet's hide Wednesday afternoon, sending the stock down to 28 7/8 on a generally negative day for tech stocks. ZDNet shares jumped 28% on the news, while other Net content plays generally declined.

The New Thinking

Until today, ZDNet and CNet have pretty much held that Techtown

is

big enough for the two of them. Given rising information-technology spending (

Dataquest

estimates $1.4 trillion will be spent on computer hardware, software and services in 2000 alone), it seemed plausible that two major tech information sources could coexist, all the while collecting buckets of money from advertisers and online marketers.

Now CNet and ZDNet say one head is better than two. And if two big, profitable companies see fit to merge, then who in the world of Internet content and commerce won't?

After all, the rest of these companies operate in the realm of low-revenue, operating-loss and boldly-going-where-no-one-has-gone-before business plans. Does the Net need two instant-goodie delivery services,

Urban Fetch

and

Kozmo.com

? Does it need two stamp companies,

E-Stamp

(ESTM)

and

Stamps.com

(STMP) - Get Report

? Does it need more than one health site? More than one women's site? Possibly not.

"You've seen some recent consolidation in the consumer Internet space," says

Goldman Sachs

senior analyst Tonia Pankopf, citing the deals by

Pets.com

(IPET)

to acquire assets of

Petstore.com

and by

Webvan Group

(WBVN)

to buy

HomeGrocer.com

(HOMG)

. Those deals, she says, "foreshadow possible further consolidation in other complementary markets."

The Rationale

To outsiders, it seems obvious that the two companies, which do pretty much the same things, can save huge amounts of back-office costs. But, like all companies that merge, CNet and ZDNet insist that cost cutting (a.k.a. layoffs) wasn't the story behind their deal. Rather, they're focusing on what they called "synergies in growth" -- taking each company's strong points and extending them to the other. That means combining ZDNet's strong presence in Europe, for example, with CNet's mother lode of product information and classification. Or unleashing ZDNet's direct-marketing resources onto CNet's customer base.

"It's not a question of reducing headcount," Pankopf says. "It's a question of being able to leverage off of each other's existing infrastructure and platform." Pankopf has a recommended-list rating, her firm's highest, on CNet, for which Goldman Sachs hasn't done underwriting; she has a trading buy, the firm's second-highest rating, on ZDNet, which the firm took public.

Some parts of the combined companies' business plan are a little foggy. For example, if the two companies are aiming to create the best of all possible tech sites on the Web, where does CNet's recently acquired

mySimon

fit in? Acquisition of the Web-based comparison shopping service seemed to signify CNet's

expansion beyond a tech news-and-information site to an information resource for people who want to buy anything online, techlike or not. Now, the ZDNet deal re-emphasizes tech's importance to CNet. The companies didn't address this issue in a conference call with analysts Wednesday, and the companies didn't respond to a request for an executive interview.

The Strong Points

Still, don't get bogged down in execution. Even a competitor says the deal has a lot of strong points. "In the final analysis, it was two peas in a pod, and it made sense to join forces," says Alan Meckler, CEO of

internet.com

(INTM)

, operator of a network Internet properties containing news and information for Internet professionals.

But if the

Coke

and

Pepsi

of tech Web sites are teaming up, what's to become of all the

RC Colas

and

C&C Colas

out there -- not just internet.com, but also companies like

EarthWeb

,

(EWBX)

, an online information resource for IT professionals? EarthWeb didn't respond to requests for comment on the CNet/ZDNet deal, and its stock rose 4.4%.

Meckler insists he's not troubled.

As on executive says, the real issue is focus, and there are enough niches out there for smaller players to continue to populate the Earth. Meckler says his larger rivals focus primarily on general computing technology and secondarily on the Internet; he focuses primarily on the Internet for business. "That's a big business," Meckler says. "That's a huge business. At least I believe it is."

Internet.com shares slid 1 3/8 Wednesday to 24.