June 29, 1999 2:45 PM PDT
What can CMGI do with two portals?
CMGI, an investment firm that focuses on Internet-related interests, is the largest shareholder in Lycos with a nearly 20 percent stake and now holds a majority ownership of AltaVista with an 83 percent equity stake.
Given the simmering tension between Lycos and CMGI over the role CMGI played in the collapse of USA Networks' proposed buyout of Lycos, and CMGI's commitment today to AltaVista, Lycos is likely to be the odd one out, analysts speculated.
Analysts say AltaVista reaches a more technology-savvy audience compared to Lycos's consumer reach but note that both sites are very popular; both ranked among the top ten for audience reach in May, according to Media Metrix.
And although there are other subtle differences between the two, AltaVista recently began its march toward branding itself to a wider audience--in essence to become more like Lycos, Yahoo, and other top portals.
"They are competitors, and it makes sense for CMGI over time to reduce its stake in Lycos," said Abhishek Gami, an equities analyst at William Blair. "Other than for pure investment purposes, I don't think there is any other use for those two companies to be together at this point."
CMGI chief executive David Wetherell, however, sees things differently.
"The Internet is growing at a tremendous rate, and people are spending more and more time online," Wetherell said during a press teleconference today in which the AltaVista deal was detailed. "We think that Lycos is a strongly positioned company with a tremendous collection of assets of its own."
Wetherell added that CMGI will continue to work with Lycos on a "number of independent fronts" and that AltaVista is "additive to our business model and doesn't subtract from Lycos."
CMGI left the door open as to whether the two portals may work together.
"If there is any way to get [Lycos and AltaVista] to collaborate, it could eliminate a lot of the duplicated expenses," Wetherell said.
"This is not at all an either/or situation," he added, noting that Disney has several sports networks, including ESPN, ESPN 2, and a classic sports station. "They compete against each other, but at the end of the day they are sister companies."
Still, analysts point out that the portal space is crowded, and historically the sites have had some trouble differentiating themselves from each other. As soon as one portal adds a new feature--from free email to stock quotes and Web-based calendars--the rest quickly follow suit.
Gami and other analysts also are quick to note that CMGI is holding two quality portals at a time when traditional media companies are waiting for the right moment to snap up a product rather than build one from scratch.
"A lot of ducks haven't fallen into place for some of the major media players who need online exposure and distribution," said Patrick Keane, a research analyst at Jupiter Communications. "CMGI can definitely be the one to provide a piece of the puzzle that is unfinished."
Wetherell said that with CMGI's holdings in two portals, the company has more opportunities to cooperate with several players in the different areas of media, computers, and communications. Otherwise, Wetherell said, you "can only have a single relationship in each area."
"Being a significant investor in two portals gives us two opportunities to succeed with media companies, with computer companies, and with communications companies," Wetherell said.
Earlier this year, Wetherell led the charge against the bid of one potential media suitor for Lycos. Wetherell quit the board of Lycos believing that USA Networks was paying well below the premium Lycos deserved.
"[Wetherell] obviously believes that Lycos stock is worth more than [USA Networks'] bid," Gami said. "He is a savvy investor and will probably hang on [to Lycos] for as long as he can."
Though analysts said the deal was good for all the players involved today, they agree that the clear winner is AltaVista--which they described as an Internet company that had tried to run on Internet time but was controlled until now by a company moving at a much slower pace.
"CMGI has greater experience in building and managing Internet companies than Compaq has been able to show with [AltaVista]," Keane said. "Compaq has been sitting on a foundering, billion-dollar asset and has missed significant opportunities."