The Fallout

Cable World, June 19, 2000 by Matt Stump

Making the right Internet play

For the Internet pure of heart, these are tough times. Companies that rode the Internet rocket last year and early this year are falling back to Earth.

Stock fortunes are tumbling. Analysts are getting antsy. Some firms are even closing up shop. The first great wave of Internet industry consolidation is about to begin.

Take a look at last week's news. Pets.com acquired the assets of Petstore.com. Translation: shakeout in the online pet marketplace.

Pets.com will take over the partnership Petstore.com had with Discovery.com, which included an e-commerce deal and TV, print and Web cross-promotions. Still, Pets.com's stock price hovered at an all-time low of $2 last week.

Or look at what's befallen NBCi. Shares that were once over $100 not too long ago dropped to below 816 last week. The company announced full-year losses will be .75 cents higher per share than anticipated, due to lower Internet advertising revenues, higher-than-anticipated costs associated with purchases of Flyswat and Allbusiness.com and changes in NBCi's core strategy.

Those changes include folding Xoom.com and Snap.com into NBCi. Xoom and Snap, as brands, will be phased out. Closing the Snap brand is a gutsy call NBC never would have considered a year ago. These examples illustrate how frail portions of today's Internet marketplace truly are.

But the consolidation presents a buying opportunity for the strongest Internet firms and traditional media companies. Worthy competitors with customer databases, strong traffic and compelling business propositions, despite the carnage on Wall Street, will combine with larger firms. Weaker companies will fall by the wayside.

There also will be more combinations of revenue-producing old media with surviving new media. For instance, Yahoo! is doing its own finance video programming on its Web site. It might work, but a Yahoo!-Fox News or a Yahoo!-ABC News combination makes even more sense.

The AOL-Time Warner merger will open the door. How many non-CNN news sites will AOL-Time Warner want to push in a broadband videostreaming world? That could cause a partner exchange at the new media news dance.

NBCi executives reassured Wall Street analysts last week they'll make their way out of the woods by going after advertisers who are 100% Internet-based, like bricks-and-mortar companies who will be around next year to pay their advertising bills.

This old/new media combination is exemplified in the Target-AOL announcement last week. It's a microcosm of the AOL-Time Warner merger.

The two companies announced a cross-marketing alliance combining off-line co-branding and in-store offerings with online marketing.

I haven't clue what this means in the real world, but here's what I want from the Target-AOL alliance.

I want the ability to go to AOL and find out if Target, as a chain, sells a particular product. I want to find out if that product is stocked in the shelves of my local Target store. I want the option of ordering online or going directly to my local Target store, look at the product in person and decide whether to buy it.

If I know the product is in stock, my only dilemma is racing my fellow "live" shoppers to get there first. As hard as it is to get store clerks to answer your question, I want the Target-AOL alliance to save me shopping time and frustration.

My kids buy CDs, games and construction toys from Target from time to time. I wouldn't mind an e-mail message sent to me via AOL letting me know what new CDs or video games are available when they arrive in stores. I'd like to know when the school supply shipments come in so I can do back-to-school shopping efficiently.

It's these examples of old and new media, of cyberspace and bricks-and-mortar shopping that will win over consumers. And it's what many of the pure dot.coms forgot while they rode a stock market frenzy miles ahead of Main Street America.

This week's cover story on interactive sports applications provides similar examples. The early successes have been built around the fusion of old and new media. Consumers spend more than 40 minutes online with ABC's enhanced TV football contests. WWF.com is just an extension of Vince McMahon's multimedia kingdom.

NBC's Summer Olympics Web site will be a godsend to sports news junkies who'll still watch the TV video to see just how Mia Hamm scored the winning goal in the U.S. win, over China.

The new formulas for Internet successes are being created by today's visionaries. But the smarter money feels safer with a news economy plan that integrates old economy assets and cash flow.