The portal wars escalated to a new pitch on Thursday when Yahoo acquired Geocities in a stock deal valued at about $3.5 billion.
The move is the latest in a series of transactions that have seen portal site suppliers and community site vendors pairing up with access providers to create a handful of huge, vertically integrated Internet media companies.
Yahoo said it would exchange 0.3384 new Yahoo shares for every Geocities share and the companies hope to complete the deal by the end of the second quarter. The merger will combine one of the Internet?s most popular portal sites with one of the leading community sites ? mirroring America Online?s acquisition last June of ICQ.
Community sites such as ICQ and Geocities attract less visitors than portal sites such as Yahoo or Excite, which began their lives as search engines. However, community sites tend to be more ?sticky?, in Internet parlance, meaning their users stay for longer stretches of time, creating more advertising opportunities.
Yahoo?s announcement follows hot on the heels of two other major portal deals. America Online (AOL) bought Netscape at the end of last year (see VNU Newswire, 23 November, 1998) and, earlier this week, @Home purchased Excite (see VNU Newswire, 26 January, 1999).
Earlier this week, unconfirmed rumours also emerged that AT&T planned to sell its Internet access service, Worldnet, to @Home, in a deal that would give the communications giant control over both @Home and Excite. AT&T, which is in the process of acquiring cable company MCI, said the transaction would provide it with a medium for carrying broadband services, including the Internet, into customers? homes.
Unlike @Home and AOL, however, Yahoo still has no clear broadband strategy, but analysts do not expect this to be a major problem for the company.
However, according to market research firm, Media Metrix, its merger with Geocities would create a Web site of tremendous potential value. In November, 58.1 per cent of all US Web users - the equivalent of 33 million - visited either the Geocities or Yahoo sites.
This beat current front runner, AOL, for the moment, but the combined user count for AOL.com and Netscape?s Netcenter is expected to be 38.2 million users, which would still surpass the merged Yahoo/Geocities quota, says Media Metrix.
Both mergers, however, relegate Microsoft to the number three position, a situation the Redmond based software giant is unlikely to relish.
Bridget Leach, an analyst with Giga Information Group, said: "It needs to increase its user base, and the only way to do that is acquisition or advertising."
While Microsoft earlier this week signed a deal with Compaq?s Altavista subsidiary to make it the default search engine for its MSN portal site, it has not made a major purchase in the Internet content space since buying the Hotmail free email service in late 1997. On the other hand, it does have a stake in cable operator, Comcast.
Of the top 25 US Web sites only a handful remain independent. With Infoseek now paired up with Disney and Altavista still a subsidiary of Compaq - although this is also rumoured to be up for sale - Lycos is the last remaining independent search oriented portal site.
This places it at the top of most observers? list of likely acquisition candidates for the future. Another acquisition target is Xoom, a second tier community site.
But it is still too soon to tell who the winners will be, analysts warn.
Giga?s Leach said: "I don?t see the dust settling any time soon."
Yahoo and AOL seem to have pulled away from the pack at the moment, however, in terms of the breadth of their content offerings, huge brand awareness and proven profitability.
Tim Bajarin, president of Creative Strategies, said: "What you?re beginning to see Yahoo become is a media company. Both it and AOL are on the way to becoming the fifth and sixth [US television] network. My gut is that, relatively soon, ABC, NBC, CBS and Fox are going to wake up and realise these whippersnappers are challenging their position."
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