InterActiveCorp: The Wal-Mart of the Web?
Barry Diller and his InterActiveCorp (IAC). aren't finished with their Web buying spree, which we've documented here and here. Just off his recent acquisition of discount travel site Hotwire.com, IAC has $5 billion in the bank, and Diller will soon be flush with cash (at least $3 billion) from GE, owed him for his share in Universal. He is reported to be on the prowl.
According to a recent Business Week article ("What Else Might Barry Diller Buy?", 10/6/03), IAC has a clear strategy for investment. First he wants Web sites that are already making a profit or are close to it. Then, he wants to be a middleman.
Diller doesn't want suppliers in any of the industries where he's the middleman. Instead, he wants middlemen who can attract big online audiences. That way he can make money by using their clout to direct customers to one supplier over another. That's why travel sites Expedia and Hotels.com are the models for the rest of IAC. They revolutionized the travel-agency business by demanding wholesale prices on hotel rooms, which they can then resell for a 25% to 30% markup, rather than taking a traditional 10% commission.
That strategy is parallel to the trend in bricks and mortar retailing. Companies like Wal-Mart and Best Buy are busy driving down costs so they can sell cheap and still make a large profit. The suppliers can't ignore them. They all have excess capacity and fewer other channels than before. They have to cater to an increasing shopping segment that demands steep discounts, and the middlemen who can help move quantity at those low prices. In a way, IAC is starting to act like retailers who essentially push most of the risk onto the suppliers, partly by being a bigger brand than the supplier.
And just as shoppers don't come to Wal-Mart primarily to buy brand names, so too travelers who come to Expedia or Hotwire want savings more than they want to fly on a particular airline or stay at a particular hotel. It's the middlemen selling the brands, not primarily the brands selling the middlemen. IAC, like Wal-Mart, has become a very tough bargainer with its suppliers.
Here, according to Business Week, are candidates for the next big takeover:
- IAC is now the largest seller of leisure travel in the US, and is starting to build its corporate travel arm quickly, at the same time as the big corporate agencies are having problems. Navigant International, the #4 US corporate travel agency looks like an IAC target. Another possibility is the #6 corporate travel agency, WorldTravel.
- Japanese travel website Mytrip.com may be a candidate for an IAC takeover. So is CTrip.com, a Chinese online agency.
- Orbitz, the main rival to IAC's Expedia, is about to go public. Diller has tried to acquire it before, but was blocked by the airlines that currently own Orbitz. But the public offering may change things.
- On the house-buying side, IAC's LendingTree is the major online site. But Diller might be interested in acquiring rival GetSmart, another online mortgage broker. Diller may also be looking at Homegain, a site that allows homeowners to negotiate sales commissions with real estate companies before they put their house on the market.
- IAC may be interested in one of the top auto buying sites, Edmunds.com or Autosaver.com. Used car dealer Autotrader.com may be another possibility.
Employment service CarerBuilder.com is yet another candidate.
- Diller might want to swallow Fandango.com, that sells movie tickets.
Obviously, IAC is unlikely to buy all or even most of these companies. But the company is in the driver's seat. It has a proven model for profitability, growing cross-marketing clout, serious online expertise, and very deep pockets. In those respects, it is unique. The often-voiced Utopian ideal of the Web, where all players are equal and oligopolies can't corner any market, is fading fast.
