Diller Downloads Old-Media Advice to Web Upstarts
One of the most common phenomena in the world of high-tech start-ups and IPOs is what’s known as the imposition of “adult supervision.”
This is what happens when, say, two Stanford juniors come up with a corking idea sure to set the Web on its ear. Their neighborhood venture capitalist wants in, but also recognizes that his two cybernauts, while coding geniuses, are woefully miscast as businessmen. So the VC reaches for his electronic Rolodex and finds an experienced businessman between jobs--someone who is 36 to the techies’ 23, has met a payroll, can address bank managers by their first names and lives in a house, not off-campus housing.
The new person becomes chief executive and the tyros become co-chief technical officers or something. That’s adult supervision. Think Tim Koogle at Yahoo or George Bell at Excite.
Barry Diller may be the guy providing adult supervision for the whole Internet sector.
Diller, the 57-year-old chairman and chief executive of USA Networks, came to last week’s Jupiter Communications Consumer Online conference in New York bearing a decidedly grown-up message for an industry of Web site purveyors, “content” providers and e-commerce proselytizers badly in need of a stern upbringing.
What was fascinating about his appearance was that in the span of the conference’s three days, during which session after session featured panels of youthful entrepreneurs agreeing that they were all brilliant and successful because their sites had 1 million, or 6 million, or 7.5 million “registered users” even if they had zero millions in profits, Diller’s was virtually the only voice saying they’re not necessarily as good as they think they are.
This was not entirely a new message for him--after all, he had already dashed cold water on the roaring investment party known as the Internet sector by bidding to take over Lycos, up to then one of the last unmarried belles of the ball, for less than she was trading for on the open market.
Indeed, what was most widely reported out of Diller’s appearance at Jupiter was his token refusal to alter the terms of the Lycos deal, which have sparked widespread dismay among Internet investors. Far more interesting, however, was his chapter-and-verse dissection of what passes for business on today’s Internet, and what it must become to pass for business in the real world.
“What this story is fundamentally about,” he said in the opening day’s keynote speech, “is my abiding if temporarily unfashionable belief in arithmetic.”
Or put another way: “The wild, funky ride that’s daily life on the Internet will be transformed by real businesses generating real profits in the course of providing real services that real people really need.”
One could argue that Diller was engaging in a sort of special pleading, his point being that the real businesses generating real profits that he is contributing to the USA-Lycos merger must perforce be worth more than the virtual business generating no profits that is Lycos. And there’s no denying that Diller is bemused by the market’s negative reaction to the deal, which seems to suggest that he should consider himself lucky that a shiny Web shooting star like Lycos would even consider merging with his grimy old-media Home Shopping Network, its $300 million in annual profits notwithstanding.
The truth is that nothing could be healthier for the Internet sector than for one or two more deals like Diller’s to come along, if only to inject some old-media thinking into the insular intellectual community composed of such operations as Theglobe.com, Xoom Inc., Tripod and the like.
At last week’s Jupiter conference there was unanimity among the young CEOs of these Web hosting services that the mere accumulation of “registered users” or page views amounts to success. Although they all had their latest audience figures at their fingertips, they seemed to miss the fact that they’re attracting this audience because it’s painless and free to join up, and that their fabulous revenues are mostly derived from venture capital and IPOs.
What happens when their revenues have to come from services that come at a cost? When they have to fill their members’ Web pages with so much advertising that many of them defect? Or they get involved in e-commerce at a level that requires them to set up customer service departments, carry inventory, pay suppliers?
These were the questions that Diller so pointedly raised. “It may be against the business plans of those who believe you can sell goods for less than they cost you--retailers do have this firm rule . . . call it the old math . . . [that] it’s generally a good idea to sell goods at more than you pay for them. Arithmetic always catches up to you--always.”
A disregard of such rules, he said, is “a disregard adolescents and failed entrepreneurs through the ages all have shared.”
Were they listening? Maybe not, for they sent him off with a lengthy ovation.
