CMGI Sees Gold in Assembling Data Jigsaw
From the outside, CMGI Inc. looks like a scattered jigsaw puzzle of a company--one that defies easy description because there are just too many pieces to fit together.
Within its fold are more than 60 companies--from Web portal AltaVista to free Internet access provider 1stUp.com--leading some people to describe CMGI as a venture capital firm, a holding company, an incubator, or, using the latest fad word, a keiretsu, Japanese for a group of interlocking companies.
But CMGI Chairman David Wetherell says the company is really none of the above, even though all its investing, incubating and keiretsu-izing over the past two years have made the company’s stock one of the hottest in the tech markets, growing by over 4,000% since 1998.
Behind Andover, Mass.-based CMGI’s acquisitions and investments portfolio is Wetherell’s bet on what he sees as a key to the economic future of the Web: capturing information on movements and buying habits of millions of Web surfers.
The heart of Wetherell’s plans is a group of CMGI’s subsidiaries, including AltaVista, Internet access provider NaviNet and a company called Engage, which tracks the movements of Web surfers by recording information from their computers’ Web browser.
“There’s a lot of ways to make money on the Internet, but it is an ideal channel for direct marketing,” Wetherell said. “We think that out of the $400 billion spent on advertising we will see a significant portion flow to the Internet.”
Martin Goslar, principal analyst with the Phoenix-based e-commerce research firm E-PHD.com, said that CMGI’s broad range of companies could become a powerful force on the Internet if the pieces can be used together.
“They’re putting more and more pieces together,” he said. “It’s going to be a conglomerate of [networking]. They could be the Microsoft of the Internet.”
CMGI keeps investing in two to three new businesses a month, despite the fact that few of its companies are profitable.
In the three months that ended in October, CMGI posted a net loss of $117.4 million on revenue of $123.7 million. CMGI has byzantine financial results because it has majority control in only a fraction of the companies it invests in--and those operating results are then included in CMGI’s quarterly results.
But CMGI’s potential has made its stock skyrocket from $3.40 in 1998 to $165 early last year, and it closed Friday at $117.50, down $1.88 on Nasdaq.
CMGI’s plan is to build a profile of consumers that can include age range, gender, income, interests, location, buying habits, hobbies and even the presence of children. The better the information, the better the company can use it to target advertising and sell products.
“Advertising and e-commerce and other ways of monetizing all these eyeballs is what this is about,” said David S. Andonian, CMGI’s president of corporate development.
CMGI has already assembled an anonymous database (no names or addresses are saved) of over 42 million Web users.
Goslar warns that there is a creepy feel to Internet advertising, and if there is a dark cloud over the prospects of an advertising mother lode, it is that consumers may eventually rebel against being tracked so closely.
“How would you like it if someone was waiting at your front door every morning to see what you were doing, then followed you to work and watched you eat your lunch and monitored your tire tracks to see where you’ve gone’?” he asked. “It’s absolutely a problem, not just for CMGI, but any company getting into this.”
Privacy groups have already begun to howl over the tracking of Internet users, and New York City-based DoubleClick Inc., has been hit with several class-action lawsuits and is being investigated by the Federal Trade Commission about the way it collects and maintains information on Internet users.
CMGI says that intruding on people’s privacy is an easily avoided problem since unlike traditional direct marketing, which needs a name and address to mail information, Web advertising needs neither.
“We don’t know who you are,” Wetherell said. “We don’t see a backlash because it’s impossible for us to violate people’s privacy.”
In the end, he argues, consumers will like the personalized nature of targeted Internet advertising. “If you give people a choice of uncustomized or customized content, they will always choose customized,” he said.
Transforming CMGI into a marketing company is in many ways just returning it to its roots.
The company was started in 1968 as the College Marketing Group, a decidedly low-tech affair selling lists of college professors and courses to textbook publishers.
Wetherell, trained as a programmer and school teacher, engineered a leveraged buyout of what was then called CMG in 1986, using proceeds from the sale of a software firm he had started years earlier.
By 1993 he was looking for new ways to expand the business. Then Wetherell hit upon the idea of using the Web to sell textbooks to professors in a service he dubbed Booklink. But within a few months, the Internet explosion began and he sold Booklink to America Online for about $72 million.
Using about half the money, Wetherell launched into a buying spree of Internet properties. One of the earliest investments was a $2-million stake in 1994 for about 80% of search engine company Lycos.
Lycos went public in 1996 and today CMGI’s investment (it now owns only about 16% of Lycos) has reaped a little over $1 billion in stock and cash.
CMGI, housed now in a converted textile mill in a Boston suburb, has had a remarkable record of getting in early on budding Internet companies. One of its big successes was its investments in Santa Monica-based GeoCities, a provider of free Web sites.
The company invested $5.9 million in GeoCities, which was later sold to Yahoo. CMGI’s investment has brought the company $1.6 billion in cash and Yahoo stock.
Young Internet companies seek out CMGI, inundating the company with about 3,000 new business pitches each month.
By using different pieces of the puzzle, the company has been able to build up some of its other properties, providing them with money and expertise, increased traffic, more advertising and new services--all of which help to drive stock prices up, providing money for more acquisitions.
CMGI’s AltaVista Web portal, for example, uses the company’s majority-owned Internet service provider, 1stUp.com, to provide free Internet access. 1stUp.com gets its access from another CMGI company, NaviNet, which uses a innovative technology to provide low-cost connections.
AltaVista uses its traffic to help boost other companies within the CMGI fold, such as the financial portal Raging Bull, which provides AltaVista with its health, travel, investing and sports message boards.
Lior Yaholomi, the managing partner of CMGI’s venture capital firm that concentrates on Internet technology and network infrastructure companies, said CMGI is turning its attention to the pieces that will help build the next generation of the Internet--the high-speed, video-packed thoroughfare that pundits have predicted for years.
Michael West, head of the e-commerce research and consulting firm, MWest.com, said that some of CMGI’s acquisitions and investments can seem puzzling. “But it’s an evolving strategy. The game is changing so fast you have to make it up as you go along,” he said.
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All in the Family
CMGI Inc., based in Andover, Mass., has seen its stock soar in the last two years because of its investment portfolio of more than 60 Internet companies. CMGI receives about 3,000 business plans a month and keeps investing in two or three new businesses a month. Selected CMGI majority-owned subsidiaries:
* AltaVista Co.: Internet search engine and Web portal
* NaviNet Inc.: Internet access provider
* Flycast Communications Corp.: Web-based direct response advertising network
* UBid.com: Internet auction site
* 1ClickCharge: Web payment service
* ICast Corp.: Video and audio content over the Internet
* Engage Technologies Inc.: Web marketing and consumer profiling
* MyWay.com: Personalized Web pages
* AdForce Inc.: Centralized online advertising services
* Tribal Voice: Internet chat and instant messaging software
* NaviSite Inc.: Web and Internet application hosting
Other CMGI investments:
* Visto Corp.: Web-based personal information service
* MotherNature.com: Online natural products shop
* Oncology.com: Web portal about cancer
* Gamers.com: Online site about computer and console games
* Lycos: Search engine and Web portal
* Asimba.com: Health and fitness Web site
* TicketsLive Corp.: Online ticketing service
* HotLinks Network Inc.: Internet search engine
* FindLaw: Web portal on law and government
Source: CMGI Inc.
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Tech Juggernaut
CMGI’s stock has shot up more than 4,000% since 1998. Its stakes in a broad range of emerging Internet companies have turned it into a market darling. Monthly closes and latest on Nasdaq:
Friday: $117.50
Source: Bridge News
