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2HRS2GO: Goto tops Go in more ways than one

A red stop light blared for the yellow-and-green of Go.com (NYSE: GO).

Walt Disney (NYSE: DIS) agreed to cede the idea of a traffic-oriented Web logo to the company that thought of it first, Goto.com (Nasdaq: GOTO). The companies yesterday announced a settlement of their lawsuits. Disney's Web play agreed to cease use of the disputed symbol.



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You can't overemphasize the importance of the court win for Goto.com. Had the pay-for-display search portal lost, it would've faced serious problems, because if you can't protect your brand on the Web, you have nothing.

Which relates to much of Disney's problem on the Internet.

Not that Disney has done a poor job of guarding a strong Web brand. You can't guard what you don't have.

Disney is arguably the greatest branding machine in U.S. history. This is the company that turned a rodent into a cultural icon; turned foreign films into something with almost mainstream appeal; and convinced millions of people to travel thousands of miles to visit an amusement park featuring some of the tamest (and thus lamest) rides around;

Few organizations can match that level of marketing success, yet Disney seems unable to find its way on the web. We've had various iterations of Disney.com overseen by the Buena Vista Internet Group, followed by the company's investment in and eventual purchase of Infoseek, which turned into the Go.com all-in-one portal and now wants to be your Web source of entertainment and lifestyle content.

Infoseek has been around almost as long as Yahoo! (Nasdaq: YHOO), but has never come close to replicating the latter's financial success. Yahoo! entered the black a couple of years ago and never looked back.

On the other hand, profitability isn't on Go.com's horizon. Second quarter operating losses -- excluding the usual amortization and other non-cash items -- for the combined Infoseek and other Disney businesses shot up to 130 percent of revenue from 74 percent in the year-ago period, which can partly be explained by the need to adjust to yet another business model. First Call consensus predicts per-share losses of $1.79, $1.57 and 92 cents for the next three fiscal years.

Even when Disney gets a decent idea on the Web, it can't get the details right. Go.com as a traffic light might have been a fine idea, but it clearly didn't research existing trademarks. A huge surprise coming from a company known as one of the fiercest intellectual property defenders around.

So nearly a year and a half after first receiving the lawsuit, Disney has redesigned its Go.com symbol and agreed to pay $21.5 million to the plaintiff.

Speaking of the plaintiff, Goto.com's ambitions are far lower than Disney's plan to dominate Web entertainment. How small is Goto.com? Its revenues in the latest quarter were just 18 percent of Go.com's.

Goto.com says the money from the Disney settlement provides enough cash to operate until profitability. That point isn't expected for quite awhile, judging by a First Call consensus that sees Goto.com per-share losses of 70 cents and 14 cents in 2001 and 2002, respectively.

Considering that $21.5 million nearly doubles the company's cash and cash equivalents -- Goto.com had $22.6 million in the bank at the end of March) -- you can see that Goto.com doesn't expect to use much money at all over the next couple of years. In fact, the company boosted its cash and cash equivalents by almost 90 percent year-over-year in the first quarter.

In more ways than one, the lawsuit and its conclusion present a microcosm of the Internet content world. While the large, well-funded player struggles toward a coherent consumer business, the smaller company slices ahead in its more directly commercial niche.

Infoseek and subsequently Go.com tried to challenge the likes of Yahoo! (Nasdaq: YHOO) and Lycos (Nasdaq: LCOS). Only after a few years of futility did the company finally wake up and narrow to become an entertainment specialist.

Goto.com was smart enough to go vertical from the start, with a focus on more relevant searching for both advertisers and users. Yahoo! and Lycos could have their homepages and community guides; Goto.com would stick to searches. You can argue over the effectiveness of Goto.com's engine, but it attracts enough people to keep the company's top line growing at a healthy clip, so there's little point in complaining.

From an investor point of view, Goto.com's value improved even as its business thrived. Ten months ago, I cited Goto.com as an example of the Internet bubble, but that was at a time when the company commanded a market cap roughly $1.3 billion higher than it is today.

Granted, Go.com's valuation also has tumbled, and the company in recent weeks seems to be shaking off the past. In any case, I think Go.com will do well in the long run, because Disney's financial resources and proprietary content almost (almost) guarantee success.

But Goto.com seems likely to get there sooner, largely thanks to Disney's cash. 22GO>