Cashing in on portal fever

As Internet companies race to build gateway sites, free email providers and community sites suddenly have found themselves in high demand.

Portal players are taking their pricey stock and using it to snap up these companies to fill out their roster of services.

These smaller fish, many of which are losing money and launched with the idea of remaining independent, have benefited from the battle of the portal players. They are being gobbled up for millions of dollars in stock transactions, or finding Web-based online services knocking on their doors and offering to take investment stakes in their operations.

Call it portal fever--and it is definitely contagious.

Tripod, an online community for "twenty-somethings," is one example of a company snatched up in this frenzy of buying. Portal player Lycos acquired the company in February in a $58 million deal. Lycos, through its Tripod subsidiary, now lets its users search its Internet directory and receive links to Tripod users' Web pages.

Meanwhile, free email service provider Four11 was picked up by Yahoo last year, while software giant Microsoft snared Hotmail earlier this year, in a deal industry watchers pegged at $400 million.

And last January, online community builder GeoCities attracted a $5 million investment from Yahoo.

So was this visionary planning on the part of these companies to develop businesses that would be seen as keys to the portals' game plan--or just plain luck?

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"The way we thought the Internet was taking shape, I don't think a year and a half ago we thought we would be part of a portal," said Kara Berklich, a Tripod spokeswoman. "Anyone who says they could see that far off into the future should be making lots of money as a fortune teller."

Tripod, founded in 1992, was created to disseminate "practical information with warmth and humor to people in their 20s," Berklich said.

The executives, like many others, had hoped to one day launch an initial public offering as successful as that of Netscape Communications in 1995. But as mid-1997 came around, an investment banker called one day to inquire about an acquisition for his client. The seed was planted.

"We had been busy trying to build the business, and this was like a wake-up call. It stopped us in our tracks and forced us to think about an acquisition," Berklich said. "This was about the time that the concept of portals was starting to take shape."

She added that the many companies competing in the portal space will likely get whittled down to just a few players over time.

But not everyone is jumping at the chance to be acquired in the rush.

GeoCities founder and chairman David Bohnett said portals have expressed interest in acquiring his company as well, but the firm plans to remain a standalone site. GeoCities hopes to go public later this year.

The online community site, launched in 1995, features chat, bulletin boards, and email and generates revenues from advertising, electronic commerce, and value-added services.

"We created a site focused on communities and members creating content," Bohnett said. "We see ourselves as an online service company where people keep coming back--not a portal. A portal is something you go through to go somewhere else. AOL is an online service, not a portal. We're like an AOL."  

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