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E-business drove Lycos-USA Networks deal

USA chairman Barry Diller says the deal represents the convergence of "information, entertainment, and direct selling."

Barry Diller is betting that his second-tier cable network, USA Networks, can take the shopping savvy of its Home Shopping Network and combine it with the 25 million visitors to the Lycos network of Internet sites to create an e-commerce powerhouse.

The new company that emerges from the deal, USA Lycos Interactive Network, will be majority owned by USA Networks, with the rest owned by Lycos and Ticketmaster Online-CitySearch shareholders.

"Lycos has gone with a commerce company that has not just audience but customers," said Nicole Vanderbilt, e-commerce analyst with Jupiter Communications. She differentiates today's deal from Yahoo's recent acquisition of GeoCities and Infoseek's intertwining with ABC and Disney properties.

"Instead of the enormous TV audience like Disney/ABC, Lycos has gone with the 10 million customers of Home Shopping Network and the relationship with customers of Ticketmaster, which may provide them with a different and possibly a very effective communication with those consumers," Vanderbilt added.

"With one fell swoop we have created the framework to becoming the largest e-commerce entity anywhere, ever," said Robert Davis, the Lycos CEO who will assume the same job with the new company.

"I think we are at a period of new convergence, and the new convergence is about information, entertainment, and direct selling," said USA Network's Diller, who is chairman of the merged Lycos-USA Networks operation.

As Diller noted, USA Networks ventured online and into e-commerce some time ago. In one of the first Net commerce acquisitions, HSN bought Internet Shopping Network, one of the earliest computer stores on the Internet, in September 1994. Last year ISN sold its customer list to Cyberian Outpost to concentrate on another hot area with First Auction. The company is working to open an online "outlet mall" this summer and a site for TV's Home Shopping Network later in the year.

USA Networks also owns a considerable stake in TicketMaster-City Search, and just yesterday invested $10 million in Free-PC, an Internet startup that offers free PCs to qualified Web surfers who agree to view unlimited ads.

"We have a large online presence [with Lycos], a large on-air presence [with USA Networks and its other brands], and a large terrestrial presence with Ticketmaster," said Jeff Bennett, Lycos vice president of e-commerce. "We can aggregate these three channels and have the opportunity to touch hundreds of million of consumers through different channels."

Last week Lycos sought to jump-start its e-commerce strategy in signing a wide-ranging deal for Internet commerce software from Open Market. Lycos runs its own storefront, Lycos Store, but it doesn't host other stores, although the Open Market deal signals it wants to enter that business. Lycos also could link to some 6,000 merchants that have built storefronts with Open Market tools.

The USA Networks deal will strengthen Lycos' e-commerce offerings because both HSN and Ticketmaster have shipping, fulfillment, and call centers. Problems with such services proved a bugaboo for many Web-only merchants over the holiday season.

"We are capable of processing on any given day some 1 million transactions, shipping out some 200,000 units on any given day," Lycos CEO Davis said. "So we get massive infrastructure."

"That has clearly been a challenge for entities on the Web," added Bennett.

Grafting back-office infrastructures onto Web stores on the Lycos network is a clear direction for the new company, with announcements expected within weeks.

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