IAC's Diller: The iPhone is our crystal ball

NEW YORK--Barry Diller doesn't want to predict the future.

"I'm not a great predictor of these things," the IAC/InterActiveCorp CEO said onstage at his Wednesday keynote for the Advertising 2.0 conference, when interviewer and BusinessWeek reporter Jon Fine asked him when he thought the depressing economic news would finally end. (His personal belief is that it won't get much worse.) "Not that, by the way, anybody's predictions are worth very much to anybody." And he was particularly wary of commenting on the macro economy. "Oh, you certainly don't want to hear from me on that," Diller said. "You've heard from every baboon in the world on the macro economy."

Advertising 2.0 was co-hosted by IAC and held in the digital conglomerate's airy, glass-walled headquarters along the West Side Highway in Manhattan's Chelsea neighborhood. The building, designed by architect Frank Gehry, opened in 2007. Less than a year later, Diller announced plans to split the sprawling IAC into five separate publicly traded businesses. The slimmed-down company now focuses primarily on online media brands like Citysearch, Match.com, Evite, and Ask.

"What we thought was that agglomeration, putting disparate assets together was fine in the great building stage...where we started about 12 years ago," Diller said. "We built up a fairly large number of disparate businesses. All of them had some form of interactivity, but they were all from selling mortgages to dating...It wasn't giving investors or commentators or anyone else a clear picture of what the company was."

Then there was a battle for board control with shareholder John Malone of Liberty Media. The two now have a "good relationship," Diller said.

While much of the "new IAC" relies on advertising revenue, Diller declared at the conference that strictly relying on advertising as a business model is not sustainable. "I absolutely believe that the Internet is passing from its free phase into a paid system," he predicted (though, keep in mind, Diller did say he doesn't like to predict). "Inevitably, I promise you, it will be paid. Not every single thing, but everything of any value. Again, take commodity away from it."

The wealth of free content on the Internet was a matter of short-sightedness, Diller explained. In his opinion, it came out of the fear of piracy.

"People were so frightened of not being dinosaurs, and baring their heads, and not having what happened to the music industry happen to them, they just slapped everything up on the Internet for free," he said. "That's an accidental historical moment that will absolutely be corrected."

Diller doesn't believe that the poor economy will make it more difficult to get people to pay for things online. One of his subscription-based businesses, dating site Match.com, is doing very well right now: "It would not shock any of you that I think that of the things that, actually, people will do when enduring a storm, financial disaster, or otherwise, is want to hook up in one way or another with other people," Diller said.

Why is he such a believer in the triumph of paid content? Look at the iPhone, Diller told the audience, and the wild success of its App Store.

"The iPhone is a great example of what's going to happen," he pointed out. ""One of the greatest barriers to buying things is the steps that it takes, and we all know the difference when you go to Amazon and you just push your little thing and it's bought, paid for, delivered, billed, et cetera., instantly, and how much that has enabled or how much that has made the difference between just browsing and buying...that little thing, that in fact you scroll it, you do it, it comes, everything else is taken care of, is the answer to what's going to happen on the Internet when, in fact, we get the applicability of that broadly."

He acknowledged that media outlets' readership rates may drop, but that their profits will stabilize once again.

Another thing that Diller was willing to predict? His own demise. Sort of. Interestingly enough, he said he's of the belief that a modern media company is unlikely to outlast its original founder successfully.

"News Corp. makes sense because News Corp. is the absolute extension, to the fingertips, of one person," he said, referring of course to Rupert Murdoch. "I think (in) every case other than that, is that once that original founder has gone, for whatever reason, then the truth is it should all be taken apart because they make no sense. You can't replace with a suit somebody who's built the thing up and understands all of its bits and pieces in the rhythm of their heartbeat."

Interviewer Jon Fine wanted to know if that would be IAC's fate, too.

"I think that's true," Diller said.