Unlike other recent Net acquisitions or mergers in which stock prices jumped after the deals were announced, Lycos's stock tumbled on concern that the company had not been sold at a premium.
"I think that the market overreacted clearly over the Lycos deal," said Diller after his keynote address at Jupiter Communications' Consumer Online conference here today.
During his speech, Diller said that his cable television empire, USA Networks, and online properties had individually "promising but uncertain futures" unless they could have a national Internet force to complement their local reach, especially in light of the increasing consolidation between the larger players.
"We knew that the fit with Ticketmaster-CitySearch made sense, but the business model for all was troubling," he said. "They are too dependent on advertising.
"I felt for a long time that advertising couldn't support the Internet business the same way I don't think it will be able to support solely the TV business," Diller added.
He noted that advertising is in a "slow arch" toward direct selling. "That is why I think the Home Shopping Network can be quite a transition to the new world order," Diller said.
"To me this is the story of interactivity becoming Internet activity," said Diller. "[It's the story] of convergence of telephones, computers--televisions being replaced by a new convergence of entertainment, computers, and television.
"Those companies that are able to link in a seamless way the direct selling of merchandise locally and through Internet searches and Internet communities, while using old-world outlets like TV to advertise the services, will come out ahead," Diller added. "It is with those companies that I would place my bet--that I have placed my bet."
Although the Home Shopping Network is commonly known for selling fake rings and jewelry and on its TV channel, completing sales by telephone, Diller said it already has the infrastructure to support e-commerce sales, shipping, and warehousing.
"We had $23 million worth of computers sales in a single day," said Diller, emphasizing that the company no longer focused on low-tech merchandise. It was HSN's infrastructure and Diller's other online properties that got him thinking about combining with Lycos.
"Frankly, I liked [Lycos's] location: Boston and not Silicon Valley," Diller said. "[Lycos has a] very practical and hardworking attitude" and has grown at a tremendous rate.
"Lycos was not like Nike. They were more like Converse All Stars--they got the job done," Diller added.