From Media Mogul to Web Warlord

Will Barry Diller's cherrypicking succeed on the Net?

It was three days before USA Interactive (USAI )'s annual report was to go to the printer, and Chairman Barry Diller had a problem: the company's name. "It no longer fits us, what we do," says Diller. "We need a name that tells people who we are." Little wonder: Since 1995, when the onetime Hollywood mogul bought a string of low-powered TV stations, his company has had as many names as strategies -- from Silver King to Home Shopping Network to USA Networks as Diller dabbled in networks, cable, and TV production among other areas.

Diller still hasn't renamed his company. But there's no longer much doubt about his strategy. He is now deep into building an e-commerce powerhouse that has higher Internet revenue than eBay (EBAY ) and Yahoo! (YHOO ) and is second only to (AMZN ) His online empire spans everything from travel and entertainment ticketing to date matchmaking. On May 5, he upped the ante, announcing the purchase of online mortgage broker The $716 million stock deal could give Diller's company more than $3.3 billion in Internet revenues in 2003.

Diller's online strategy is unique. Others rely on single Web portals through which they channel consumers to their shops and services. USA works as an online conglomerate, with nearly a dozen free-standing businesses, including Ticketmaster (TMCS ), Expedia (EXPE ) and "It's the anti-portal, if you will," says Safa Rashtchy, analyst at U.S. Bancorp Piper Jaffray (USB ) In building his company, Diller is mimicking media giants, which often cherrypick businesses, and some of the most successful retailers, who now run portfolios of specialty shops rather than department stores.

And unlike portals such as Yahoo and Microsoft Corp.'s MSN (MSFT ) Diller's online collection is focused primarily on selling. While Yahoo attracts an average of 230 million visitors a month, compared with USA Interactive's 40 million, most of Diller's visitors are buyers, while most of Yahoo's are just passing through. "Recent online successes have been mostly transactional, rather than the portals," says Peter Mirksy, an analyst at Fahnestock & Co. Inc.

Diller's challenge now is to coax marketing synergies and back-office efficiencies out of his businesses while leaving them entrepreneurial and independent. Late last year, he named former American Express (AXP ) executive Anne M. Busquet to oversee USA's travel functions. Expedia and Ticketmaster have already begun collaborating on special promotions. And Diller plans to launch a travel channel on cable in part to promote Expedia and

Still, Diller doesn't believe in forcing synergies. LendingTree Inc., a survivor of a shakeout in the online mortgage market, isn't a natural fit with his other properties. Diller paid a hefty 40% premium for the company. But with less than 1% of the online mortgage market, LendingTree still has plenty of growth potential -- on top of the torrid 70% growth it turned in last quarter, figures CEO Doug Lebda.

Wall Street has only recently begun to take notice. Despite a runup of more than 50% since February, USA's stock, with a price-to-operating profits ratio of 44, still trades at a discount to the lofty multiples of dot-coms such as Yahoo, which sports a ratio of 65. Diller is no doubt hampered by the perception that he's a media mogul -- entertainment properties trade at lower multiples than Net plays.

Diller's shopping binge is far from over. "We're serial dealmakers," he says. And with nearly $4 billion in cash and valuable stock as wampum, he's got the ability to do plenty more. While he won't name his targets, he's likely to buy more in the financial-services area. But will the limelight-loving Diller be able to stay out of the entertainment industry for long? USA still holds a 5.4% stake in Vivendi Universal (V ) Hollywood studio. He says his "primary motivation" is to sell the stake to invest in more e-businesses. Diller, though, is infamous for changing his strategy. After all, the company can always be renamed.

By Ronald Grover in Los Angeles, with Dean Foust in Atlanta and Ben Elgin in San Mateo, Calif.

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