The Internet's Money Machine

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Diller, who made an unsuccessful run at Paramount in 1994 using stock from the shop-at-home company QVC, has been seen by the Internet community as crashing the party with a most unwelcome piece of news: your companies aren't worth as much as you think. (And for a few wobbly days early last week, he was right.) Wetherell and his ilk are now seeking to show Diller the door. "He's Barry Diller, he's famous, he's a great dealmaker, but he may have overstepped," says Joe Butt, senior analyst at Forrester Research.

Get real, says Diller. "There has been an enormous amount of arrogance, of easy money made by people who are extraordinarily arrogant about the real world and how difficult it is to build and sustain a business," he says. He likens Internet companies to "slot machines that pay off again and again. If I was an investor, I'd be corrupted by it to some degree as well."

Valuation questions aside, old-media and new-media firms have to link up. Nearly every old-media firm needs some kind of new-media footprint to distribute its content and capitalize on the e-commerce and marketing opportunities offered by the Internet. AT&T;, for instance, controls Net portal @Home and cable company TCI. Last week it made a bid for Mediaone, another cable firm with investments in entertainment. Thus AT&T; wants to deliver everything to everybody--from phone service to cable TV to e-commerce--over a variety of networks.

Sooner or later an Internet company will purchase a substantial, publicly traded real-world firm, and that will finally bring about in the financial markets the sort of convergence already under way on the desktop between the television and the PC. Wetherell is a firm believer in that convergence, and he points out that the companies currently in his incubation pipeline are poised to capitalize on the expansive networking possibilities and dizzying growth that increasing interconnectivity promises. "Look, traditional media is one to many--you publish a magazine, and it goes out to many. But on the Internet you have many to many, so the possibilities are phenomenal. The numbers are what makes this case so exciting."

Even if the Lycos deal goes through as currently configured, Wetherell and CMGI stand to make close to $700 million. And with companies such as Chemdex, Silknet, Raging Bull and Medical Village preparing to go public and perhaps become the next Lycos or GeoCities, Wetherell's viral growth justifications of wild valuations will continue to be gospel in the Net economy. "David is so confident and so smart," says Bill Martin, 21, a University of Virginia dropout and one of the founders of Raging Bull, a financial Web community half-owned by CMGI. "But he's a guts guy too. When we brought him our idea, he listened, took a conference call and then came back in the room and put 2 million bucks into the company. I called the dean the next day and told her I wasn't coming back to school."

Good move. If all goes according to plan and Wetherell's valuation models continue to hold, then Raging Bull will go public in about a year, and Martin will be worth a few hundred million dollars. Those will be Internet dollars, of course--but do you think Martin really cares?