Internet parasitism powers Barry Diller’s returns
By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Barry Diller is abandoning Newsweek magazineās print edition as the media mogulās web businesses are thriving. But his IAC conglomerate seems to be powered by a risky form of internet parasitism. The $4.6 billion companyās stock rallied some 20 percent this year on a boom in online search largely driven by customers unwittingly downloading IAC toolbars. Thatās no way to build a lasting business.
IACās search operations are growing at a 40 percent annual clip ā faster even than Google. Itās also highly profitable, since the company farms out the difficult work of actually answering queries to Google. Indeed, the search giantās quarterly results released Thursday show this trend continuing ā search on behalf of other websites (such as IACās) is growing faster than Googleās own business. Analysts estimate that search will account for about two-thirds of IACās operating profit growth next year.
While IAC runs popular websites such as Ask.com, the majority of its search growth is coming from what it calls āapplications.ā This is largely from toolbars that are installed on usersā desktops when they download IAC services such as Guffins (virtual pets), Smiley Creator (emoticons) and Daily Bible Quotes. These toolbars set IAC sites like mywebsearch.com as default search services. IAC now gets more users through applications than sites like Ask.com, and the gap is growing.
Whether users understand what they are downloading is unclear ā many of IACās services appear to target less sophisticated computer users. And the recipients donāt always appear happy with the results. Enter Mywebsearch.com into Google, and the most popular results include: removal, malware, and uninstall. Getting rid of these toolbars isnāt straightforward either.
The risk is a government crackdown on the toolbar business over privacy or improper marketing. For example, IAC firmly says it doesnāt target those under 13. Yet virtual pets and emoticons are likely to appeal to children, who canāt understand the fine print on a consent form permitting a toolbar download. Even if the government doesnāt get involved, toolbars hardly seem like a durable profit source.
As it faces its own growth challenges Google may wish to perform more of these searches directly, instead of letting IAC grab a chunk of the profits. And new browsers and mobile devices may make it increasingly hard to download toolbars ā that wouldnāt be good news, whether in digital or print form, for IAC.