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The Internet keiretsu
Known as the "Internet keiretsu" (the Japanese word for a network of companies), CMGI is not your typical VC company. Often described as a web holding company, CMGI has a base of wholly-owned operating companies and makes strategic investments in "synergistic Internet enterprises" through its @Ventures division. As of October 1999, CMGI held a majority share of 16 companies and a minority stake in 45 companies.
The company believes its structure allows the network companies to create an "infrastructure" of shared technologies and content, which each individual company can utilize to its own advantage. CMGI is a public company which trades on the Nasdaq. With its agressive investment strategies, CMGI has been a volatile investment. For the period of November 1998 to November 1999, the stock traded at prices between $16 11/32 (December 14, 1998) and $170 3/4 (November 29, 1999).
CMGI head David Wetherell was recently labeled the "Warren Buffet of Internet investing" by Boston Magazine. In 1986, Wetherell executed a leveraged buyout of CMG Information Services, a company that sold lists of college professors and courses to textbook companies. Under Wetherell's management, the company was transformed from a database management company to an Internet laboratory. In 1995, CMG was renamed CMGI to emphasize its Internet focus.
During 1999, Wetherell spearheaded an acquisition frenzy, which met with both praise and skepticism. CMGI (either directly or through its subsidiaries) completed purchases of 15 companies in 1999, including Flycast Communications, AdForce, AdKnowledge, and 1stUp.com. In December 1999, CMGI announced its intention to purchase YesMail.com for approximately $500 in stock.
Proponents of Wetherell say he has a undeniable knack for sensing trends and making smart deals. Wetherell has profitable examples like Geocities to back up this boast. Critics worry that Wetherall's love of the deal might blind him. Many believe the highly publicized acquisition of Alta Vista by CMGI in the summer of 1999 will conflict with CMGI's stake in Lycos.
The operating companies
CMGI's operating companies include 1ClickCharge, Activerse, Adsmart, AltaVista, Engage, iCast, Magnitude Netowrk, MyWay.com, NaviNet, NaviSite, Saleslink, and ZineZone.com. Many of the wholly owned companies focus on web hosting or the creation of developmment tools for programmers.
@Ventures is the private venture capital of CMGI. @Ventures holds minority stakes in early stage Internet companies and has so far organized 5 funds. CMGI is the sole limited partner of Funds I and II as well as the most recent funds, @Ventures IV and the B2B (Business to business) fund. Investors in @Ventures III included Microsoft and Vulcan Ventures. @Ventures IV and the B2B fund will focus on e-commerce opportunities and are expected to raise a combined $2 billion. @Ventures previous investments include Lycos, GeoCities and Virtual Ink.
At a basic level, CMGI's goal is to dominate the Internet by having a stake in in every leading company in the online world. CMGI executives hope to accomplish this goal through holdings in portals, advertising companies, web development tools, and CMGI's latest media endeavor, iCast (online, individualized broadcasting). Bill White, President of marketing and strategy at CMGI, told The Standard "we think we're the model for the future, similar to Procter and Gamble, where there are multiple brands under one corporation."
CMGI continued its expansion into the B2B market in February 2000, acquiring uBid.com and Tallan. Both transactions are expected to close in May 2000. uBid, a B2B online auction company was acquired for approximately $407 million in stock. Tallan, a privately-held data warehousing and mining company formerly known as Business Data Services, cost CMGI about $920 million.
In July 2000 CMGI struck a deal with Compaq to launch Freeup, a joint venture that would offer Internet-based products, services, and information for professional communities. With $11 million in support from Compaq and $9 million from CMGI, Freeup plans to garner revenues from sales of online services such as software management.
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