A Synergy Fantasy
Barry Diller’s internet conglomerate InterActiveCorp, or IAC, just bought the Ask Jeeves web search company for $1.8 billion. What’s the rationale for this deal? Need you ask? Why, it’s “synergy”.
Ah, synergy—a lovely intellectual justification for so many value-destroying mergers, from AOLTimeWarner to DaimlerChrysler. To understand why synergy looks great on paper but usually collapses in practice, let’s look at the different corporate pieces of IAC and review what could easily be Barry Diller’s synergy fantasy about how you the customer are supposed to fit into them.
Let’s say you’re a single guy looking for love. So you go online to seek the lady of your dreams, and for some bizarre reason you don’t go to Google, you go to IAC’s Ask Jeeves. (Remember, I said this was a fantasy). Ask Jeeves will direct you to numerous dating sites, but of course you choose IAC’s match.com. You locate a lovely damsel in Phoenix, Arizona which happens to be a few hundred miles from where you live. No problem, because after getting hot and bothered with each other via e-mail, you’ll go to IAC’s Expedia to book a flight to see her, and you’ll use IAC’s hotels.com to locate a place to stay in Phoenix.
Why stop there? You’ll want to make a restaurant reservation and check out the theatre scene in Phoenix (via IAC’s Citysearch), and you’ll buy the tickets to the show through IAC’s ticketmaster.com.
Everything goes great in Phoenix. You’re in love! She’s in love! Music is in the air. So back to the web to buy her an engagement ring at IAC’s Home Shopping Network website. Oh happy day—she’s ecstatic with the ring and says yes to your proposal, and you both set the wedding date. Naturally, you direct all of the invited guests to IAC’s gifts.com for wedding goodies.
The wedding goes great. But after your honeymoon (arranged with IAC’s Expedia or IAC’s hotwire.com), where will you live? Fortunately, IAC’s realestate.com will find a fabulous house for you, and IAC’s lendingtree.com will find an even more fabulous mortgage. You settle down to wedded bliss. Your wife plans dinner parties with IAC’s Evite site, and you find the plumbers and contractors for home maintenance through IAC’s ServiceMagic site. But it’s not all work. Since you and your wife do a good job of financial planning—all through IAC’s GetSmart site, of course—you find yourself with enough money to purchase a lovely time share condominium through IAC’s Interval International site. No wonder you’re both smiling. Life is wonderful. The only thing that’s missing in IAC’s menu is caskets.com for when it’s all over.
What’s wrong with this fantasy? Very simple. In reality, through every step of this process, the customer has a gazillion choices and options—both online and physical world—other than IAC. And empowered customers exercise those options regularly. They might sometimes, and selectively, use IAC options, and they might not. The main problem with “synergy” is that those darn customers usually don’t cooperate with our carefully developed plans. The vendor trumpets “one stop shopping!!!” and is amazed when many customers don’t fall into line like zombies. Meanwhile, the combined “synergized” company gets more bureaucratic, more cumbersome, less focused, and less efficient. Often, as is currently the case with IAC, major restructuring occurs to somehow make the package more palatable, and future acquisitions are considered to fill the gaps so that those pigheaded customers won’t be able to go anywhere else. The naiveté of this mindset is palpable, but the market isn’t fooled. After all the serial acquisitions, IAC’s stock is stagnant and is priced well below that of highly focused players like Google, eBay and Yahoo. As is so often the case, I suspect that most of the IAC companies would do better on their own.
Can synergy ever work? Sure. Occasionally. But not nearly as often as its proponents would have you believe. In fact, next time you hear a CEO or analyst use "synergy" to justify a questionable megamerger or acquisition spree, head for the hills! I’m sure you can go to a IAC website to help you get there.
Ah, synergy—a lovely intellectual justification for so many value-destroying mergers, from AOLTimeWarner to DaimlerChrysler. To understand why synergy looks great on paper but usually collapses in practice, let’s look at the different corporate pieces of IAC and review what could easily be Barry Diller’s synergy fantasy about how you the customer are supposed to fit into them.
Let’s say you’re a single guy looking for love. So you go online to seek the lady of your dreams, and for some bizarre reason you don’t go to Google, you go to IAC’s Ask Jeeves. (Remember, I said this was a fantasy). Ask Jeeves will direct you to numerous dating sites, but of course you choose IAC’s match.com. You locate a lovely damsel in Phoenix, Arizona which happens to be a few hundred miles from where you live. No problem, because after getting hot and bothered with each other via e-mail, you’ll go to IAC’s Expedia to book a flight to see her, and you’ll use IAC’s hotels.com to locate a place to stay in Phoenix.
Why stop there? You’ll want to make a restaurant reservation and check out the theatre scene in Phoenix (via IAC’s Citysearch), and you’ll buy the tickets to the show through IAC’s ticketmaster.com.
Everything goes great in Phoenix. You’re in love! She’s in love! Music is in the air. So back to the web to buy her an engagement ring at IAC’s Home Shopping Network website. Oh happy day—she’s ecstatic with the ring and says yes to your proposal, and you both set the wedding date. Naturally, you direct all of the invited guests to IAC’s gifts.com for wedding goodies.
The wedding goes great. But after your honeymoon (arranged with IAC’s Expedia or IAC’s hotwire.com), where will you live? Fortunately, IAC’s realestate.com will find a fabulous house for you, and IAC’s lendingtree.com will find an even more fabulous mortgage. You settle down to wedded bliss. Your wife plans dinner parties with IAC’s Evite site, and you find the plumbers and contractors for home maintenance through IAC’s ServiceMagic site. But it’s not all work. Since you and your wife do a good job of financial planning—all through IAC’s GetSmart site, of course—you find yourself with enough money to purchase a lovely time share condominium through IAC’s Interval International site. No wonder you’re both smiling. Life is wonderful. The only thing that’s missing in IAC’s menu is caskets.com for when it’s all over.
What’s wrong with this fantasy? Very simple. In reality, through every step of this process, the customer has a gazillion choices and options—both online and physical world—other than IAC. And empowered customers exercise those options regularly. They might sometimes, and selectively, use IAC options, and they might not. The main problem with “synergy” is that those darn customers usually don’t cooperate with our carefully developed plans. The vendor trumpets “one stop shopping!!!” and is amazed when many customers don’t fall into line like zombies. Meanwhile, the combined “synergized” company gets more bureaucratic, more cumbersome, less focused, and less efficient. Often, as is currently the case with IAC, major restructuring occurs to somehow make the package more palatable, and future acquisitions are considered to fill the gaps so that those pigheaded customers won’t be able to go anywhere else. The naiveté of this mindset is palpable, but the market isn’t fooled. After all the serial acquisitions, IAC’s stock is stagnant and is priced well below that of highly focused players like Google, eBay and Yahoo. As is so often the case, I suspect that most of the IAC companies would do better on their own.
Can synergy ever work? Sure. Occasionally. But not nearly as often as its proponents would have you believe. In fact, next time you hear a CEO or analyst use "synergy" to justify a questionable megamerger or acquisition spree, head for the hills! I’m sure you can go to a IAC website to help you get there.
posted by Oren Harari at 12:13 PM
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