TMF Interview With
CEO Harry Motro
With Yi-Hsin Chang (TMF Puck)
and Brian Graney (TMF Panic)
July 8, 1998
Our guest today is Harry Motro, president and CEO of search engine and portal company Infoseek Corp. (Nasdaq: SEEK), based in Sunnyvale, California. Infoseek's website is typically in the top five or six in terms of the Web's most popular sites. The biggest news for Infoseek of late has been its announcement last month that Walt Disney Co. (NYSE: DIS) will take a 43% stake in the company and in exchange give Infoseek $70 million and ownership in Disney's Starwave Corp., which produces online sites such as ESPN SportsZone, ABCNEWS.com, and NBA.com.
TMF: Thank you, Mr. Motro, for joining us today.
Motro: It's my pleasure to be on the Fool.
TMF: In your announcement with Disney on June 18, you said Disney will purchase warrants allowing it, under certain circumstances, to achieve a majority stake in Infoseek. Does this mean you will effectively become a subsidiary of Disney, and will this make you less of an independent entity?
Motro: Absolutely not. The transaction provides that Disney at closing will be a 43% owner in Infoseek. The warrants would give Disney an opportunity to go to 50.1% after three years, if they choose to exercise the warrants at that point in time. The transaction calls for Disney to have a standstill over the next three years, which would prevent them from going higher than 49% during that period.
This transaction in a nutshell gives us an ideal partner for us to be successful long-term, but allows us to retain independence, which is critical in this period of the Internet. This is a phase of the Internet that is marked by aggressive moves by quick, nimble companies, and that's one of the reasons why Disney invested in Infoseek and found it very attractive to stay within this nimble structure.
TMF: Could you walk us through how the partnership came about and what the greatest benefits are going to be from Infoseek's point of view?
"This transaction in a nutshell gives us an ideal partner for us to be successful long-term, but allows us to retain independence."
Motro: Sure. I've been in this business since early 1994. I've viewed several stages of the Internet's development. The first phase was "search," and what it was really all about was helping people find information. The major players in the industry were the search companies or the search engines, and they grew most rapidly, and they developed most quickly the most robust revenue streams.
The second phase was what I call "search plus." That's where the search engine companies said, "Shoot, I can do more than just search," and we added community, content, commerce, and other elements to the site. Frankly, I came to the company a year and a month ago, and we were just turning the corner from "search" to "search plus," and now, really with the last two weeks, we're entering the third wave.
The third wave is where we have major media companies taking this business seriously. We're really going to start meeting the needs of the consumers in a broad spectrum and building broad consumer-based businesses. The [Disney] deal came into effect with Infoseek and Disney both realizing that the industry was ready for this third wave. And what it took to be number one in our business was massive promotion, massive branding, great technology, great content websites, a portal website, and a good deal of liquidity and financial strength. We have put together in this transaction all those elements.
Disney touches 500 million people a day -- 500 million people throughout the world use a Disney product. These guys know how to build brands and how to market those brands. Infoseek is one of the top portals. We touch 14 million unique users a month. The Disney websites touch 9 million a month. We've got great content publishing systems through Starwave. We've doubled our ability to execute and add features to our site. We've doubled the number of engineers in our companies, and we'll have roughly $300 million of liquidity after this transaction. So, altogether we really have what we believe it takes to be number one. What brought the two companies together was the vision and the desire to be number one and to put together the right foundational assets to build upon.
TMF: Since you came from CNN, did you actually consider speaking with Time Warner (NYSE: TWX) for some sort of deal there?
Motro: In this industry there's a lot of conversation between all the main players, and it's fair to say that everyone in the top five websites have talked to everyone in the top five media companies. In my view, there's only one Disney. Disney has the management stye, the leadership, the right properties to get us to where we wanted to be, having the right set of assets.
If you think about it, there's nobody who has the number of page views and the loyalty that ESPN has, for a content-based website. It is the most popular sports site in the world. ABCNEWS is the fastest growing news site on the Internet. When you look at Disney -- with the breadth between the theme parks, radio, television, magazines, movies, music -- they are a leader in almost every category, which makes them the powerhouse to partner with.
"It's fair to say that everyone in the top five websites have talked to everyone in the top five media companies."
TMF: When the partnership goes into effect, will this change the look of Infoseek's main portal site or will there be a new launch of a different-looking site?
Motro: We plan to launch before the end of this year a new portal. That new portal will be categorized by the in-depth integration of all the different assets of Infoseek, Starwave, and Disney. Even properties that we didn't buy will be integrated into this new portal. The portal will include Infoseek. Users of Infoseek will not be disenfranchised; you can still go to the Infoseek site. But Infoseek will concentrate more on search and navigation. The new portal will be a broader property that has a lot more features and functionality included in it, including community, commerce, and communications.
TMF: Why did you walk away from the deal with Netscape (Nasdaq: NSCP) that would have made you the primary search engine partner for Netcenter instead of competitor Excite (Nasdaq: XCIT)? Haven't you lost traffic as a result of this?
Motro: We don't comment on individual negotiations, and, frankly, we haven't separated from Netscape. We are still a significant participant in their Netcenter search program. We think that they are a great partner of ours. We're excited about their efforts in helping to grow the industry. Frankly, all of the advertising in our entire sector was 0.5% of total advertising last year, so it's not Netcenter or Excite against Infoseek, or them against us, or us against them. It's this new industry trying to get the 99.5% share that we don't have today. That, as we bring people onto the Internet, will benefit us all. Netscape, with their pioneering efforts with the browser and their continuing efforts with Netcenter, will do so. We're just very happy to be part of the program.
TMF: Lately, there has been a lot of commentary about how investors should be valuing companies that do business on the Internet and the challenges inherent in that, especially since many of the companies such as your own aren't generating profits yet. In your view, when do you see Infoseek generating profits, and also what are some keys that investors should be looking at when considering an investment in Infoseek?
Motro: The Internet is growing so quickly and has so much promise in terms of both advertising and e-commerce. For example, e-commerce is projected to be over $200 billion in four or five years. The investment community has recognized that we are building the foundations of a new industry, and they're forward-investing against that. So, the question I would ask investors or anyone interested in looking at this sector would be to say, "Who will be here in five years? Who has the right assets to build the right set of brand names and products to have a sustainable, leading-edge company?"
I'm absolutely convinced that with Disney as our branding and promotional partner, as Starwave and Infoseek combine their product development skills, and with the Disney content funneling through the Starwave technology, we will have an incredible offering, and we'll certainly be one of the long-term players. We used to be asked, "Will you be there in five years, as a top two or three player?" We had to convince people. Now, most people certainly include us in the list of top players long-term because of the Disney combination.
"That new portal will be categorized by the in-depth integration of all the different assets of Infoseek, Starwave, and Disney."
TMF: Will you be generating profits within those five years?
Motro: We don't make forward-looking comments. What I would say is that the technology business and the media business are both high-margin and very profitable businesses, and they are also scale businesses. You have to get big, you have to be strong, and you have to build a brand and leverage that brand for profits. That is our plan. That's what we want to do. We want to get very big, we want to be very aggressive in grabbing market share, we want to have the world know our brand name. From that, we will be able to generate the right kind of business model that I think the Street will appreciate.
TMF: What do you think has been your biggest accomplishment since taking over as CEO a year and a month ago?
Motro: The list is long. I'd say that the biggest accomplishment is to focus the company on the media dimension of the opportunities ahead of us. In the past, [Infoseek] was still viewed as a limited-scope company in that we were really, frankly, in the first wave. It was a search engine. It was meeting one dimension. As we begin to think of ourselves more as a media company we can meet a broader set of needs, including in the search-plus phase of starting to expand to actually what we've now accomplished, really acting and behaving like a media company. That has put us as a leader in the next generation of Internet companies.
Frankly, I think the market understands some of that. On a post-transaction basis, we're now trading as if the shares in the Disney transaction have been announced. We're trading at double the market cap that we had beforehand, roughly. It's a promising future for us. I think part of that has been recognized already. But as we execute, we look forward to even more recognition.
TMF: Thank you, Mr. Motro, for the taking the time to talk with us today.
Motro: Thank you very much. My pleasure.
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