You can just hear the voice droning the same chant over and over: "Resistance is futile!"
In recent months InterActive Corporation (NASDAQ:IACI) has acquired several formerly independent companies, including LendingTree (mortgages), Ticketmaster (ticket sales), Expedia (travel), and Hotels.com (lodging), to supplement its existing holdings in dating services, entertainment, shopping, and publishing.
So it should come as no surprise that the companies now in the InterActive fold are kicking old partners to the curb in favor of in-house subsidiaries that can provide the same service. This week InterActive announced the termination of a contract between Sabre Holdings' (NYSE:TSG) online travel agent Travelocity and Hotels.com, with services previously provided by Travelocity now going to Expedia.
One justification for acquisitions is that acquired companies can be more valuable as part of a network than as standalone corporations. After a year when InterActive Corporation's checkbook has been in heavy use, it is time for theory to translate into practice. After all, conglomeration has its positive and negative role models.
In the 1980s Sony (NYSE:SNE) failed to wring synergies from its various entertainment businesses, which, instead of creating a powerhouse, shackled each component to the point of marginalization. On the other hand, cooperation between ABC, Touchstone, ESPN and others proved a substantial success for Disney (NYSE:DIS), elevating each brand.
Which way will InterActive go? That will depend on its willingness to give its subsidiary companies some flexibility to pursue the best partners for their services, regardless of affiliation. If internal synergy becomes more important than overall customer experience, each brand will suffer. And while each subsidiary now has the backing of a much larger company, these were generally market leaders in the first place.
Should the company give in to temptation and force cooperation for short-term results, the expected long-term benefits could prove elusive. Resistance may be futile, but victory would come at no great effect.
Bill Mann has beneficial interest in Disney.
