In their own distinct ways, News Corp and Google are now leading the dot.com revivalists. Why don’t they just get on with it and merge? 

We have been here before. Suddenly, small (and often unknown) Internet start-ups are attracting the multimillion-dollar attention of industry heavyweights. It is not, as yet, madness, but it is showing some of the signs on which such a long-term prognosis can be based. There is hype and there is hokum, sometimes spouted by those too young to know better, often indulged in by those too old to know otherwise.

In itself, this is incredible. Did nobody learn anything last time out? In some ways, if you will excuse the indelicate metaphor, it’s a bit like the post-HIV generation returning to unprotected sex en masse.

What is strange this time around is that the two leading companies that appear to be driving ‘Dot.com MkII’ could not be more different one from the other. There is News Corp, an ‘old economy’ company (insofar as the soubriquet still applies since the so-called ‘new economy' imploded) and Google, a ‘new economy’ company (insofar as that soubriquet still applies since it became part of the ‘old economy’ with last year’s spectacular IPO).

Redefine the definition
Maybe this tells us that that the ‘old vs. new economy’ schtick is a bit out of date. What we have for the most part is a modern economy, which for the most part is a digital economy, and which for the most part is dedicated to providing services that please users and generate revenues and bring health, wealth and happiness to shareholders and employees. Even if News Corp and Google may differ on how they handle that last point, they are both part of the same economy.

So let's cut out the tribalism, let’s call it ‘the economy’.

After a hellish five years, ‘the economy’ is looking perky. It’s recovered some of the investor confidence, and some of its own self-confidence, that was shattered in 2000-01. On the face of it, therefore, the technology industry in general and the multimedia world in particular are trending in a Redux direction. And the truly weird thing is that News Corp and Google, these two so-different companies, are chasing the same objective. Discuss.

Outsiders, looking in
It’s not hard to understand News Corp’s renewed obsession with the Internet. Its role and its longevity (and the longevity of its 74-year old chairman, Rupert Murdoch) as a major provider of print and broadcast content may classify it as an ‘old economy’ company. Yet it has invested more heavily in the technology required for the distribution of that content – broadcast, satellite and the Internet – than many of its rivals.

Mindful of the fact of just how much money was ‘spent’ (I am not allowed to use the word 'pissed') down the drain by established media companies in the last great Internet gold-rush, and taking into account Murdoch’s history of shrewd interventions in the course of modern media history, it is fair to conclude that News Corp has fired a gun for the re-starting of an Internet investment race.

Recent history tells us that in such races few people wear running shoes and everyone carries a starting pistol. Murdoch has fired first while his rivals, especially US players such as TimeWarner, are still in the starting blocks. And often, the pistoliers are firing blanks.

July 2005 saw the creation of the Fox Interactive Media unit, thus linking, by brand, News Corp’s Internet ambitions to its flagship US news carrier (if you have never watched Fox News, insert the word ‘aircraft-’ ahead of the word ‘carrier’ in the phrase ‘flagship US news carrier’ and you will get a fair idea of its worldview). There was talk of a US$2bn acquisition budget.

This was followed by the ourchase of Intermix Media for US$580m (click here); "Intermix's brands, such as MySpace.com, are some of the web's hottest properties and resonate with the same audiences that are most attracted to Fox's news, sports and entertainment offerings”, said Murdoch, when rapping with the Wall St ‘hood’. News Corp then bought sports website producer Scout Media and was also reported to be involved in an aborted US$3bn takeover of Skype, the VoIP player (click here).

Already, in August, News Corp has been associated with bids for Blinkx, a video search-engine company (you know the one!) and IGN Entertainment, a gaming company (you know the one!). A conservative valuation of those two transactions would be anything up to and beyond US$1bn. That budget sounds like it is being sent – which is a dot.com kind of thing.

Insiders, looking out
One of the funny things about Google, whose remarkable co-founders Larry Page and Sergey Brin have a combined age well under that of Rupert Murdoch, is that it is now a grown-up company. Google also survived the dot.com disaster, which suggests that there is more to it than mere iconic status – although it would have been interesting to see what might have happened had they tried an IPO in, say, 2001.

Instead, they waited until a year ago, in August 2004. Opting to shun Wall St, Google went for an open (US-only) auction of shares (click here). It was wildly successful and yet, the truth is, that within weeks the major institutions had bought up the majority of the floated stock (click here). In the meantime, Google shares have soared and have justified the company’s decision to minimise brokerage fees. It was also, of course, the most successful IPO since the dot.com implosion.

And yet geekdom is never far from the surface, although this should not be taken as a criticism. Last week, Google unveiled a further plan to raise some US$4bn in cash through the sale of an additional 14,159,265 (reported as 14.2mn) shares. Why that number? Stick a 3 in front of it and you have π (‘pi’) to ten decimal places. Oh come on.

In its philosophy, Google remains blunt: “It's best to do one thing really, really well. Google does search. Google does not do horoscopes, financial advice or chat. With the largest research group in the world focused exclusively on solving search problems, Google knows what it does well and how it could be done better.”

So what exactly does Google want to 'do' in the wake of the US$4bn the new share sale would raise and where does that leave the search-centric philosophy? Google might increase its stake in baidu.com, ‘the Chinese Google’ that was recently floated on the NASDAQ with Google-like success (click here). It has 2.9% of baidu at present and may want more. Another suggestion is Skype, the VoIP provider already mentioned in this article in connection with, you guessed it, News Corp. This might not fit the ‘do one thing really well’ strategy in that Skype does lots of things quite badly. Google’s problem is that is has to start doing things that justify and sustain its share price even if they take it away from its admirably, if quirkily, well-tended roots.

After you?
What these two giants have in common is that the merest attention paid by them to a possible takeover target hikes the price of the company in question. From one viewpoint, this can restore company values to credible and sensible levels after five years of irrationally (yet understandably) negative investor sentiment. Better still, it might restart the process of cross-sector pollination of ideas and technologies between converging worlds. At worst, given the priapic tendencies of so many of those who run the companies involved, egged on by financial cheerleaders clad in braces and Gucci loafers, followed so avidly by the greedy individual investment equivalent of trailer trash – and you have the recipe for another unsustainable boom.

Neither Google nor News Corp makes any mention of this possibility in their statements and filings relating to corporate governance and forward-looking activity. Yet there is a sense that Google and News Corp might go up against each other for the next Internet trophy. Stupid.

The way around all of this is for News Corp, newly enchanted by the need to gain VIP status on the Internet, and Google, still seeking credibility (and VoIP status?) in the financial markets, to merge. Unlike AOL-TimeWarner, which saw two faltering companies cling to each other in an expensive bid for survival in choppy economic seas, this would be a 21st century ‘tour de force’ for the new media age.

It might have to be a merger of equals, which may not go down too well chez Murdoch, who has yet to meet his equal among his family, friends, or rivals...
Jim Chalmers