The Web Mogul 

It looked like the deal Barry Diller was born to make. All summer, the longtime movie and TV kingpin was rumored to be maneuvering to make his next big media conquest–the acquisition of Vivendi Universal Entertainment. After all, in the past decade Diller had made a play for CBS, another for Paramount Pictures, and twice talked merger with NBC (GE). But with the September 2 announcement that General Electric was near a deal to merge Vivendi Universal into its NBC unit, Diller once again looked like the odd man out.

Yet the 61-year-old Diller insists there was never anything to the scuttlebutt. Sure, he had skin in the game. His company, InterActiveCorp (IAC), owns a 5.4% stake in VUE, and he personally holds an additional 1.4%. But he has sworn off Tinseltown for what he thinks is a far more promising opportunity–selling all manner of things over the Internet. “It’s unfortunate people don’t understand,” Diller says, rolling his eyes, as he paces a conference room at his Manhattan headquarters. “Everyone thinks, ‘Hollywood vs. this?’ If they understood anything, they’d know this is interesting and Hollywood is”–long pause for effect–“mostly a pain in the ass.”

“This” is IAC. Thanks to a two-year-long buying binge, IAC is becoming the world’s largest consumer e-commerce business.

With an eclectic combination of businesses, ranging from the online travel powerhouse Expedia to the Net dating service Match.com, IAC’s revenues are on track to surge 34% this year to $6.2 billion–which would make it bigger than e-commerce giants Yahoo!, eBay and
Amazon.com. 

And this relentless dealmaker, with $5 billion in cash, is still shopping. On September 21, he announced a deal to buy Hotwire.com, a Priceline.com Inc. rival, for $665 million, giving him three of the top 10 most-visited travel sites. “I cannot imagine the year will end without our making an acquisition or a series of acquisitions in the billion-or-so-dollar range,” he says. He is eyeing acquisitions in travel, finance, and classified ads–and plans to push hard overseas.

The big squeeze

Behind the wheeling and dealing is a shrewd strategy to make IAC into something entirely new–a powerful combination of businesses focusing solely on e-commerce. For this, Diller is positioning himself as a new kind of cyber-middleman. He starts by picking highly fragmented industries, such as travel, personal finance, and local entertainment. His companies intermediate between travelers and hotels, borrowers and banks, music lovers and concert halls. Think eBay, not Amazon.com Inc. Diller does not want to warehouse products like Amazon. Instead, he uses the immense power of the Web to gather boatloads of customers and deliver them, en masse, to sellers of products and services à la
eBay.

What makes Diller unique is his willingness to meld the ruthlessness of a Hollywood mogul with the power of the Internet.

While eBay Chief Executive Margaret C “Meg” Whitman strives to keep the online auction site’s community of buyers and sellers happy, Diller throws his weight around much like Wal-Mart Stores Inc.–squeezing suppliers so he can take a bigger slice of the pie. He grabs extra profits by giving prime billing on his websites to suppliers that offer him the fattest discounts, from flights to concert tickets. “In every one of our businesses, we’re playing a role in defining the economic laws,” he says.

Diller makes no apology for strong-arm tactics in any of his nine major businesses. What’s more, he’s positioning them to feed one another, shuttling customers and coupons from one Web fiefdom to the next. If everything works as Diller plans, IAC could be riding a gusher of profits. US Bancorp Piper Jaffray analyst Safa Rashtchy estimates that IAC’s net income will nearly quadruple next year, to $660 million, as its revenues rise 21.4%, to $7.7 billion.

But the script for IAC is hardly assured of a happy ending. The company faces competition in nearly every market. And the most serious threat may come from IAC’s own business partners – hotel chains, airlines, banks, and others – who want to rein in Diller’s ambitions, since his profits often come out of their pockets. And they are fighting back. Till now, such efforts show little sign of slowing down Diller’s Web express. But if he botches relations or squeezes partners too hard, resistance could grow.

Left coast Napoleon

The most difficult challenge for Diller may turn out to be, well, Diller. For his far-flung Web conglomerate to click, he must recruit and retain top-flight managers. Yet since he took over ABC at the tender age of 26, he has been a Left Coast Napoleon, determined to dominate with his sheer force of personality and self-admitted proclivity for micromanagement. In the previous incarnation of his company, USA Networks, he churned through top executives like so many neckties, parting ways with a half-dozen high-profile executives, including current America Online Inc Chief Executive Jonathan Miller. “You’re worthless one week, then you’re the greatest, then you’re worthless,” says one exec who left.

“Watch mode”

Diller admits that his tough-guy style has drawbacks. For help, he turned earlier this year to retired GE CEO Jack Welch. Acting as a consultant, Welch helped devise a structure that lets the heads of Diller’s businesses run their own operations day to day while Diller controls major issues such as mergers and budgets. Since June, when the system went into effect, “he’s more in a watch mode than a micromanage mode”, says Robert Diener, president of Hotels.com. Although Diller admits it’s sometimes a struggle, he says he’s keeping hands off the businesses, adding: “I don’t have the time, I don’t have the focus, and I don’t have the depth of operating knowledge to do it.”

Diller appears to be well on his way to becoming a genuine Web mogul. IAC is primed to ride the huge wave of Internet commerce, which is expected to soar from $78 billion in 2002 to $149 billion in 2005, according to Forrester Research Inc.

The online travel business, which already provides 40% of IAC’s revenues and more than half its earnings, is growing even faster – more than 30% a year.

Music to Diller’s ears. He has aimed for the top since his early days, when he set his sights on being a Hollywood big shot. He grew up in a family of homebuilders in Beverly Hills, where his neighbors included Danny Thomas and Dean Martin. He latched on to a job in the mailroom of talent agency William Morris Agency in 1961, and by 1966 he had landed the top programming job at ABC. Almost overnight, Diller became a star. He was tapped for one fix-up job after another. He revived Paramount Pictures in the mid-’70s, headed Twentieth Century Fox, then ran QVC for Comcast (CMCSK ) and cable-TV kingpin John Malone.

Sold on the Web

Diller always dreamed of building his own empire. In 1994, while he was running QVC Inc., he launched a hostile and unsuccessful takeover bid for CBS. The QVC board forced his resignation for neglecting to ask for permission. So with help from Malone, he bought the Home Shopping Network and TV station group Silver King Communications, and began building a media conglomerate, USA Networks, which ultimately owned a handful of cable channels and a TV programming studio.

But in the fall of 2001, six years into building USA Networks Inc., he took stock and admitted to himself that he owned a media company that was second-tier at best–and always would be.

At the same time, he was drawn to e-commerce. He had awakened to the potential of TV retailing in 1992 when his friend and now wife, fashion designer Diane von Furstenberg, sold thousands of scarves in one morning on QVC. And talks with Microsoft’s William H Gates III and Apple Computer Inc’s Steven P Jobs had fueled his curiosity for online retailing. But these interests remained a sideline until July 2001, when he bought a 64% stake in Expedia, then owned by Microsoft. While others were giving up on the Web, Diller believed it was his best chance to establish a powerhouse. “They were inventing things, building things, and acquiring things that were not even out of the oven, and that, for me, was very exciting,” he says.

So he sold his entertainment businesses to Vivendi for $11.6 billion, almost three times the $4 billion he paid for them, cementing his reputation as one of the world’s sharpest dealmakers.

Diller now straddles two worlds. His office in LA sits next to Le Dome restaurant, a popular hangout with a view of the Hollywood Hills. His Manhattan conference room, by contrast, is anti-glitz. The view is of New Jersey condos, and the biggest decoration on the wall is a map of the US. Yet Diller is no longer conflicted over which way to go. “Barry said he wanted his own thing. Now he has it,” says Victor Kaufman, Diller’s longtime consigliere and now vice-chairman of IAC. Still, Diller wants more of his own thing.

Now Diller is attempting to gain the same kind of clout in other businesses. His next target: real estate lending and referrals.

LendingTree, which attracts 1.7 million visitors every month, is angling for slices of the $3 trillion-a-year mortgage market and the $60 billion a year that real estate agents collect in housing sale commissions. In lending, it routes each customer’s loan application to four different banks and makes an average of about $500 when the loan closes. In real estate, it collects a fee for matching up a customer with a real estate agent. LendingTree takes one-third of the standard 6% real estate commission, or up to $3,530 on the median existing US home sale in June of $176,500.

Diller’s strategy is based on the notion that Web middlemen can profit handsomely simply by bringing buyers and sellers together. Changes in real estate shopping patterns strongly suggest his plan will work. A survey by the National Association of Realtors, released in July, showed 71% of shoppers begin their real estate search online, up from 41% in 2001. And a study by the California Association of Realtors says 23% applied for a loan pre-approval before picking a house, meaning LendingTree is likely to get a crack at millions of customers before they see a real estate agent.

Even as business booms, Diller’s legendary nastiness sometimes spills out. Earlier this year at a meeting of studio executives, Diller, as part-time CEO of Vivendi Universal Entertainment, unloaded invective on Universal’s studio chief, Stacy Snider, when she fumbled some numbers, say two people who were at the meeting. Vivendi Universal CEO Ron Meyer later persuaded Diller to call Snider and apologize. “It was a moment of misstatement and fatigue that he seized upon,” says Snider, who adds: “It doesn’t represent the other 90% of my relationship with Barry Diller.” Diller admits he sometimes goes too far. “I can’t say there haven’t been occasions where people have been humiliated,” he says.

Now, at least, he responds to suggestions. This summer, his business chiefs asked him to discontinue one of his traditions: much-hated weekly executive-team conference calls where he would invite operating unit heads to critique one another’s strategies. Diller would jump in with barbed comments. When the meetings were canned, “there were cheers from the countryside,” Diller says ruefully.

Is this old Hollywood hound learning new tricks? It certainly appears so. On the strategy front, he seems to be learning from the mistakes of his past. For years after he bought Home Shopping Network in 1995 and began trying to build his own company, Diller never articulated a clear vision of how all of the businesses would become more than the sum of their parts.

That only fed speculation that he would chuck it all to make another run at a Hollywood studio.

These days, though, Diller seems sold on the Internet. “How could anybody not look at this as a great piece of extraordinary luck? I’m at an age, in a time, in a world, with a business with real growth in the most interesting sector of life and of business,” he says.

In a sense, Diller gets to enjoy the best of both worlds. He still goes to the Oscars, still hangs out at the Cannes Film Festival, and still gets his calls to Hollywood returned, pronto. And he’s in a business with nearly triple the growth and profit margins of a movie studio. Why work in Tinseltown? For Barry Diller, it’s showtime on the Web. 

By Timothy J Mullaney and Ronald Grover in BusinessWeek. Copyright 2003 by The McGraw-Hill Companies, Inc