The Evolution of CMGI
CMGI's new operating structure marks a major step in the company's evolution from venture firm and holding company to an operating company, albeit a highly diversified and unconventional one even by Internet standards. Its five new business segments are an outline of what brings the Internet to life. The reorganization is also designed to support a "focus on operating profitability" and "improved financial performance." Is this any way to run an Internet company?
By
Nico Detourn (TMF Nico)
September 8, 2000
In an attempt to bring greater transparency to its complex business model, original Internet incubator and Rorschach test CMGI (Nasdaq: CMGI) announced Thursday that it has formally organized its operations into distinct business lines, each reflecting a well-defined segment of the online economy. The move is the result of an "ongoing strategic review" initiated earlier this year by the company's senior management and board.
Doing what comes naturally to an incubator, CMGI has amassed 17 majority-owned Internet companies in a wide range of categories. These will now be organized into five business segments. CMGI will also consolidate its three venture capital funds, and the 53 Internet and 'Net-related companies they invest in, into a single fund to be called CMGI@Ventures IV.
In announcing the company's reorganization, Chairman and CEO David Wetherell said CMGI has always internally evaluated its companies "in the context of their respective market disciplines." The new structure should likewise help outside observers follow, evaluate, and understand CMGI's business by providing a clearer view into its sprawling operations.
Also in the interest of "increasing clarity among key audiences" -- i.e., the investment community, and the media who interpret and propagate the company's story -- CMGI will report its financial results to reflect the new operating structure. The announcement of fourth-quarter results on September 21 will separately disclose the consolidated revenues for each operating segment, as well as the returns generated by the CMGI@Ventures IV venture portfolio.
Internet in a box
CMGI believes slotting its 17 majority-owned companies into the new organizational structure will bring its online universe into better focus. Here's how the five new operating segments and their associated companies line up:
- Search and Portals: AltaVista, iCAST and MyWay.com
- Infrastructure and Enabling Technologies: Activate, CMGion, Equilibrium, ExchangePath, NaviPath, NaviSite (Nasdaq: NAVI), Tribal Voice, and 1stUp.com
- Interactive Marketing: AdForce, Engage (Nasdaq: ENGA), and yesmail.com
- Internet Professional Services: CMGI Solutions
- E-business and Fulfillment: SalesLink and uBid
Those five operating segments actually outline the core functions that bring the Internet to life. The individual companies are the strings, pulleys, and platforms CMGI has collected in those "disciplines." Taken together, it reads like a parts list for a "Build Your Own Internet" kit -- a digital Erector Set with a $12 billion price tag, now marked down over 75%.
Some assembly required
That's pretty much what CMGI's incubator model has produced to date -- distinct and perhaps valuable but still mostly disassembled pieces of the online medium. But the restructuring marks a major step in CMGI's evolution from being chiefly a venture firm and holding company to an operating company, albeit a highly diversified and unconventional one, even by Internet standards.
The new operating structure is designed to support a "focus on operating profitability" and "improved financial performance" in market segments where the company can "establish a clear leadership position." That means a more concerted effort to assemble those disconnected pieces and make them work together.
Significantly, CMGI's 17 majority owned companies, an unwieldy byproduct of the incubator model, will be reduced to "an optimal number of 5-10 in total," they said. Through consolidation and divestiture, companies that last year might have been IPO-bound will now find themselves teamed up, or sold off, as their ambitions are pared back in the name of operating efficiencies, and in the recognition that different times and different market conditions call for different exit strategies.
Those IPOs, of course, have been CMGI's main draw for investors. So in addition to promising investors better clarity into CMGI's business, Thursday's announcement also introduced them to a new CMGI. This wouldn't be the Internet, though, if its leaders didn't periodically remake and remodel their identities, and the original incubator has good reason to do that.
Your Turn:
What do you think of CMGI's new operating structure? Will investors go for it? Or is it not that big a deal? Share your thoughts on the CMGI discussion board.
Related Link:
Internet Report on Internet Incubators, Motley Fool Research, May 2000
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