Diller's Next Act
Synergy--who needs it? Not the CEO of InterActiveCorp, who's letting go of the online travel business to search for the next big thing.
By John Battelle

(Business 2.0) – Since building InterActiveCorp into an Internet giant, Barry Diller has been dogged by a persistent question: What's it all about? With businesses ranging from online travel to TV shopping to interactive personal ads to ticket sales--and no overarching brand--can IAC find its footing without the integrated Web experience offered by rivals such as AOL, Microsoft, and Yahoo?

Diller's surprising answer came late last year when he announced he would spin out IAC's travel assets. Was this move proof that IAC's model doesn't work? Hardly, Diller says. Freed from the albatross of being a "mostly travel-related business" (before the split, analysts attributed more than half of the company's $16 billion market cap to its travel holdings), Diller argues, his firm will once again be positioned to move aggressively in interactive retail. Just don't ask him about synergy--as far as Diller is concerned, it's a massive waste of time.

In an unusually frank letter to shareholders about the Expedia spinout, you said you don't want to go into a fight with one hand behind your back. What did you mean by that?

We never dreamed that travel would become 60 percent of our business. Not that I would stop it, but I'm not interested in travel getting bigger within IAC. If it becomes 70 percent, nobody will want to hear about all my other businesses. That's defeating to the people engaged in them, and to shareholders as well. We would simply be a travel company.

By the way, did you really write that letter yourself?

Of course I did. Most CEOs have a version of themselves that they think is the right way to appear. They have a lot of filters that I don't have. I tend to talk as I think--and that gets reported. I figure I'll just talk, and it'll come out right, you know?

Did you consider buying a large asset to redefine IAC?

Well, in order to bring travel down to 30 or 35 percent of IAC's value, an acquisition would have to be humongous, around $10 billion. I would do a big acquisition, I'm not afraid of that. But what kind of dope do you have to be to manhandle travel just to make it a smaller part of IAC?

There's a solution: Set it free. People interested in travel will be interested in Expedia. It's a pretty big company, and it will have its pure destiny. And this also will let IAC be IAC--essentially an entrepreneurial and opportunistic company.

What is IAC, then, without Expedia?

IAC nine years ago had the assets of a broken home-shopping retail business and a group of crummy television stations. We grew by simply saying, What's the opportunity? What can we do?

That makes people ask, "Where's the synergy?"

It's there. Look, we have hundreds of millions of dollars of sales created in the spaces between our businesses. But we don't have an organizing reason, aside from what you could call natural law. I hate synergy, but a natural relationship is valid. Over the years, you will create more. Value will grow.

"Synergy" requires discipline. Everything has to be hand-wired. There's no scalability. If the opportunistic gene is the biggest part of you, it conflicts with this executional, rationalized, one-company approach. Synergy is too constraining.

So you are not interested in tying your properties together?

No, no. Yahoo might say, Let's go into the travel business. Why not, you know? But it is the difference between a general practitioner and a specialist. The specialization of Expedia's travel product is very hard to do. Brands that resonate with people have power. I would rather compete using a brand like Match or Expedia that does a service really well instead of using a portal.

You don't see IAC ever getting into the portal business?

If you define "portal" as a search engine, then I wouldn't rule it out--though I also wouldn't want to give anyone the idea that we were planning on plunging in.

You often say you're driven by curiosity. So what are you curious about now?

My interests are anything that can play a role in transforming the world from offline to online, anything that plays in this area of interactivity. I certainly don't see around any corners, but I really do think this is very early, and we have a lot of capital, so we can make a lot of mistakes.

You've spent something like $300 million trying to crack the local market. Was that a mistake?

I am very committed to Citysearch. I was recently asked at an investor conference, "When will you shut that thing down?" I said, "It's probably going to break even in the second quarter. I think that would be ill-advised."

Your name still comes up when there's an opening in Hollywood, though you've made it clear you're not interested. But is there some point at which the line between the Web and traditional media gets too blurry to make out?

Yes. There's no question but that the Internet is going to change the way entertainment products are distributed. The first popular piece of this is the digital video recorder. That's a profound change. It proves that the 500-channel universe was interim technology.

For now, there are still vast differences: Old media tends to be closed; the Web is open. Will the closed model stand?

The gatekeeper model? No, it can't. How can you trust a gatekeeper when you know the purpose of a gate is to open and close? There will be other wires into the home besides cable. It's inevitable. Telephone companies are stringing fiber to the door, and who knows what with wireless? That has to take away the historical highways with tollbooths.

The master of the gatekeeper model was John Malone. He said to programmers, "Absolutely, come on my system--as long as I own 50 percent of your channel." That's how he built a fucking powerhouse in both cable systems and cable programming.

Now, will that model stand in a world where there's real power delivered by a data pipe that's not controlled by the cable company or the phone company? Well, they'll try to keep as much power as possible, to keep that gate in place for their profit. The only way around it is probably Wi-Fi. I think that is a radically revolutionary idea. If I come along and say, "Wait a minute. I can give you high-speed data, and I don't have to dig up a street ..."

This country's communication policies have really put us at the back of the train of world development. It's remarkable. I think people ought to be marching on Washington over it. I mean, we think fast is 256 kilobits per second.

Right now, a producer who wants to reach a mass audience still has to go through the cable or satellite companies. Will that change?

It's not there yet, but it'll come. I'm impressed with TiVo. I thought they would get slaughtered. But they've kept leading, and that has kept them in. It's probably inevitable that the forces of cable will kill them. But just think five years out. This is one of those trains going down the track. Nobody in front of the train is going to stop it.