Diller Talks Up CitySearch

IAC/Interactive Corp. Chairman Barry Diller generally downplays CitySearch during analyst calls, preferring to focus on brighter stories among IAC’s portfolio of companies, such as TicketMaster, Lending Tree and until recently, Expedia.

But at a Goldman Sachs’ investor conference on Sept. 22, Diller surprisingly devoted more time to CitySearch than IAC’s other companies. He noted that CitySearch is now operating in the black, and has seen a rise in monthly unique users from eight million in 2003 to 23 million today (although Comscore says it is more like 14 million).

Diller’s positive comments reinforce outward confidence in the division by IAC, including its recent move to the new IAC west coast headquarters in West Hollywood, and its recruitment of high level executives to work under CEO Briggs Ferguson.

CitySearch on a Flywheel

According to Diller, CitySearch is poised for rapid growth – or as he puts it, to “flywheel,” a medieval term alluding to the increased speed of a device when more weight is added. CitySearch has gained momentum, he said, with a pay-for-performance model for its AdWords program, which has attracted 35,000 small business advertisers. Looking forward, it will gain “natural” alliances with.Ask.com, IAC’s newly-acquired search engine.

“No question, (CitySearch) is the best local search,” said Diller. “The product is superior, it does have an audience. There is a relationship of the (Ask and CitySearch) ad programs together.” The natural alliances between the IAC divisions, he suggested, will come to resemble the alliances between divisions at GE.

Diller didn’t, however, call it “synergy.” The word “synergy” was apparently banned at IAC headquarters, in part due to CitySearch’s failure to create significant synergy with TicketMaster; Evite, a party planning service; Match.com, a dating service; and Entertainment Marketing Programs, which provides local coupon book. Several months ago, in fact, IAC quietly dismantled its IAC Local division, suggesting that every property would have to fully fend for itself.

CitySearch Looks to Add Voice Services

While CitySearch is focused on pay for performance models, it is also set to add new capabilities, including VoIP. “Voice is an interesting opportunity for CitySearch, it is enormously important,” Diller said. “CitySearch will definitely have it.” He added that Pay-Per-Call is already an important part of such a platform, whether it is VoIP or over landline. Really, he said, anything that helps track customer leads back to CitySearch as the source helps to prove its value to local advertisers.

But Diller cautioned that voice is merely complementary. Analyzing EBay’s purchase of Skype, Diller suggested that Skype won’t be contributing significant customer lists to eBay, simplifying eBay’s customer acquisition, or providing other building blocks.

The Original Social Network

Diller’s emphasis on CitySearch at the Goldman Sachs conference was somewhat surprising. He generally downplays the company, which may have spent over $400 million to get off the ground, and seems unlikely to ever win a significant return on investment.

Still, his message is clear. As investors begin to ponder new social network/Yellow Pages services such as InsiderPages and Judy’s Book, they may want to reevaluate CitySearch, which may be seen as the original social network.

Unlike the other services, CitySearch has major distribution deals with MSN, AOL and others; it has great linkages with IAC properties such as ServiceMagic; it has rich user-generated content and ratings that startups can only dream about; and it has a legion of users.

Not out of the Woods
The company, of course, is not out of the woods. Its reported number of advertisers seems stuck at 35,000 after a full year. Indeed, a year ago, when it was coming out of Beta, it reported that it had almost as many advertisers — 25,000. What kind of sales channels is it working with, anyway?

I’m also concerned that the CitySearch brand has been allowed to atrophy. Advertisers have told me that they get strong results with CitySearch, but it isn’t clear that users are aware that they are on the site.

I am not a financial analyst, but my view is that CitySearch is a company that needs to write down its massive investment, and concentrate on keeping its head above water. Perhaps if it does that, we might see a company that is clearly in the black, perhaps grossing $30 million a year. Is that good enough for Barry Diller and IAC? We shall see.

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