We made it! As you might have seen on Twitter this week, The Generalist officially hit over 20,000 members. As I mentioned last week, I couldn't be more grateful for all of you, and I am so excited for all the learning and building that lies ahead.
Since we're not likely to see Roblox IPO this year, I shared an annotated version of the gaming platform's S-1 filing, in addition to our fifth edition of RFS 100. You can find them here:
Recent reports suggest 2021 will start with a bang: both Coinbase and UiPath filed confidential paperwork with the SEC in advance of an expected IPO. Lots to look forward to.
On that subject, this will be The Generalist's last email of 2020. I have some fun stuff cooking for the New Year that I can't wait to show you all.
THE BARRY DILLER PLAYBOOK
Plutarch would have liked Barry Diller.
I imagine the pair of them sitting in one of Diller's expansive stone and glass mansions, the IAC chairman's cloned Jack Russell terriers nagging the ancient Platonist's sandaled feet.
"So, uh, how'd you get here," Diller asks, cradling a teacup, stirring in a sweetener.
"Fate leads him who follows it, and drags him who resist," Plutarch replies, rubbing his beard. "Just kidding. I took Elon's TimeX voyager — two millennia in forty-five minutes! Terrible food, though."
Diller sips his oolong, making a mental note to adjust his Calendly settings.
"Gotcha. So. What do you do?"
"Did I do," Plutarch corrects, sniffing, shuffling forward in the lambskin chair. "I'm just here for the long weekend. Everything I've achieved or will achieve is still in your past."
"Sure," Diller says, passing off the start of a yawn as a pesky jaw spasm. "Sure."
"Maybe you've heard of me: Plutarch of Boeotia? Blood of Lamprias? Most luminous student of Ammonius? Ever heard of the Eleusinian Mysteries? That was kinda my thing." He studies Diller's affably rumpled face for a sliver of recognition. "Anyway. I'm a big deal back home. I write. I teach. Right now, I'm working with this kid Marcus Aurelius. So serious."
"Oh, fantastic. Gotta stay active. So, how can I help you today?"
"How'd you do it?" Plutarch says, nearly leaning out of his chair.
"You built it," Plutarch says. "You built the Ship of Theseus."
The Big Idea
In his canonical 1953 essay "The Hedgehog and the Fox," Isiah Berlin delineates between the two creatures as follows: "The fox knows many things, but the hedgehog knows one big thing."
Barry Diller's one big idea arrived in 1992.
After dropping out of USC (he lasted just three weeks) in 1961, Diller had worked his way up from the mailroom of William Morris to the CEO position at Paramount, then Fox. But after nearly two decades at the top of the entertainment industry, he decided it was time for a change. Diller set out on a cross-country odyssey, equipped (and bewitched) by his new Macintosh PowerBook. Future wife, Diane von Furstenberg described his affection for the technology:
He's had an unbelievable love affair with his computer. It has expanded his horizon. No question that his relationship with his little screen — which is irritating to everybody in the room — has altered his life.
There's something charmingly adolescent in the depiction a New Yorker profile gave this period. The fifty-year-old Diller visited MIT and Microsoft as part of his quest of self-discovery, developing a theory of the future that included the advent of direct-to-consumer entertainment:
[I]n the next few years [Diller] came to understand, viewers will receive video on demand — be able to watch what they want when they want. With the click of a remote-control or a telephone button, they will summon up movies from the equivalent of a video jukebox.
Though Diller could see that future, he was less sure of what role he might play in it. The moment of revelation arrived via von Furstenberg. In February of 1992, the designer visited the headquarters of "Quality, Value, and Convenience," better known as QVC, in West Chester, Pennsylvania.
She was stunned by what she saw. She watched as soap-opera star Susan Lucci pitched her line of hair care products on live television, rubbing her eyes as the phones around her began to ring.
"It was amazing," Von Furstenberg would tell Diller. "[Lucci] sold over four hundred and fifty thousand dollars' worth of hair products in an hour."
Diller had to see it for himself. It proved a seminal moment. He recounted the incident to Reid Hoffman on the Masters of Scale podcast:
[S]o I went to QVC, and I saw something that I had never seen before. It was this early convergence of telephones, televisions, and computers. But the most important thing was, I had only known about screens to tell stories. Here, I saw a screen that was interactive. That screen was used for purposes other than narrative, and that was — wow! That whacked me.
Diller had found his next move, and more importantly, a guiding principle for the decades that followed. "Interactivity," the communion between media and consumer, that was the thing. That same year, Diller bought a $25 million share in QVC, selling his stake three years later for $130 million.
It marked the end of Diller's time at the shopping network, but the beginning of a new era and a new kind of company: InterActiveCorp.
The Making of an "Anti-Conglomerate"
Out at QVC, Diller went after the next best thing: the Home Shopping Network (HSN).
In 1995, Diller snapped up 20% equity (and 70% of voting control) of Silver King, a collection of twelve local TV stations. At the time of the acquisition, HSN operated as an independent entity after having been spun-off in 1992. Diller soon amended that, bringing HSN back to Silver King in 1996. He gave the reunited company HSN's name.
From the outside, at least, Diller seemed to be following a predictable playbook, leveraging his television experience to create a modern network to rival ABC, NBC, and old haunt, Fox. It took until the following year to see that something different might be going on behind-the-scenes. In 1997, the reformed HSN acquired a controlling stake in Ticketmaster, the local event ticketing platform. HSN purchased the outstanding shares the next year.
The Ticketmaster acquisition was an indication that HSN's ambitions extended beyond television — the subsequent buying-spree left no doubt.
- February 1998. HSN acquires the USA Network and Sci-Fi channel from Universal Studios, renaming itself "USA Networks."
- September 1998. USA Networks merges Ticketmaster with CitySearch, a website offering tour guides of different metropolises.
- December 1998. The reconfigured Ticketmaster-CitySearch hits the public markets, popping 350% on opening day.
- April 1999. USA Networks acquires Hotel Reservation Network, later to become Hotels.com.
- May 1999. Ticketmaster snags Match.com from Cendant Corporation for just $50 million.
- July 2001. USA Networks establishes a controlling interest in Expedia, intending to combine it with Hotel Reservations Networks. Diller perseveres with the full-acquisition despite 9/11 cratering the travel market, reasoning, "[I]f travel doesn't come back after 9/11, then we all got much bigger problems." Diller's head of M&A, future Uber CEO, Dara Khosrowshahi, spearheads the deal.
- May 2002. Diller grabs Interval International, a provisioner of timeshare services, for $578 million from a PE firm.
In tandem with moves into online travel, hospitality, entertainment, and dating, Diller began to exit traditional media positions, selling the USA Networks assets to Univision and Vivendi. That inspired another name change with the business rebranding first as USA Interactive in 2002, next as InterActiveCorp, and finally as IAC/InterActiveCorp in 2004.
The acquisitions continued, bolstering existing footholds as well as diversifying IAC's business lines. Hotwire, TripAdvisor, Anyway.com, and Entertainment Publications joined the firm's travel portfolio, while uDate.com and Kiss.com coupled up with Match. Meanwhile, real estate and home management burgeoned as an area of interest with the purchases of RealEstate.com, ServiceMagic, and mortgage discovery platform, LendingTree. An interest in online media and search followed, with IAC buying Ask Jeeves in 2005, followed by Connected Ventures (parent of College Humor and Vimeo), and Lexico (parent of Dictionary.com).
Just as IAC seemed mastered the art of the acquisition, so did it use the 2000s to perfect the spin-out. After being bulked up by the properties above, Expedia emerged as an independent, publicly-traded company in 2005. LendingTree followed in 2008, along with Interval International, and HSN, the place it had all begun.
If you're finding all of this tricky to keep track of, you're not alone. Even Diller seemed to struggle with it, with von Furstenberg noting of her husband, "He has a vision, and he's not quite sure what it is, you know…[H]e kind of fakes it until he makes it."
In seeking to define this hodge-podge, Diller has referred to IAC as an "anti-conglomerate," a collection of businesses not meant to stay together but split apart.
It was only after a brutal 2007/8 during which IAC's stock fell 44%, while the S&P 500 rose 54%, that Diller allied explicit structure to his instinctive deal-making. As part of a reorganization, Diller split IAC into five companies, each with different focuses. IAC itself was (vaguely) sub-divided into three separate business lines: "Media & Advertising," "Emerging Businesses," and "investments." Diller justified the decision, noting:
The combination of over 60 brands makes it difficult for shareholders to appropriately value the company and for each brand to truly blossom. For that very reason, we are moving toward a spin-off that will create five companies that will each be more focused.
The rough lines of that decision are still visible today, with IAC dividing itself into five categories: "ANGI Homeservices," "Vimeo," "Dotdash," "Search," and "Emerging & Other."
That alone indicates, of course, that though there may be some persisting structure undergirding IAC, Diller's anti-conglomerate has changed yet again. Dominant properties like Match have gone solo, Vimeo has been untethered from the rest of Connected Ventures, and acquisitions like Angie's List and Care.com have opened up new frontiers.
On its face, IAC can seem like a bewildering arrangement of ideas and incentives, markets, and motivations. To understand it, to grasp Diller's reflexive brilliance, we have first to understand the Ship of Theseus.
The Playbook: Identify, Accumulate, Spin
The paradox goes something like this:
When Theseus — mythical king and slayer of the minotaur — returned from his adventures in Crete, Athens' citizens promised to preserve his ship. Over the years, as the vessel's wood rotted, it was replaced, bit-by-bit with new timber. Eventually, so much of the ship was renovated that no one could be sure of what was old and what was new.
And so the question, articulated by Plutarch in Life of Theseus, was raised: was it still Theseus's ship? With every element removed and replaced, could it be considered the same entity?
Or, to put it another way: what makes an identity? Does it arise from tangible, composite parts, or is it derived from something else, something less effable, less categorizable?
In its eclecticism, IAC is the Ship of Theseus paradox multiplied and accelerated — a plank of wood is stripped from one ship to build another; a sail is supplanted by one substitute, then another. It is a corporation with a complex and fluid structure. But there is persistence, identity, in what Diller has built. It doesn't reside in the tangible elements that appear on the balance sheet but in a process.
The Barry Diller playbook is easy to understand but hard to execute.
- First, identify a market with room to grow. Ideally, that should be a space at the start of a transition from analog to digital. Diller described his methodology as "colonizing offline businesses into online businesses." In the late 1990s, travel was dominated by traditional agencies, but players like Expedia showed it could be managed online, at massive scale. When IAC bought Match, roughly 5% of heterosexual couples met online, a figure that has risen to about 40% in the following two decades.
- Second, accumulate share. Often this is done through acquisitions. To bolster Match, IAC bought OkCupid, PlentyOfFish, DateHookup, PeopleMedia, HowAboutWe, FriendScount24 Meetic, Singlesnet, Zhenai, Kiss.com, and UDate. IAC also incubated offerings in the space including Tinder, and elder dating site, OurTime. Many of IAC's best deals seem to come from identifying an undervalued "stub," a portion of a larger company that could break out if given room. Vimeo is a prime example. Included in the purchase of Connected Ventures, IAC has since untethered it, turning the video platform into one of its biggest revenue generators. Beyond acquisition, IAC also accumulates share by leveraging its expertise in distribution and customer acquisition. As Modest Proposal noted on Patrick O'Shaughnessy's Invest Like the Best podcast, IAC is "maniacally focused and maniacally talented at taking a product and figuring out ways to bring users to it in an economically efficient manner and making a lot of money doing it."
- Finally, spin out the winners. Just as IAC is savvy in identifying "stubs" buried in other businesses, it recognizes that its own companies need to fly solo to extract full value. Over the years, Ticketmaster, Hotels.com, Expedia, LendingTree, and Match have spun-out into self-standing public companies. Similar maneuvers have been managed in the private markets, with Newsweek selling to IBT Media, ShoeBuy getting passed over to Jet, and Urbanspoon exiting to Zomato. This process is critical to IAC's constant reinvention. Deadwood is stripped out and sold, while prize assets are given the platform to maximize value.
Amidst the muddle of M&A, IAC has a clear identity. Like a wrestler defined by a signature move, Diller's vehicle is the master of a sort of judo hold, seizing an opportunity, accumulating momentum, and finally, executing a finishing, over-the-shoulder throw.
As we look towards the business's future, we should expect more of the same. IAC is reinventing itself, again.
In August of this year, IAC announced it had taken a position in MGM Resorts. In some respects, the move was classic IAC, as highlighted in the company's letter:
IAC's foundational concept of seeking opportunities to build interactive businesses is our base rationale – there is a digital first opportunity within MGM Resorts' already impressive offline businesses, and with our experience we hope we can strongly contribute to the growth of online gaming.
The company saw an opportunity to take a business with a sizeable offline operation (casinos) and bring it into the 21st century (online gambling). IAC even framed its buy in the context of a "stub:"
As we looked further into MGM, we recognized a familiar sum-of-the-parts story with publicly-traded subsidiaries. MGM's implied "stub" – the domestic business without the real estate – trades at an implied value of nearly zero. That's not unlike IAC's "stub" – which is perennially valued at zero (or less).
But along with telltale signs were indications of evolution. IAC did not take a controlling position in MGM, serving as a minority investor instead. While the announcement letter clearly expressed IAC's desire to contribute to MGM's strategy ("[We] would welcome the opportunity to contribute to MGM's success…"), it will not be in the driver's seat.
This may prove to be the start of a new practice. As valuations have soared, taking a controlling share has become increasingly costly. While IAC notes that the Match separation left it with $3.9 billion in cash and no debt, that sum doesn't stretch nearly as far as it used to. In previous decades IAC would have fancied its chances of lassoing Airbnb into its stable, but at almost a $100 billion market cap, Chesky's company dwarfs Diller's.
The MGM purchase also signals a budding interest in gambling; we should expect IAC to add to it. The simplest way to envision the company's next moves may be to position its current holdings along a continuum, representing the playbook's stages.
Vimeo, now a pure-play video platform divorced from Connected Ventures' baggage, is best positioned to spin out next. Per IAC's 10-Q, Vimeo brought in nearly $200 million in revenue over the first nine months of 2020, an improvement of 41% year-over-year (YoY). For comparison, Agora, a video-conferencing platform, is on a revenue run-rate of ~$120 million and valued at roughly $3.9 billion, implying a revenue multiple of ~33x. Extending Vimeo's run-rate to $266 million and applying the same multiple, the company would be valued at ~$8.7 billion. Given that IAC's total market cap currently stands at just $12.7 billion and Vimeo contributes about 1/5th of revenue to IAC's bottom-line (excluding ANGI Homeservices), it's fair to wonder if the video software is undervalued.
Remarkably, "Search" represents IAC's biggest business line (again excluding ANGI). This category includes Ask.com, which has since sidelined its search capabilities and focused on operating various media properties, including Reference, Simpli, and other ad farms. This unit brought in $430 million over the first nine months of 2020. That represented a steep decline of 25% YoY, perhaps suggesting it may be time for the associated properties to be reinvented or sold for parts. Intriguingly, Ask's "Applications" include a gaming company called GamingWonderland. While its focus on free-to-play web games doesn't seem like a fit with MGM's more upscale aesthetic, it could be used as a piece in a broader online gaming and gambling push.
Dotdash's next steps are less clear. The media collection— which includes sites like Brides.com, Liquor.com, Investopedia, The Balance, and others —brought in $139.5 million over the first nine months of 2020, a ~25% YoY increase. Because of the disparate nature of the underlying properties, a spin-out may take a little longer. Instead, IAC may wait for individual sub-properties to justify being spun out themselves or may seek to add more businesses into the mix.
In the "Emerging & Other" category, we can begin to see IAC's next act. Despite being considered "emerging," the unit brought in $320.5 million over the first nine months of 2020, a massive 58% YoY increase.
Much of that has been driven by Care.com's impressive pandemic performance. Purchased in 2019 for $500 million — a 42% discount from the stock's all-time high — IAC noted that Care.com has seen a "triple-digit increase in demand" since the outbreak. In-home childcare support, corporate-sponsored childcare, and remote learning are all facilitated by the platform. IAC has already moved Care into the "accumulation" phase, purchasing LifeCare, a platform that provides similar services to ⅓ of the Fortune 100. It's easy to envision how IAC might bulk up its position, picking up businesses like UrbanSitter or Aupair.com (we know they love a good domain name) to bolster Care's childcare business. Eldercare.com or Caring.com could strengthen in-home nursing.
Interestingly enough, IAC already has a property that might partially fulfill that need: NurseFly, a labor marketplace for medical professionals. The staffing market size may mean that IAC would prefer to keep it independent, but listings from Care could certainly appear on NurseFly, providing demand. Bluecrew represents a similar play, matching 1099 workers to hourly gigs in customer service, hospitality, catering, and beyond. In both cases, there are obvious moves to be made should IAC see value in expansion. Businesses like DocCafe, an antiquated site with strong distribution, would fulfill Diller's penchant for aggregating "underdog" properties.
Finally, we couldn't end an analysis of IAC's prospects without looking for a "stub" of our own. In the Mosaic Group, we find it. Bundled in with a dev shop, a spam blocker, and a translation app is Daily Burn, an online fitness membership. Providing access to running, yoga, and HIIT for +$15 a month, Daily Burn has been perfectly positioned to profit from the pandemic with an April shareholder letter noting that the number of trial subscribers rose 500% from February to March. Though more detailed metrics are hard-to-come-by, one would expect a robust YoY uptick. That momentum can be leveraged to power a more extensive online fitness play.
Given the source, Diller's words sound almost hypocritical:
What I've learned over the years is that focus and singular purpose is the best approach for businesses.
Look a layer deeper, though, and there's no insincerity in the IAC chief's phrasing. Diller's anti-conglomerate is an uncommon and (often) unwieldy beast, but it has a clear focus, a singular purpose. It exists not in service of a particular market or technology, but a process, a playbook.
At its most abstract level, Diller has built the Ship of Theseus, and in his way, solved Plutarch's paradox. We don't need to wonder whether the timber makes the boat, whether Expedia or Match or ANGI defines IAC. For Diller, identity is not tied up in composite parts but in the desire to invent, reinvent, and transform.
A sneakily tricky Puzzler to end our year. All guesses are very welcome, and clues available to those that would like them.
We are five little objects of an everyday sort. You will find us all in a tennis court.
Despite last week’s brainteaser producing some of the most creative, ingenious answers since the start of this newsletter, no one managed to find the stated solution.
As I grow up, I grow down. What am I?
The answer? A goose or duck. Both grow “down” feathers as they age. Some truly excellent alternatives were provided: Daniel C suggested a “telomere;” Abhinav S, Luke C, DDRG, and KOD proposed variations of “tree,” “roots,” and “plants;” Ankur C guessed a “beard;” and finally, Samyuktha suggested the “sun.” Inventive, impressive stuff.
Wishing you the very best for a lovely, restful, and safe end of 2020. Happy holidays, everyone.
With gratitude and good cheer,