Citysearch-Zip2 Engagement Called Off

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By: Steve Outing

The proposed merger between Zip2 and CitySearch was called off on Friday, after the companies determined that their business strategies were incompatible and they ran into technology integration issues. The two companies are the primary newspaper industry partners for online city guide, business directory and related Web services.

According to the CEOs of both companies, during the due diligence process prior to the merger, the management teams ran into problems in concocting a plan to combine what have been competitive efforts. Both sides say it looked “too risky” to go forward and try to force the companies together, given the fast pace of the Internet publishing business.

‘Getting to know you’

CitySearch CEO Charles Conn, speaking from his Pasadena, California, office on Friday, said there’s nothing particularly sexy or remarkable about the break-up. About three weeks into the due diligence process, the teams working on the merger decided that the two sides were simply too incompatible. “It’s expected to find some differences in a merger,” Conn said, but the differences were serious enough that “the risk of not seeing eye to eye was too great.”

Rich Sorkin, CEO of Palo Alto, California-based Zip2, said that trying to bring the companies together and find a compromise business strategy would have caused so much disruption that it could jeopardize the resulting company’s ability to move quickly and compete in the marketplace.

The core difference between the two is how the companies view themselves, according to Conn. He views CitySearch as a “media company that works with other media companies” as partners, whereas Zip2 has developed as more of a software company and vendor to media companies. CitySearch also has more experience at selling Web pages to advertisers, whereas Zip2 has concentrated more on developing technology.

Both men say that their boards of directors were supportive of the decision to call off the merger. Both companies have newspaper executives on their boards. Investors in CitySearch include Times-Mirror, Torstar (Canada), and The Washington Post Co. Zip2’s investors include Knight Ridder, A.H. Belo Corp., Central Newspapers, Freedom Communications, Hearst Corp., Morris Communications, the New York Times Co., and Pulitzer Publishing.

Zip2 has relationships with 160 partners, primarily newspaper companies who use its Web arts and entertainment guides; online Yellow Pages/business directory; door-to-door mapping service; auto and home finder services; and community self-publishing technology.

CitySearch has fewer newspaper relationships. It has created or is creating city sites in partnership with the Los Angeles Times, Washington Post, Baltimore Sun, Dallas Morning News, San Diego Union Tribune, Sydney (Australia) Morning Herald, Melbourne (Australia) Age, and the Toronto (Canada) Star. Some of CitySearch’s sites are operated primarily by the company, with various local media joining in. Deals such as that with the Los Angeles Times and Washington Post involve the newspaper companies basically licensing the CitySearch technology to run their own branded city guide sites.

Overseas opportunities

Zip2 has primarily operated in the U.S., but Sorkin says the company is starting to work more overseas. Its first non-U.S. newspaper customer is Le Monde in France, and Sorkin says he’ll have more announcements soon. They probably would have been announced by now if not for the effort put into the proposed CitySearch merger, he says.

CitySearch will continue its pre-merger strategy, according to Conn. The company is focusing heavily on countries that have high Internet usage — starting with Canada, Australia, Norway, Sweden and Denmark, where it already has sites. While many of the major U.S. cities already have entrants in the online city guide game, Conn says that there are plenty of U.S. metro markets that remain attractive, and plenty of newspaper companies that have yet to choose an online city guide partner. CitySearch is trying to develop strategies for the city guides to work in smaller markets, he says.

For Zip2, Sorkin says he wants to devote more effort to helping his existing partners become more profitable.

Both CEOs say that their newspaper customers and partners have expressed approval of the end to the merger. There was some concern among some in the newspaper industry that the union could leave the industry with only one strong vendor in the online city guide space. From that perspective, some will breathe a sigh of relief that competition will remain. But Conn points out that the newspaper executives on both boards initially were supportive of the two companies merging. Sorkin says that a consolidation where the resulting company was weakened by the merger indeed would have been bad for newspapers.

After getting to know each other so well during the due diligence process, both sides profess to be open to cooperating with each other on specific projects.

Had the merger gone through, the CitySearch/Zip2 union would have boasted a network of 175 online city guides covering 27 of the top 30 U.S. metro markets, and would have had a combined staff of about 700.

Steve

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This column is written by Steve Outing exclusively for Editor & Publisher Interactive three days a week. News, tips, and other communications may be sent to Mr. Outing at steve@planetarynews.com

The views expressed in the above column do not necessarily represent the views of the Editor & Publisher company

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