Meet the 'daddy cool' of dot coms

Written off as 'old media', Barry Diller has reignited interest in the internet by spending $734m on a financial website. Andrew Gumbel reports from Los Angeles

It might seem foolhardy, to say the least, to declare that the dot-com industry is alive and well. But Barry Diller, the one-time Hollywood mogul turned visionary entrepreneur, is living proof that received wisdom can be deceptive.

He was in the interactive commerce business years even before the advent of the internet, and he stuck with it through the years of both e-boom and e-bust. At this point, his company, USA Interactive, boasts the highest sales figures of any e-commerce company, its $5.04bn (£3.15bn) revenue for the past 12 months outstripping Amazon's $4.2bn and eBay's $1.5bn. Its market value, around $12.5bn, is still a fair way behind eBay's ($22bn), but ahead of Amazon and Yahoo!

Although USA Interactive's holdings sound less than glamorous – they include home-shopping channels, online travel agency Expedia, accommodation booking service Hotels.com, online dating service Match.com and the sports and concert booking firm Ticketmaster – they have all proved solid business propositions in good times and bad.

And last week, Mr Diller branched out into online lending and mortgage services with the $734m acquisition of Lending-Tree, a North Carolina e-company that leads its customers to the best deals in the financial market. It expects $150m in revenue this year and a growth rate beyond that of as much as 40 per cent a year.

"This is probably the most strategic effort we've put down in a year or two," Mr Diller told an analysts' conference call. And that may be an understatement: his company now controls as much as 75 per cent of the online market (excluding porn). Only a handful of people on the Forbes list of the richest Americans still make their money from the internet, but Mr Diller is one of them.

Tina Brown, the former editor of Vanity Fair and as good a bellwether of what is fashionable in the US media as you get, has come out as a big Diller fan. Launching her new TV show, Topic [A], a week ago, she called him "the daddy cool of business" and "the king of entertainment", while noting that he came out of the dot-com boom "extremely well".

Like all visionaries, Mr Diller has had his share of abuse. When he first became interested in home shopping networks a decade ago, his former colleagues in the entertainment industry thought he had lost it. A few years later, when he refused to pay more than a 2 per cent premium on the market valuation of Lycos, the internet portal, he was told in a meeting he was "old media" and just didn't get it. (The deal fell through, and in retrospect Mr Diller now feels he's better off without an internet portal anyway, because it gives him greater leverage to strike deals with Lycos's competitors.)

Then again, one of Mr Diller's great strengths is to have been repeatedly underestimated. Over the years, he has out-Eisnered Michael Eisner and out-Murdoched Rupert Murdoch. Thanks to his company's close involvement with many of Vivendi Universal's entertainment assets, he managed to extract maximum advantage from the collapse of Vivendi's dream of becoming a transatlantic media conglomerate – while avoiding any significant fallout from the French giant's mounting burden of debt and corporate humiliation.

It is still not clear where Vivendi's main interests in film, television, music and theme parks will end up, but it is clear that whoever wants to buy them will have to do so on terms laid down by Mr Diller. (He even served, for several months after the departure of chief executive Jean-Marie Messier, as chairman of Vivendi Universal Entertainment, a job most people would regard as a full plate but which for Mr Diller, was just a side interest.)

What is his secret? He has argued that he has no grand vision. He hates the word "visionary", especially when applied to him, and says he merely moves in directions that happen to interest him. He does, however, admit to one moment of epiphany when he first observed the operations of the QVC home-shopping channel in Philadelphia back in 1992.

"I watched a little screen and when there were a lot of phone calls, a lot of transactions taking place, the bars would rise and then they would recede. It was like waves. It was kind of a wild experience," he told Wired magazine recently. "I thought, 'This is going to change things.' I did not know how or where or why, but I knew that interactivity at scale, which was what I was watching, was going to be powerful."

At the time, Mr Diller had just left Hollywood after a remarkable 20-year career, first as the head of Paramount during its crucial transition from Coppola to Spielberg – from the golden age of American directors to the new world of heavily merchandised blockbusters – and then as the man who built up a brand new US television network, Fox, on behalf of Rupert Murdoch. He quit Fox after disagreeing with Mr Murdoch about what sort of content should be on the network. Mr Diller launched The Simpsons and might not have been comfortable with Fox's gung-ho attitude during the war against Iraq.

His infatuation with home shopping became the butt of jokes, but in retrospect it is clear that he understood two crucial things: the importance of interactivity, and the need to keep a cool commercial head. Unlike so many dot-com entrepreneurs who crashed and burned, Mr Diller never saw the internet as a new market. Rather, he was interested in harnessing its power as a delivery system for services that already existed.

A canny San Francisco economist called Kent Sims recently observed that the dot-com economy was, in fact, "perfectly sound; it's the fluff on top that collapsed". And Mr Diller now looks like the embodiment of that point of view.

One pitfall he has carefully avoided has been trying to push the internet in the media market. One of his first tasks at Vivendi Universal last summer was to look at the billions of dollars thrown into the company's online division. Mr Messier's ambition had been to set up a global network rivalling AOL, but Mr Diller quickly realised it was way too soon to try to deliver films and music on a large scale when most domestic computer users did not have the bandwidth to deal with them. And he closed the online division down.

That is not to say that online entertainment won't be an exciting new prospect one day. Just not yet. In recent weeks, there has been much feverish speculation that Mr Diller might decide to take over Vivendi Universal himself, possibly in conjunction with a major partner such as John Malone of Liberty Media. But it seems more likely that he will bide his time, keeping one foot in the media-market door while focusing on his less flashy but more lucrative core businesses.

"Recently, I resigned my position as CEO of Vivendi Universal Entertainment, which clarified with great punctuation where my work would be concentrated," he said in a letter to investors last week. Mr Diller may have clearer insights than most into the future, but he is still determined to live – and make money – in the present.

Diller thriller

* 1941. Born in San Francisco.

* 1959. Drops out of university. Gets work as a mailroom clerk at William Morris, the talent agency. Becomes an agent.

* 1964. Moves to ABC as a programmer. Becomes vice-president of Prime Time Television for ABC Entertainment.

* 1974. Moves to Paramount Pictures, becoming chairman and chief executive and enjoying success with films such as Raiders of the Lost Ark and TV series such as Cheers and Taxi. His second in command is Michael Eisner, now chairman of Walt Disney.

* 1984. Chairman and chief executive of Fox. Responsible for the creation of Fox Broadcasting and the company's motion picture operations. Fox becomes part of News Corporation in 1985.

* 1992. Becomes chairman and chief executive of QVC Network.

* 1995. Buys stake in Silver King Communications, owner of 39 television stations. Merges Silver King with Home Shopping Network (HSN).

* 1997. HSN acquires Ticketmaster, then the USA and Sci-Fi channels. The new company is named USA Networks. Ticketmaster buys the CitySearch guides.

* 1999. USA Networks fails to merge with Lycos but acquires the Hotel Reservations Network and Microsoft's Sidewalk city guides. Takes a 75 per cent stake in Expedia.

* 2001. Marries fashion designer Diane von Furstenberg.

* 2002. USA Networks buys TV Travel Group. Sells USA Entertainment to Vivendi Universal Entertainment (VUE), where he becomes chairman and chief executive. USA Networks renamed USA Interactive. Resigns from VUE but stays in charge of USA Interactive after buying it back from Vivendi.

* 2003. Ranked 413th in list of the world's richest people 2002, and fifth on executive pay.

Research by Kotaro Miyata