Barry Diller's Web Gaming Play

IAC/InterActiveCorp's gaming foray could revolutionize online games and hurt console makers—if it succeeds

by Olga Kharif

Barry Diller's IAC/InterActiveCorp (IACI) is entering yet another arena. The Web conglomerate, owner of businesses such as Ticketmaster.com and the dating site Match.com, announced Sept. 18 that it has acquired a majority interest in GarageGames.com, a game publisher and provider of programming tools for indie game developers.

The acquisition, which will lay the foundation of a new division focused on Web-based gaming, marks the latest and biggest move in IAC's bid to become a major player in that market. In the past few months, IAC has snared several video gaming executives from rivals, including Nicholas Lehman from Viacom (VIA). "We think this is an untapped $2 billion market today growing to $5 billion in three years," says Shana Fisher, IAC's senior vice-president of strategy and mergers and acquisitions. "This is a once-in-a-lifetime market opportunity, we think. And we are investing appropriately."

Viacom's Big Bet

While the acquisition's terms were not disclosed, BernsteinResearch (AB) estimates it will cost IAC between $80 million and $100 million. InterActive also says it hopes to announce a collaboration with a major gaming studio in the next week.

At first glance, IAC is arriving rather late to Web gaming, which is already the third most popular online activity after e-mail and chat, according to the Stanford Institute for the Quantitative Study of Society. In May, the number of unique visitors to gaming sites reached almost 217 million worldwide, a jump of 17% from a year earlier, according to traffic data tracked by comScore (SCOR). The sector attracted 28% of the total worldwide online population in May and recorded an average of nine visits per visitor.

As such, a wide array of media and Internet titans have already been staking out the positions to claim a piece of a market that, according to DFC Intelligence, is expected to swell from revenue of $3.4 billion in 2005 to more than $13 billion in 2011. Viacom's MTV Networks alone expects to dump $500 million into gaming in the next two years. Meanwhile, portals led by Yahoo! (YHOO) and Microsoft's (MSFT) MSN have built up their offers to lure online players. Microsoft also offers owners of its Xbox gaming console an online portal called Xbox LIVE Arcade where they can play games, including GarageGames' own Marble Blast Ultima, where players navigate marbles through moving platforms. Similarly, the Cartoon Network (VIA) has been working to adapt its games for online play with Sony's (SNE) PlayStation 3 and Nintendo's (NTDOY) Wii consoles.

Browser Delivery: A Challenge

Having not dabbled in online gaming much until now, IAC says it hopes to catch up by approaching the market in a different way. Today, some sites either offer simple games, such as puzzles, for free, while more advanced online gaming often entails subscriptions, downloads, and high-end computers or consoles. But without high-end computers and downloads, it's hard to find Web games as robust as those available to play offline on a TV using the big three consoles.

So in early 2008, IAC plans to use GarageGames' technology to launch InstantAction.com, a Web site offering first-person shooter, real-time strategy, and action games of the quality currently found on Xbox, PlayStation, and Nintendo's Wii. To play these games, IAC says, users won't need to invest in additional hardware: They'll be able to play through any device with a browser, be it a low-end personal computer, a Web appliance, a gaming console, or even a mobile phone.