BIG FISH IN A WEB POND

No one who knows Naveen Jain thinks of the InfoSpace founder as a wallflower.

When the restless product manager left Microsoft in 1996, still shy of turning 40, he was among a handful of eager "Baby Bills" out to strike his own gold.

Jain started Redmond-based InfoSpace in March of that year, and before long, his boasts about taking over the market for wireless Internet services--and his talk of one day reaching "trillion-dollar valuations" with publicly traded stock--grabbed trade-press headlines, engendered admiration and also prompted some rolling of eyes.

Talking a mile a minute and acquiring start-ups almost as quickly, Jain vigorously resold mundane Internet content such as directories, weather reports and maps, hitting triple-digit sales growth each year--and making millionaires out of early employees and investors. InfoSpace sales have rocketed from $200,000 in 1996 to $37 million last year.

Driven by industry consolidation along with a competitive need to pad his product line and distribution network, Jain last month closed in on his biggest deal yet, agreeing to buy Go2Net--his first acquisition of a public company - for $4 billion. Because the price is tied to InfoSpace's stock price, that number will fluctuate until the deal closes.

With the acquisition, Jain retains the chairmanship of the combined company, becoming the largest shareholder and staying firmly in charge of an operation that aims to be at the heart of the wireless Internet explosion.

When InfoSpace and Go2Net announced their intention to merge, they came off like two old friends finally shaking hands. After two years of informal talks and an unspoken competition to determine whose company had a higher market value, InfoSpace Chairman Jain and Russell Horowitz, his counterpart at Go2Net, stunned Internet observers by joining two start-ups that have shared a similar vision, timeline and Northwest roots.

Dressed alike in shorts and Tevas, Jain and Horowitz met on a recent Saturday afternoon to discuss the anatomy of the merger and to broadcast hopeful messages to investors and employees.

Jain, a native of India, and Horowitz, a Lakeside High School graduate, casually laughed at each other's jokes and deferred to each other as the boss. The merger, they said, was an enterprise long overdue, one that felt right long ago but got shoved aside again and again by other deals and procrastination.

"Naveen called and said we've got to stop talking about it, that it's time to do the deal" said Horowitz, who founded Seattle-based Go2Net in February 1996. "And I said, `You're right.' In the back of my mind, I always knew that this made sense."

The catalyst who pushed the deal over the hump was Arun Sarin, the InfoSpace CEO who arrived in the spring from Vodafone AirTouch, where he headed U.S. and Asia-Pacific operations. Settling into his job, Sarin met Horowitz about a month ago and listened to the Go2Net boss explain his vision. Sarin was sold, in part because Go2Net's focus on cable-modem Internet connections offered a revenue source that Info Space hadn't pursued. Rushing to the airport to catch a flight after his meeting with Horowitz, Sarin called Jain, imploring him to formalize what had been idle talk.

"Arun had a flashback. `Oh my God, (Horowitz) sounds just like Naveen when he hired me. This is like déjà vu all over again,' " recalled Jain. "He called and said, `Jeez, these companies are meant to be together.' "

At Jain's request, Horowitz went back to Paul Allen, Go2Net's largest investor, and the company's executive team. At one point, Horowitz and Allen sat together for four hours. After learning the details of the deal, Allen signed off on the idea.

InfoSpace agreed to issue 1.82 shares of its stock for each Go2Net share. At the time the deal was announced, that ratio made the acquisition worth $4 billion. But since the news, investors have driven InfoSpace's stock down 38 percent, reflecting concerns that the company may have overpaid for what is essentially a collection of Web sites that must compete against huge portals such as Yahoo!

Jain himself sold 1.18 million shares (a small fraction of his holdings) in mid-June, a month before the deal was announced. He sold one block at $50.97 a share, then a smaller block at $56, making more than $60 million from the two sales.

InfoSpace stock closed Friday at $29.81. Based on that price, the Go2Net acquisition is now valued at about $2.5 billion.

Under the terms of the deal, the InfoSpace brand would be retained, a condition Go2Net accepted, knowing well the confusion created by Internet start-ups whose names contain the word "Go."

Jain, who founded InfoSpace a month after Go2Net was born, will serve as chairman of the combined company. Sarin and Horowitz will be co-vice chairmen; Sarin will serve as CEO and Horowitz as president. InfoSpace will have five seats on the new board of directors, while Go2Net will have three, including one for Allen's Vulcan Ventures investment arm.

If Horowitz is affected by having to give up his chairmanship and chief-executive role, he isn't showing it. He said Jain's aggressiveness and Sarin's experience make that less difficult.

"Would that necessarily have been the case if we were with another company? No," he said.

True to the Internet heritage of these companies, many of the details were hammered out via e-mail. Horowitz broached the idea with his board members through e-mail. Once he and Jain agreed to proceed, the two executives promised to "get it done in 10 to 12 days," lest the news leak. The two met individually only four times, and, at least on one occasion, walked out of a meeting and left the lawyers and bankers behind to negotiate, feeling "no longer useful." The final price, Jain and Horowitz also claim, was not finalized until the day before the announcement.

"I'd have to think 1.82 came up randomly," Jain said, laughing. "We were both waiting to say the number. The document was already done. And by the time we spoke, we're both on the same number."

The deal, expected to close in November, combines two of the most highly visible Internet companies in the Seattle area. Both companies, despite losses, have had phenomenal returns in stock price; even in the midst of the recent market downturn, which has dragged their prices down from triple digits to double digits, their persisting multibillion-dollar valuations have provided them with war chests for expansion.

Over the years, Jain said, he had carefully watched Go2Net and was impressed by Horowitz's smarts--and by a series of acquisitions that matched the pace of his own hyperactive spree.

"You meet a guy and you make an opinion and say that's a smart guy and let him execute over the years," Jain said. "And it gives you a lot more confidence."

About once a month, Jain and Horowitz visited each other and met at conferences. The merger talks would come up, only to be dismissed by other pressing matters.

"We always talked about it, but neither of us really took it seriously," said Jain. "We said, `Yeah, yeah, sure. Let's talk about it next month.' "

Then about a year ago, the discussion reached a semi-serious stage, with Jain urging Horowitz to consider a marriage of the two companies, which had roughly equal market valuations, or stock price multiplied by the number of shares held in the company.

"It would have been almost 50-50," Jain said. But, "Russ would get lazy, I'd get lazy, and nothing happened."

Fortunately for Jain, InfoSpace then began to outrun Go2Net in the eyes of Wall Street.

Investors were enamored by Jain's ability to strike partnerships with wireless companies, and they scooped up InfoSpace shares. By the time the acquisition was announced, InfoSpace had been valued at more than $11 billion, about six times Go2Net's value.

"Russ got scared," Jain joked.

Well, not exactly. But Go2Net, which had chosen cable Internet access as its distribution network for a host of applications, began to develop a case of wireless envy. In fact, tapping into wireless-network operators had been marked as a key initiative within Go2Net, said John Keister, the company's president.

With some 20 carriers already signed up to use InfoSpace software for their portals, though, carving out a slice of the wireless market would have been a daunting task.

At a recent Go2Net meeting, chief operating officer Michael Riccio presented a document outlining the company's wireless strategy. He had crossed out the bottom of it and written "Merge with InfoSpace," Horowitz recalled.

"That was Mike's way of saying the merger was totally the right thing to do," said Horowitz, who's kept the document as a reminder.

For Go2Net, which runs a variety of Web sites for games, "metasearch" engines, small-business sales and personal-finance services, the deal means a host of new customers in the wireless area, including wireless-phone companies and businesses that help people make online purchases over their cell phones.

"In '97, wireless wasn't being contemplated by anybody," Horowitz said. He watched Jain move in on wireless customers, grabbing an early advantage. "That was a clear signal" that wireless was a legitimate market and InfoSpace a good merger partner, Horowitz said.

InfoSpace will benefit by tapping Go2Net's expertise in delivering applications over broadband networks, particularly via cable, a medium that could prove lucrative more quickly than wireless because cable lines are built in so many more places than wireless networks. Go2Net has made inroads in the broadband area as part of Allen's "Wired World" strategy; under that strategy, Go2Net was to be the portal for Allen's cable operations, including Charter Communications. The cable content for Charter, which includes investing and shopping services, has been scheduled for test marketing in September with a full launch possibly later this year.

Not all observers, though, are sold on Go2Net's cable strategy--and therefore on InfoSpace's acquisition of Go2Net.

Safa Rashtchy, a stock analyst with US Bancorp Piper Jaffray, reduced his rating on InfoSpace from "strong buy" to "buy" the day after the deal was announced, writing that Go2Net's broadband strategy is an unproven product. Moreover, he suggested it will be hard for the companies to merge their offerings into one product line and to sell to each other's customers.

Long-term business opportunities aside, the next few months will be taken up by the nitty-gritty of integrating the two operations.

Employees at the two companies have met already.

The companies chartered 10 buses July 27--the day after the deal was announced--for a joint meeting at the Meydenbauer Center in Bellevue, where key executives delivered the requisite rah-rah speeches, partly to allay anxiety among Go2Net employees who feared their jobs might be in danger.

Employees who work in functions that are duplicated at Info- Space will be reassigned. Meanwhile, Go2Net employees are to refrain from "contacting ANYONE at InfoSpace," according to a companywide e-mail.

Part of the rallying cry at that joint employee meeting was aimed at encouraging Go2Net's employees "to embrace this company with the new name just as much as, if not more than, the old Go2Net," Horowitz said. "What I told everybody was that, on a combined basis, if there wasn't more of an upside than on a standalone basis, we wouldn't do this deal."

The team overseeing the integration has been given a mandate to immediately begin activities not barred by regulations, including technical coding needed to merge some applications. The team is led by InfoSpace Chief Financial Officer Rand Rosenberg and Go2Net's Riccio.

A Go2Net sales team already has flown to Asia to meet with InfoSpace clients in the first of many future cross-selling projects.

The aggressive Jain, long perceived as a one-man band at Info- Space, has had time to adjust to relinquishing some of his control to Sarin, something he'll likely need to do more once Horowitz, Keister and other Go2Netters come on board.

While Jain is a fidgety, restless persona, prone to histrionics and relentless promotion, the diplomatic Sarin seems to have injected a dose of calm that could help temper clashing egos and cultures.

It remains to be seen how easily the two companies' cultures will mesh.

Jain and Horowitz as individuals are quite different in many ways. Jain has worked at a string of tech companies, while Horowitz is an investment banker by background. Jain leans forward throughout an interview; Horowitz sits back in his chair. Jain claims to have no hobbies; Horowitz is an avid soccer player. Asked what they like to read, Jain said he reads only about business. Horowitz started to list favorite authors including E.M. Forster, until Jain cut him off.

"You've got time to read?" Hor- owitz's new boss asked, with a laugh.

Well, Horowitz said, that was back in high school.

Oh, Jain said, again with a smile. Good.

Roger Yu: 206-464-3119. E-mail: ryu@seattletimes.com.