• Reuters, Tuesday, June 3, 2008 11 AM

In a 310-page report called "U.S. Internet: The End of the Beginning," Sanford C. Bernstein analyst Jeffrey Lindsay boldly argues that Google and Amazon are best positioned to withstand the poor economic climate and later emerge as the Web's leading companies. Despite a looming recession, both companies should maintain annual growth rates of between 30% and 40%, he said.

However, Lindsay expects other players like Yahoo and IAC/InterActiveCorp to fall by the wayside. Yahoo will eventually be sold to Microsoft, he said, and IAC will go ahead with its five-way split and then gradually fade away. "Arguably the weakest players have strayed furthest from their original competences and have been operating largely as conglomerates," Lindsay said. In the short-term, he expects Yahoo to see gains if it either reaches a deal to turn over its search business to Microsoft or it forges a search partnership with Google. EBay could also become an acquisition target for someone like Microsoft, Lindsay said, particularly if growth in its core auctions business continues to stall.

Meanwhile, Google and Amazon will continue moving forward, but both companies face threats to their business. Google may struggle to prove the viability of its mobile and online video strategies, while Amazon will likely be forced to eventually pay state sales taxes.

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