Citing that consumers and business partners inaccurately see InterActiveCorp as a travel company and not a Web commerce company, IAC CEO Barry Diller told shareholders Tuesday that IAC and Expedia will be split into two companies.

Microsoft sold its controlling stake in Expedia to IAC -- then USA Networks -- in 2001 following antitrust concerns over .NET.

Diller, in a letter to shareholders, explained why the company needed to spin off its travel business. "Outside travel, it hinders growth through acquisition because non-travel companies generally don't want to accept what they view as a travel stock," he said. "Inside travel, acquisition growth, already hindered without a pure travel currency, would amplify IAC's imbalance, making it even harder for us to grow outside of travel."

The company had previously announced that Dara Khosrowshahi was to become CEO of IAC Travel. Instead, Khosrowashahi will now become CEO of Expedia. Victor Kaufman, who had been serving as vice chairman for IAC, will now serve in that position for both companies.

The transaction still needs final approval from IAC's Board of Directors. Diller told investors that the spin-off should happen in the second quarter of 2005.

Last month, Kayak Software Corporation, founded by the entrepreneurs who were behind Orbitz, Expedia and Travelocity, penned a multiyear marketing and technology agreement with America Online to provide AOL with search technology for its travel listings.

AOL cites a report from Forrester Research that predicts online sales in the travel marketplace will hit $119 billion by 2010, up from $52 billion this year, as the rationale behind its investment in the site. Jupiter Research has reported that online sales account for 23 percent of travel purchased.