Lycos Inc.

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Lycos Inc.

founded: 1995

Contact Information:

headquarters: 400-2 totten pond rd.
waltham, ma 02154 phone: (781)370-2700 fax: (781)370-2800 email: http://echomail.lycos.com/em_dir/lycos/lycosmail.nsf/ email+form?openform url: http://www.lycos.com

OVERVIEW

Founded in June 1995, Lycos quickly became one of the leading World Wide Web navigation companies. Through its own web site, it helps Internet users to locate, retrieve, and manage online information, aided by a variety of free services. Lycos uses both searching and indexing technology and has set up 18 WebGuides that cover individual categories of information. It also offers user services such as TOP 5% (a directory of reviews of web sites), PeopleFind, StockFind, CompaniesOnline, and GTE Yellow Pages. As of early 1997, Lycos had cataloged almost 70 million URLs (Uniform Resource Locators) on the World Wide Web.

In April 1996, only 10 months after its founding, Lycos became a publicly traded company, earning the distinction of being the youngest company to go public on the NASDAQ exchange.

Lycos derives its income by selling advertising on its web site and by licensing its technology to other users. In early 1998 Lycos had more than 20 million users, and nearly 500 advertisers were advertising in excess of 800 brands on its web site. Besides its headquarters in Waltham, the company has offices in New York City, San Francisco, and Pittsburgh. Outside the United States, Lycos has offices in Germany, Italy, France, Spain, the Netherlands, and the United Kingdom.

The first half of 1998 saw a flurry of activity to extend Lycos's reach as an online service. On the acquisition front, the company in February acquired Tripod, which firmly established Lycos as one of the World Wide Web's most popular community sites, offering its users tools with which to build home pages. Two months later, Lycos announced its acquisition of WiseWire Corp. and its technology for Internet directory-building.

The company struck a number of strategic alliances during the first half of 1998. Lycos acquired an interest in PlanetAll, which offers unique contact management technology, as well as a minority stake in GlobeComm Inc., a company that provides Lycos's free e-mail service. Lycos also announced a three-year agreement with AT&T, under which the companies together will develop and market an array of Internet-based communication services for consumers.

COMPANY FINANCES

Founded in mid-1995, Lycos has made significant strides in growing its international revenue during its brief existence. The cost of the expansion deemed necessary to position the company for future growth, however, has been high, resulting in a string of losses. Lycos reported a loss of $6.6 million on revenue of $22.3 million in fiscal 1997 ending July 31, compared with a loss of $5.1 million on revenue of $5.3 million in 1996. The company reported a loss of $2.4 million on revenue of $15.1 million for the third quarter of fiscal 1998 ending April 30, 1998, compared to net earnings of $301,000 on revenue of $12.6 million for the quarter ending January 31, 1998. The value of Lycos stock ranged from a 52-week high of $107 on July 7, 1998 to a low of $11 on June 24, 1997.

HISTORY

In 1994 Dr. Michael L. Mauldin, a research computer scientist at Carnegie Mellon University (CMU) in Pittsburgh, developed the prototype for the Lycos search engine. At the time, most Web users were technologically adept. However, Lycos was designed to offer intuitive assistance to all levels of users. To locate information, Lycos employs automated software robots called spiders, which travel on the Web and download summaries of the most important information that they find. (The name "Lycos" was taken from the Latin term for Wolf Spider, lycosidae lycosa, a creature that actively hunts for prey.) The Lycos technology then gives the user a list of the most likely sites on the Web for finding information about a topic, along with summarized information about each site.

Although Lycos became a public company in early 1996, both CMU and Mauldin kept about 8 percent of the company's stock. CMU also retained the Lycos trademark. When Lycos stock was first sold to the public, its value skyrocketed by the hour, and the tiny company suddenly was worth an estimated $177 million. By the end of 1996, Lycos had a host of partners, including Netscape (which agreed to display Lycos prominently on its web site) and AT&T. However, despite the phenomenal rise in revenue during its first two years of existence, from $5.3 million in fiscal 1996 to $22.3 million in fiscal 1997, Lycos still was not operating at a profit by late 1997. Early returns for fiscal 1998 showed sharp increases in revenue but no guarantee the company would finally get into the black.

The company moved aggressively in early 1998 to expand its operation and the quality and scope of its services with the acquisition of Tripod and WiseWire, as well as forming alliances with AT&T, PlanetAll, Japan's Sumitomo Corp., and GlobeComm.

STRATEGY

Lycos, although it operates in a technologically complex world, has adopted a very simple (although highly ambitious) strategy. As stated in its 1996 annual report, it wants to be "the most widely used place to find information in the world." To achieve this goal, the company uses several means: providing users with a one-stop source of information on a variety of topics, drawing a high volume of traffic to its site by providing free and very accessible online guides, developing innovative advertising possibilities on its site, providing multiple access points to Lycos through its many business partnerships, and developing customized and locally oriented guides. The company also licenses the Lycos name for use in other products, such as books and CD-ROMs, in return for royalty payments. As an example, Lycos Press was established as a joint publishing venture with Simon & Schuster.

In another strategic move to capture repeat business from users, Lycos acquired Tripod, attracted by its strong following among Generation Xers. Lycos is trying to leverage personalized access to a wide variety of content and services, including classified ads, comics, news, sports, yellow pages, maps, travel advice, shopping, and free e-mail.

INFLUENCES

During its extremely short existence, Lycos has had great success. It stands as one of the premier Internet navigational tools in a very crowded field, along with a few others, such as Yahoo!, Infoseek, and Excite. Aside from its well-developed topical WebGuides and customized guides such as PeopleFind, Lycos has been very adept at forming partnerships with major companies (e.g., Netscape, Barnes and Noble, Microsoft) to give itself visibility on frequently visited web sites. It also has attracted hundreds of major advertisers, who have provided a steady source of income and have given visitors to the World Wide Web the message that Lycos is traveling in the most important circles on the Internet.

Lycos also was quick to develop parallel services outside of the United States, with local sites allowing visitors to the Web to search for information in German, French, Spanish, and Italian in addition to English. It also spent its first two years forming partnerships with European companies (e.g., EMAP Internet Sales, a leading online advertising sales firm in the United Kingdom).

Despite all of these innovations and its rapidly rising revenue, Lycos faces enormous competition from other Internet navigational tools. Its chief competitors, and many smaller ones, all are fighting to form partnerships with popular web sites and with major advertisers. The company has yet to report a profit.

Certainly one of the trends helping to shape the company's strategy is the incredible speed with which Americans are abandoning the television set in favor of surfing the Internet. As more and more get bitten by the cyber-bug, the demands facing online services become increasingly more sophisticated. Keeping up with consumers puts a tremendous burden on Lycos and its competitors.

CURRENT TRENDS

Lycos is operating in a very new and rapidly changing field, surrounded by equally young and eager competitors. As in the Microsoft-Apple and the Microsoft Explorer-Netscape Navigator rivalries, it is possible that one competitor eventually will become dominant. Lycos is aware of its precarious position and of how its existing partnerships and advertising arrangements could change completely in a short time.

According to company literature, Lycos also is aware of how its "rapid growth has placed, and is expected to continue to place, a significant strain on the company's managerial and operational resources." In the span of two years, Lycos attained over $22 million in revenues, entered into dozens of partnerships, and drew hundreds of advertisers, all with a staff of only 60 employees. Lycos is focusing on how it can manage all of this growth successfully, while still providing its core service: a tool that provides current and easily accessible information to both computer novices and experts.

As the competition among the so-called search engines heats up, the need to streamline the search operation intensifies. In the fall of 1997, Lycos announced it was taking steps to further streamline Lycos Pro, its advanced search engine. Introduced in mid-1997, Lycos Pro proved an immediate success. However, given the competition and the speed with which other companies are introducing advances, Lycos found it necessary to upgrade the service less than six months after roll-out. Among other things, the changes included relevancy controls, allowing users to fine-tune the criteria affecting the ranking of their search results.

PRODUCTS

In mid-1997 Lycos entered into several partnerships that are likely to boost its rank among Internet navigational tools. First it announced a three-year partnership with Barnes and Noble (http://www.barnesandnoble. com), in which the international leader in book sales becomes the exclusive book seller on the Lycos web site. The Discovery Channel Online (http://www.discovery. com) also chose Lycos as its directly linked search engine. Finally, Lycos was selected by Microsoft as the exclusive provider for the Microsoft Active Channel Guide in its new Microsoft Internet Explorer 4.0. Lycos will lead users of Internet Explorer 4.0 into a variety of news, sports, business, entertainment, and lifestyle "channels."

FAST FACTS: About Lycos Inc.

Ownership: Lycos is a publicly owned company traded on NASDAQ.

Ticker symbol: LCOS

Officers: Robert J. Davis, Pres. & CEO, 41,1997 base salary $298,000; Edward M. Philip, COO, CFO, & Secretary, 32, 1997 base salary $200,000

Employees: 137

Chief Competitors: Lycos's chief competitors include: America Online; CNET; Digital Equipment; Dow Jones; Excite; Infoseek; Microsoft; Netscape; Prodigy; and Yahoo!.

CHRONOLOGY: Key dates for Lycos Inc.

1994:: Dr. Michael L. Mauldin develops the prototype for the Lycos search engine
1995:: Lycos is founded
1996:: Becomes public company; has host of partners, including Netscape and AT&T
1997:: Announces steps to streamline Lycos Pro; Becomes exclusive provider of Microsoft Active Channel Guide
1998:: Launches "Personal Guide" for Web users

In the first half of 1998 Lycos announced a wide range of product enhancements. In April, the company launched its "Personal Guide," a free service allowing users to personalize Web content, organize their lives, and leverage online communities. Lycos also offers users access to a collection of more than 40,000 pictures and vintage illustrations, including images of contemporary and historical personalities. In early June, Lycos announced it had formed an alliance with Ziff-Davis Inc. to offer the ZDNet software library on the Lycos Internet Web guide.

CORPORATE CITIZENSHIP

In 1997 Lycos joined the call for industry self-regulation of World Wide Web content, by introducing a set of guidelines designed to protect young computer users from inappropriate or misleading banner advertising on web sites. Lycos president, Robert J. Davis, in a company press release said, "Lycos is a gateway to the Internet for millions and millions of people . . . We've always striven for an industry-leading approach to making the Web a safe place for all surfers." Lycos also offers a Kids WebGuide that gives young Web surfers a list of age-appropriate links.