Will Lycos Have the Last Laugh?

Judging by the impact on stock prices in recent days, it may take a while for investors to come to terms with the merger of U.S. Web portal Lycos and Spanish ISP Terra Networks, SA.

But time should smooth the bumps and prove that the deal is a smart long-term move for Lycos, which faced the prospect of always being an Internet also-ran in the United States.

In fact, the buyout by Terra holds better prospects than the failed alliance with USA Networks, a merger that would have helped Lycos enter the entertainment/Internet arena with the likes of America Online and Time Warner.

Second String

While linking with USA Networks would have offered Lycos a chance to be at the forefront of the convergence movement, it would not have solved the portal’s main problem of being a second-tier Internet company in a market dominated by AOL, Yahoo! and Microsoft.

In the end, a host of concerns generated heavy criticism from key Lycos backers, including CMGI Chairman David Wetherell, doomed that deal. Then Terra came knocking.

In simple terms, the Terra/Lycos merger represents the best of both worlds because it offers both companies a chance to grab a bigger share of the worldwide market.

If the observation is correct that the U.S. portal landscape will maintain the status quo for the foreseeable future, then Lycos had little chance of moving up and out of the second tier.

Nevertheless, the company probably could have continued to hold its own. Media Metrix ranks Lycos as the fourth busiest search engine, and the company released earnings reports Thursday that showed strong gains for the most recent quarter.

A Whole New World

But how much sustainable growth could Lycos expect? Elbowing into the top three was almost out of the question and second-tier rivals are constantly stalking each other’s market shares. Fellow search engines turned portals, such as AltaVista, posed formidable competition.

Now, Lycos can now look at the world as its audience and see not a crowded Internet marketplace where pecking orders are established, but a host of burgeoning landscapes still unformed, still waiting to be conquered.

According to International Data Corp., there will be 600 million people online by 2003, and only 200 million of them will live in the United States. That leaves two-thirds of the market share up for grabs on foreign soil.

Europe offers Lycos an opportunity to be at the fore of what promises to massive growth. Analysts note that Europe is already leading the world in wireless use, which will account for a large share of future Internet activity.

Additionally, the Lycos brand is already well known in Western Europe. The site ranks as the third most popular portal in Germany and places seventh from the top in France. Long-term prospects for growth in Eastern Europe — assuming the former Soviet Bloc countries can get their economic houses in order — are favorable as well.

Spanish Connection

Then there is the Spanish-language connection. According to Jupiter Communications, there are currently 10.6 million Internet users in Latin America. By 2004, there should be about 67 million.

With Terra SA and its aggressive Spanish parent company Telefonica on its side, Lycos now has the potential to become a global force, servicing not only Latin America, Spain and Portugal, but also English-speaking countries in Europe and Spanish-speaking populations in the United States.

Rather than trying to go through or over the Internet Goliaths towering above it in the United States, Lycos made the wise move to strike out for new territory. Yes, the Internet makes the world smaller every day, but it is still a big place. Thinking globally and acting globally will pay huge dividends in the long run for Lycos.