Lycos-USA: No e-commerce home run

Summary:Observers say merged company faces serious competition, branding issues.

One of the key aspects of Lycos Inc.'s complex merger agreement with USA Networks Tuesday was the potential selling power, over both new and old media, of the combined company.

But potential is one thing, and showing results will be quite another in this case, industry observers said.

Lycos (Nasdaq:LCOS) CEO Bob Davis suggested giants such as Amazon.com are within the reach of USA-Lycos Interactive Networks Inc., proclaiming, "In one fell swoop we've created a framework for becoming the largest e-commerce player anywhere, ever."

Industry analysts didn't see it as such a sure shot, however.

"The question is whether they'll be able to come up quickly enough to catch heavyweights like Disney and the telecommunications companies," said Jack Staff, chief economist at Zona Research, referring to the other big powers that have recently bought into the Internet landscape. "We think Lycos has an uphill battle on their hands, and that could be why their stock hasn't been doing so well today."

The theory behind the deal is simple: USA Networks has holdings whose expertise is selling, foremost among them, Ticketmaster Online-CitySearch Inc. (Nasdaq:TMCS) and the Home Shopping Network.

Lycos has a large audience of loyal online users, but has been needing a boost in the e-commerce arena. Put the two together, and it could be a formidable retail and marketing network encompassing telephone, television and Internet services.

Practical matters
But the reality could be more complicated. For one thing, while Ticketmaster could realize an immediate synergy with the audiences of Lycos Network, Home Shopping Network viewers might not be as likely to go on the Internet, and Lycos users might not be interested in buying the typical HSN merchandise.

"HSN ... has a lower demographic, they're not as online as other retailers," said analyst Kate Delhagen at Forrester Research Inc. "The demographics are a mismatch, and it could take some time for them to catch up."

Sales expertise is one of the assets Lycos is looking for out of the deal, but transferring that resource might prove more elusive than expected, Delhagen said.

The people at USA have the "dynamic selling mindset ... those guys understand how to program for live television and give people a sense of urgency, get that impulse buy," Delhagen said. "If they bring that DNA to Lycos, it will become a more effective selling environment. But it depends on how the integration goes ... we'll see in six or 12 or 18 months."

Infrastructure
The most valuable part of the deal from an e-commerce point of view could be the infrastructure Ticketmaster and especially HSN already have in place. The cable network's back-end order fulfillment and delivery system could give Lycos an edge over online competitors.


In addition, expanding to offline marketing outlets should be a boost for Lycos' e-commerce attempts, said Peter Krasilovsky, an analyst at The Kelsey Group, a Princeton, N.J. e-commerce consultancy.

"It's like when AOL purchased MovieFone (the telephone movie ticket agency)," Krasilovsky said. "All the e-commerce players are looking to go beyond the little computer screen" and extend their marketing to other media, he said.

Ticketmaster, for example, could be an e-commerce platform in its own right, Krasilovsky said.

E-commerce key
E-commerce, more than content or technology, has emerged in the past year as the crucial growth engine for Internet companies from Yahoo! Inc. to Amazon.com, but each of the portal sites has taken a different approach to the business.

For instance, Excite (Nasdaq:XCIT) has focused on referring users to merchant partners, and collecting a fee for the service, thus taking on the role of a merchandiser.

But Microsoft Network took separate commerce sites, such as Expedia for travel bookings, and then combined them under a single umbrella.

ZDNN's Maria Seminerio and PC Week's Jim Kerstetter contributed to this report.

Topics: E-Commerce, Amazon

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