Lycos CEO buys himself a present: It's Wired Digital
Specifically, Lycos (Nasdaq:LCOS) has agreed to acquire Wired Digital Inc., including the search engine HotBot, in an $83 million stock swap.
Beyond the search site, Lycos will get its hands on Wired Digital's online editorial properties, which include Wired News, Suck, HotWired and Webmonkey.
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The End of Wired? Steve Kovsky interviews Mindy Rosenbaum, senior vice president for operations at Wired Digital, bought by Lycos today for $83 million. |
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Lycos estimated that by combining the search and editorial properties, it would now reach about 40 percent of the Web audience, putting the company just a few points away from Yahoo! Inc.'s (Nasdaq:YHOO) Yahoo! site, the market leader.
And while all of those users may not be going to the same place, Davis is just fine with that. In a conference call, he compared Lycos to a television network or publishing company, offering multiple brands to appeal to multiple markets.
Davis: Megasites not the answer
"No one really believed, when we kicked this off, that there was a way to preserve the original spirit of the Web, which was to keep individual sites and individual attributes. Many companies believe that one megasite is the answer. We disagree," he said. "The Lycos Network is a bold step that's going to power the growth of individual communities."
Lycos' strategy has been to snap up Web sites with strong brands and allow them to operate fairly independently. This year alone, Lycos has acquired WhoWhere, Tripod, and WiseWire, and continues to operate them as separate entities. That philosophy is what made the deal attractive to Wired, said Wired Ventures' president, Beth Vanderslice.
"We were confident we would be able to preserve our brand and our product. But we see many opportunities to integrate our product with other Lycos products in many meaningful ways," she said. "Organizationally, I also look forward to the relief of not having to continually invest in infrastructure. We look forward to avoiding those distractions and working on what we do best and well, which is designing new product."
Analysts split on deal
Analyst Andrea Williams of Volpe Brown Whelan in San Francisco applauded the deal, saying that Lycos has been successful at expanding its reach.
"Their approach to the Web is really different than Yahoo or Excite. Both of those companies are focused on building the core brand. Lycos has this network approach more similar to Proctor & Gamble with all of these sub-brands," she said. "The consumer relationship is with sub-brand. A Tripod user or a HotBot user might not know they're dealing with Lycos, but they're still available to Lycos' advertisers."
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But another analyst was more skeptical.
"Although this strategy clearly has merit -- the reach is impressive -- it also, in our opinion, carries with it more challenges and risks than operating a network with a single brand," said Henry Blodget, an analyst at CIBC Oppenheimer, in a research report released today. Blodget wrote that unless Lycos could grow those brands, it will have to continue buying sites to maintain its overall growth.
In addition, he noted that the Lycos Network may offer a huge Web audience overall, but that ad impressions are what counts. "Yahoo! is currently generating approximately two and a half times as many page views per reach point as Lycos is," Blodget noted. "Although we applaud the company's leap into the 40 percent-reach range, therefore, we would caution that Lycos is still generating far fewer page views per reach point than its closest competitors."
Davis said today that about half of the traffic on Wired Digital's sites are from HotBot.
Terms of the deal
Lycos will give Wired Digital shareholders $83 million in Lycos stock at the close of the deal, expected later this year, as well as an undisclosed amount of stock equal to Wired's cash on hand. Lycos will also assume Wired Digital's stock plan.
Wired Digital will operate as a unit of Lycos, keeping its San Francisco base. (Lycos is based in Waltham, Mass.) Vanderslice will report directly to Davis.
The deal marks the end of Wired Ventures' repeated attempts to go it alone on the Internet. Started as an offshoot of Wired Magazine, which sold in May to Advance Magazine Publishers/Conde Nast for $75 million.
That deal ended more than a year of financial ups and downs for the pioneering publication, one of the first media companies to bring the Internet and the Web to a mass- market audience.
Wired Ventures Inc. had tried twice to go public. At the time of the Conde Nast deal, the online properties, which later became Wired Digital, were generating $3.4 million in revenue and were expected to be profitable by the end of the year. Davis said today that Wired Digital should have revenue between $15 million and $20 million at the end of the fiscal year.
The deal also marks yet another combination of content with directory technologies.
Lycos' competitors in the portal world have been signing deals right and left with media companies. Infoseek Corp. (Nasdaq:SEEK) received an investment earlier this year from the Walt Disney Co. (NYSE:DIS), and the two will launch an online service later this year. General Electric's (NYSE:GE) NBC division recently acquired part of Snap!, the online directory started by CNet Inc. (Nasdaq:CNWK).
ZDNet Inter@ctive Investor's Larry Dignan contributed to this story.