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SMALL BUSINESS

Lycos to Add Wired Digital to Portal Network

Internet: Search engine agrees to acquire online sibling of pioneering magazine for$83 million in stock.

October 07, 1998|CHARLES PILLER | TIMES STAFF WRITER

SAN FRANCISCO — Continuing a buying spree that has created one of the Web's most popular constellations of sites, Lycos Inc. announced Tuesday that it will acquire Wired Digital Inc. for $83 million in stock.

Wired magazine, the pioneering print publication about online cultural politics and consumption that spawned San Francisco-based Wired Digital, was previously sold to New York publishing giant Conde Nast. The Wired Digital sale to Lycos, when completed at the end of this year, will effectively put an end to holding company Wired Ventures, progenitor of one of the Web's most influential brands.

The acquisition gives Lycos the HotBot search engine and the Wired News and HotWired sites, which together draw 4.7 million unique visitors per month, according to New York-based Media Metrix, an audience-analysis service.

Waltham, Mass.-based Lycos, whose major Web properties already include Tripod (a compilation of personal Web sites with a youthful demographic profile), WhoWhere (a white pages and e-mail service) and AngelFire (a home page service), has pursued an aggressive acquisition strategy to develop a combined audience that can challenge industry leader Yahoo Inc. as the preeminent consumer portal to the Web.

Portal sites offer Web search tools, e-mail, chat, electronic commerce, special interest areas for building online communities, news and custom business services in their effort to become key entry points to the Web.

In August, Santa Clara-based Yahoo reached 46.9% of the total Web audience while Lycos' sites attracted 37.5% of Web users, according to Media Metrix. The acquisition, once adjusted to cancel out overlaps in the Lycos and Wired Digital audience pools, is expected to boost Lycos to just over 40%. Dulles, Va.-based America Online led with 47.2%, but because this includes its 13 million members who receive their online access through AOL, many analysts view Yahoo as having the strongest overall appeal among portal sites.

The Lycos Network strategy, begun early this year but formally announced Tuesday, has elevated the company into the second tier of the frenetic competition for "eyeballs" on the Web. The more visitors it attracts to its sites, the greater the ad revenues it collects and the more attractive Lycos becomes to e-commerce partners who could help the company boost revenue beyond advertising.

Bob Davis, chief executive of Lycos, called his network "the foundation of our plan for dominating the industry." That model is designed to preserve the character and brand of each site while cross-marketing services to drive Web traffic to the company's various properties, he said.

"It's a good purchase. HotBot has a strong reach and a loyal following, as do [Wired Ditigal's] other properties," said Chris Charron, an analyst with Forrester Research in Boston. "It could position Lycos as the portal for Gen X" as well as increase the company's appeal as a partner for a large media company.

"But this doesn't automatically make Lycos a leader," Charron cautioned. "I still think they are behind Yahoo, AOL, Excite, Netscape, Microsoft and Go.com."

"Buying so many sites has given them traffic, but the single portal brand of Lycos is no stronger," Charron said, adding that the purchases may even introduce brand confusion.

Ensuring the profitability of its various properties will be another challenge for Lycos. Beth Vanderslice, president of Wired Digital, would not disclose the private company's earnings, but Wired Ventures' two attempts to take the company public in 1996 failed, in part, because of investor concerns that the online business was hemorrhaging money and might drag down the profitable print product.

"My operating plan positioned me to attain profitability as an independent company," Vanderslice said, adding that it should be easier to meet that goal with Lycos taking over many costs of its technical infrastructure.

Wired Ventures had been courted by other large Web and broadcast-media suitors, Vanderslice said. But "Lycos was the only company that was pioneering this multibrand strategy," she said, that offers Wired Digital the best chance to maintain its own brand identity.

Davis said Wired Digital's 150 employees will be retained.

Lycos shares fell $1.81 to close at $30.13 on Tuesday on Nasdaq.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Top 10 Web Properties

A steady stream of acquisitions this year has boosted Lycos's combined web sites to fourth place in total audience reach among all companies on the Web.

*--*

Rank Web Property* % Reach Visitors 1 AOL 47.2 27,304,000 2 Yahoo 46.9 27,108,000 3 Microsoft 46.2 26,672,000 4 Lycos 37.5 21,671,000 5 Netscape 32.3 18,687,000 6 Excite 29.6 17,094,000 7 Geocities 28.8 16,663,000 8 Infoseek 22.8 13,174,000 9 Walt Disney Online 21.6 12,507,000 10 Time Warner Online. 20.2 11,657,000 Total Web audience 100 57,790,00

*--*

*All Web sites owned or controlled by a company

Source: Media Metrix

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