Lycos Europe Lunges for Continental Leadership

GUETERSLOH, Germany — Lycos Europe expects to be profitable at the turn of 2003/2004 and to become the largest portal in Europe — ahead of Yahoo — well before then.

“To some extent we're already there,” said Lycos spokesman Ingo Rapold. “We're the same size as Yahoo now but are growing more quickly than they are.

“We're live in 11 countries and in eight languages. We have a 10 percent market share in Europe, and given the various estimates for online growth, a very large market is taking shape here.

“Even if we only maintain our market share — and I think we will grow beyond that — we will become profitable. The leading three global portals, AOL, Yahoo and Microsoft, only handle 15 percent of the traffic but take in 45 percent of the ad revenues.

“If you want to achieve those high margins you have to become a market leader, because only then do you become attractive for online advertisers. And we're succeeding very well in doing that.”

Lycos Europe — a company in which Lycos Inc. has a 31 percent stake; Bertelsmann and its Gruener + Jahr subsidiary hold 19 percent; and CEO Christoph Mohn, a son of Bertelsmann owner Reinhard Mohn, has 11.3 percent — went public in March.

The stock offering was oversubscribed and hit the market only weeks before the Nasdaq was hammered in New York, with other “new markets” battered by the aftershock. The issue gave the company a cushion of 580 million euros ($500 million) at the end of its fiscal year on June 30.

“That put us in a good financial position with more than enough liquidity to achieve breakeven, and we have cash left over for further expansion and acquisitions,” Rapold said.

The company has invested heavily in marketing — 112 million euros ($100 million) in the past year — and expects to spend 200 million euros in the current year in the wake of acquiring Spray networks, Scandinavia's leading portal.

The deal was concluded Sept. 22 through a stock deal involving 84 million Lycos Europe shares. Spray owners then turned around and invested 100 million euros cash in the new enterprise.

Based in Sweden, Spray has grown organically and through acquisitions, much as Lycos Europe has, to become the leading Scandinavian portal. “It's a good fit, people-wise and philosophically,” Rapold said.

Higher investments in marketing have paid off, he said, and the company expects to maintain a level of 200 million euros a year for some time. “This type of spending does lead to larger market share and does so more cheaply than through acquisitions,” Rapold said.

“Still, there are some countries where you can't grow organically but only through acquisition, and Scandinavia is one example. That's why we bought Spray, and we'll buy others depending on market conditions.”

A deal with Bertelsmann concluded in the middle of last month will help the company's fiscal position. A strategic partnership will assure Lycos of advertising revenues of 110 million deutschmarks ($55 million) over two years.

In addition, Bertelsmann will supply Lycos with additional Web site content from its large array of media properties that range from books to film and TV. In turn, Rapold said, this will make Lycos more attractive to European advertisers.

Bertelsmann CEO Thomas Middelhoff called the deal “an important step for expanding our leadership position as a content powerhouse and global media enterprise on the Internet.” He also cited Lycos' 19 million European users as an important factor in making the investment.

Rapold said such alliances would assure Lycos' lead over ISPs such as AOL Europe and T-Online, the German phone company's Internet subsidiary.

“The US model doesn't work in Europe,” he said. “You can't expect people to pay access charges. The ISP business in Europe is becoming a low-margin affair, and you can't run a successful enterprise that way.”

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