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April 13, 1999

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Subject: Re: CMGI & Lycos: bandwidth and without
Author: TMFNico

Vic in #7336: Nico, I think you analysis borders on brilliant, but I won't say so out loud. ;-)

Well, if you don't tell anyone... neither will I. Thanks, Vic! ;-)

IMO, this is the most important quotation from your post. Care to speculate on the nature of the revision? As mundane as this sounds, I believe CMGI must develop a coherent business model beyond selling internet companies to the public....

Re: a revision in CMGI's business model, it would be tempting to say that any new direction would involve something along the lines of a "CMGI Online," which I believe has been mentioned here recently. It would depend on how literally we took that idea. But if it means the creation of a new general-interest aggregation service -- to begin competing, today, with Yahoo and AOL -- I'd be inclined to discount that happening. As you said, "Surely he wouldn't go head to head with YHOO or AOL... or would he?" This isn't a matter of shying from a challenge. There are practical issues here.

CMGI hasn't pursued a CMGI-brand strategy, so it has no name recognition among consumers. And even though its recent name change could perhaps support the notion, there isn't any indication that CMGI has an interest in developing its own brand identity, at least not as we would typically think of brands in this context. That's not a criticism. Just an observation.

Beyond that, whatever alternative paths CMGI could have taken in the past, I don't think pursuing its own brand strategy at this point would make a lot of sense, especially since they'd be starting from scratch against established brand leaders. Still, your point is well-taken and worth pursuing when you say....

....I believe CMGI must develop a coherent business model beyond selling internet companies to the public. The current model is incredibly profitable... but helping more companies enter that space, IMO, will eventually populate the space and make the business model unsuitable as CMGI's primary revenue source (because supply and demand for net stocks will balance).

"The importance of Lycos to CMGI could be overstated, of course. The worst case scenario for CMGI has the USA deal going through as announced. CMGI would surely survive, as would Lycos. But more interesting from the point of view of the industry's development is the evidence that suggests CMGI was not quite ready to lose Lycos -- nor its special priority access to the cumulative Lycos user base."

I've always had a view of CMGI as combining an Internet warehouse/laboratory/supply-shop for the Internet industry. (Wetherell calls it a "one stop shop.") It brings together most of the components you would want and need in an online service. CMGI has not, however, assembled these pieces into a complete service and final product. Instead, the various components are made available in one form or another, separately or in combination, to other companies and services, including other CMGI companies.

This leveraged modularity is what makes CMGI so interesting. To look at CMGI is to see the Internet disassembled. In pieces.

How practical would it be for CMGI to actually put the pieces it has assembled to direct use, and move beyond its role as incubator and parts-supplier to the Internet? It's interesting but not surprising how these questions connect to the Lycos-USA Networks merger and to CMGI's role and interest in that deal.

I mentioned in my previous post (#7317) that of all the companies and properties associated with CMGI, it was Lycos, GeoCities, and Planet Direct that most immediately lent themselves to a consumer online service strategy. GeoCities is of course no longer available for that purpose.

A February 16 press release indicated that Planet Direct had "over 1 million registered members." Just what that means and what it is worth isn't clear. As a comparison, GeoCities reported over 4 million homesteaders in March. Planet Direct has never appeared in the Media Metrix/RelevantKnowledge list of top Web properties (as measured by unique visitors.) Planet Direct might be cool in any number of ways. But it is basically nowhere as far as a brand goes.

That leaves Lycos. Which is worth taking a closer look at.

Pieces of Lycos
There is both less and more to Lycos than meets the eye. The combined properties of the Lycos Network make it the Web's fourth largest eyeball grabber. This growth has been achieved primarily through acquisitions.

In about 14 months, beginning in January 1998, Lycos acquired the then 1 million-member Tripod community, followed by three Web-technology/application companies: WiseWire, GuestWorld, and WhoWhere?, the latter bringing the Angelfire community along with it. Later in 1998, Lycos acquired the Wired Digital properties.

Every eyeball counts. But the manner in which those eyeballs have been accumulated will influence their cumulative "blink-power." And I think the theoretical synergies of the Lycos Network, which would take it beyond merely summed traffic, are undermined by its being too disparate a collection of pieces. If an online environment lacks coherence, the user experience is less persuasive. That is a formula for an ineffective service and a fall-behind brand.

Lack of coherence is a risk of the multibrand strategy as Lycos has been pursuing it.

In contrast to the environments produced by America Online and Yahoo, the Lycos Network appears to be less a product of vision than an idea for a growth strategy. It is more of an org-chart construction than an organically-evolved environment. This will make it increasingly difficult for Lycos to compete against frontrunners AOL and Yahoo which, beyond whatever their particular strengths might be, have mass, scale, frightening momentum, and equally frightening management teams going for them.

This lack of coherence also places Lycos at a disadvantage against operations such as the soon to be combined @Home/Excite, the Disney/Infoseek GO Network, and CNET, the latter (even without Snap) being an especially interesting example of a broad network that manages to produce an integrated and coherent environment out of what could have been a mere concoction of parts.

It is because of that concocted quality, with its lack of competitive traction, that I think the greater longer-term value of an independent Lycos is now found in its component parts, rather than in the whole that has been assembled over the last year-plus. This is also why I found Bob Davis' claim of being "fiercely dedicated to [an] independent strategy" for Lycos to lack credibility.

Interestingly, what's being presented here as a weakness of the Lycos Network has certain similarities to what is a strength of CMGI, where the value is also located in its individual parts. But Lycos lacked CMGI's deep understanding of the online medium and the subtleties of synergy.

Lycos was not well-positioned to make its growth-through-acquisition strategy work. Its size and definition prior to its 1998 acquisitions was inadequate to absorb the acquired companies and make them its own. Compare this to Yahoo's more methodical entry into the consolidation and acquisition game, which some have characterized as "slow" and "late."

The Lycos Network's mix of purchased eyeballs and proprietary technologies leave it neither here nor there. Unlike Yahoo, Lycos is not a meaningful consumer umbrella-brand. Unlike its foster parent, CMGI, Lycos is not a broad Internet laboratory. Neither is it a true multibrand operation like America Online has become.

"CMGI is in an odd position. On the one hand, it would benefit from maintaining close ties to Lycos. On the other hand, I imagine CMGI's long-term view of Lycos is not as sunny as would ideally be the case with an investment and a partner. The probability that the atmosphere between CMGI and Lycos, at some levels at least, smells less than sweet wouldn't help matters, either."

I think CMGI's early recognition of Lycos's relative lack of form and competitive traction, which has been more clearly revealed over the last year, and especially in the last months, was a factor in the ongoing reduction of its stake in Lycos.

Intersecting trend lines
CMGI now finds itself at the intersection of two trends, the first external, the second internal and specific to CMGI.

Trend #1 -- A general industry consolidation around ever-larger superbrands.

This first external trend includes the brand-consolidations outlined in #7317, most notably AOL/Netscape, @Home/Excite, and Yahoo/GeoCities, but also the general consolidation that took place throughout 1998, and which got underway in earnest just about a year ago.

Trend #2 -- CMGI's progressive distancing of itself from GeoCities and Lycos, its top-branded consumer-oriented properties, without the corresponding development of alternative services.

This second internal CMGI trend is especially important since GeoCities and Lycos served as in-family distribution platforms for other CMGI products and services. And so practically, as well as symbolically, GeoCities and Lycos have been critical links in CMGI's business model of leveraging relationships between its operating companies.

I think it was CMGI's dramatic and unexpected -- or at least ahead of schedule -- arrival at the intersection of these two trends that led David Wetherell to raise objections to the Lycos-USA Networks deal at the 11th hour rather than "forever hold his peace." Standing at that intersection, Lycos looms large.

The importance of Lycos to CMGI could be overstated, of course. The worst case scenario for CMGI has the USA deal going through as announced. CMGI would surely survive, as would Lycos. But more interesting from the point of view of the industry's development is the evidence that suggests CMGI was not quite ready to lose Lycos -- nor its special priority access to the cumulative Lycos user base.

For all the criticism I've been directing toward Lycos, it nonetheless continues to have substantial cumulative weight and mass, with only the Microsoft network of sites, Yahoo, and AOL's properties ahead of it, and with a respectable lead over the Disney/Infoseek GO Network. Lycos is in any event the largest and most visible online platform to which CMGI currently has priority access, tentative though it is.

This is why maintaining solid access to the Lycos Network suddenly became an issue for CMGI.

Internal consolidation of the one stop shop
In a rapidly consolidating online universe, the CMGI galaxy is an assortment of minor moons and asteroids which, though impressive, find value only in association with and distribution through larger dominant bodies.

And while consolidation, as a general trend, can favor the CMGI companies, the loss of Lycos (and GeoCities, too) leaves CMGI without a large-scale platform or stage or showcase or distribution channel or dumping-ground -- call it what you will -- for the rapidly growing collection of company popup-windows at the Java-swigging www.cmgi.com.

Consider these recent (non-inclusive) CMGI events:

* 1/4/99 CMGI increased its stake in Internet broadcast company Magnitude Network from 20% to 88%.
* 2/17/99 CMGI announced a new Internet broadcasting project headed by former NBC television network president Neil Braun.
* 3/1/99 CMGI acquires Internet Profiles Corporation (I/PRO), a marketing technology firm to be merged with the kindred Engage Technologies.
* 3/4/99 CMGI acquires instant messaging and interactive communication firm Activerse

In addition, there was the CMGI Internet Group's 2/22 creation of a new position, President, Internet Technology, to be filled by the return of a top technology guy to CMGI from America Online, where he was involved in the design and development of the integrated browser and messaging technologies that have been so vitally important to AOL's online domination, if you'll pardon my understatement. (See #3407 for more on this.)

These events powerfully suggest a more assertive and encompassing strategy on CMGI's part to integrate and leverage its properties in what could be termed the "internal consolidation" of the one stop shop. This would clearly be consistent with industry trends. Equally clear in such a strategy are the advantages in being able to leverage CMGI family ties to high-traffic and high-visibility services such as GeoCities and Lycos.

However, each of the above events was either announced or in-process during the period in which the GeoCities and Lycos deals were being negotiated, finalized, and announced. This reflects the second intersecting trend operating within and on CMGI, as per the previous post. It also supports the idea of the executive bandwidth overload in the subject of this thread. (I trust CMGI's recent public silence on these issues -- which intrigues fans of CMGI as it frustrates Lycos longs -- as well as talk of "vacations," indicates that the bandwidth bottleneck is being eased.)

Likely outcome: pieces of Lycos
CMGI is in an odd position. On the one hand, it would benefit from maintaining close ties to Lycos. On the other hand, I imagine CMGI's long-term view of Lycos is not as sunny as would ideally be the case with an investment and a partner. The probability that the atmosphere between CMGI and Lycos, at some levels at least, smells less than sweet wouldn't help matters, either.

I think CMGI's preferred scenario is that the Lycos-USA deal be simply and quietly voted down, leaving Lycos somewhat worse for wear, but still independent.

At that point, I think CMGI and one or more additional parties (e.g., Amazon and AOL, perhaps Bertelsmann) will acquire Lycos under an arrangement of cooperative joint ownership. This will eventually lead to the formal dismantling of the Lycos Network, but only after mechanisms have been found to insure the shared retention and leveraging of the traffic that the network cumulatively commands. Those mechanisms would involve the large-scale application of various technologies and services from the CMGI family (some of which, it should be noted, overlap with certain assets belonging to either Lycos and USA Networks.)

CMGI has a burgeoning portfolio. The use of the Lycos Network as a family distribution platform for the services and applications of those portfolio companies is CMGI's main objective at this point. That said, I must assume CMGI has alternative plans, should the USA deal goes through more or less as originally structured, which of course it might.

In any event, given what has transpired over the last months, and with the outcome of the USA deal still a few months away, we can expect to see CMGI move rapidly once this long waiting period is over.

As is this post.

Thanks for reading!

TMF Nico