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Thursday, April 29th, 2004

Lycos for Sale – Remember the Past, Plan for the Future

 

This week’s big news continues to be dominated by Google’s pending Initial Public Offering (IPO). Wall St. is buzzing with the billions of dollars that are about to be flowing from one side of the trading floor to the other side of the continent. While Google itself has remained mystically silent about its intentions, the mainstream media and the business press have been gawking at Google’s perceived plans for the past two weeks. If, and in most minds – when, Google goes public, it is speculated the company will be worth $15Billion – $25Billion. Those numbers have a lot of people very interested. Fortunes of varying sizes will be made from this so it is safe to say there is a great deal of personal interest behind much of the hype and many of the stories appearing in the business press. The hype surrounding a Google IPO has pushed the value of shares of other search companies higher, as in the case of Ask Jeeves and Mamma.Com. “If it is search, it is sexy”, is a going mantra in investment circles. At this time, it is important to remember one of the first truisms any of us learned in history class, “Those who fail to learn from history are doomed to repeat it” (George Santayana, 1863 – 1952). While the hard working folks at Google are preparing to cash in on a tech-lottery win many of us thought had closed three years ago, the hard working folks at Lycos must be holding their breath waiting to see what happens next.

Today, Terra Lycos announced it was looking to sell one of the oldest search engines on the web. In doing so, they will be walking away from one of the largest deals made during the tech-boom of the late 90′s and early 2Ks. As reported by Jim Hu in today’s CNET News, “Terra Lycos has retained investment bank Lehman Brothers to explore a possible sale of its US Internet business, including its flagship Lycos.com Web site.” In 2000, when the tech-bubble was at its peak, Lycos was acquired by Madrid based Terra Networks in a $12.5Billion deal. Today, it is being shopped around to a select group of potential buyers with an asking price of $200Million.

A similar thing happened in January 2000 when AOL purchased the largest publishing empire in the world, Time Warner. (Ironically, Jim Hu covered that story for CNET as well). That deal was worth an estimated $160Billion at the time of the sale however the deal was based entirely on the value of AOL stocks at that time. Renamed “AOL Time Warner”, the merger was the largest in corporate history. Today, AOL is such a financial millstone around Time Warner’s neck, they recently dropped the “AOL” part of the name and is rumored to be looking to off-load AOL in the near future.

It is important to keep a perspective on the business history of the Internet, especially since this is an environment in which things change or are developed very rapidly. While Google continues to be the world’s most popular search tool, advancements by Yahoo and MSN pose direct challenges while at least a dozen other extraordinary search tools are either present in the marketplace or just about to be. Another concern is the lack of critical analysis present in the business press regarding a potential Google IPO. Even if the perceived up-sides are enormous for the economy, especially in the beleaguered Silicon Valley, as survivors of the dot-bomb era, we are left wondering what has happened to our collective memory? What is really going on here?

In reality, the management at Google is caught between a rocking environment and a hard-cash place. As the company has exceeded 500 common shareholders (stock-option holders), they have to report their quarterly financial numbers to the Securities and Exchange Commission by tomorrow at the latest. This will be the first public viewing of Google’s finances ever. Financial secrecy has long been part of Google’s culture and has given the management a significant advantage of public rivals Yahoo and MSN. Now that they are required by law to publish their books, there is little reason to think they would do so without making a heck of a lot of money in the process though the issuance of the IPO. At the same time, founders Larry Page and Serge Brin are said to be obsessed with preserving the laid-back culture that Google is known and loved for. With roller-hockey games in the parking lot and hearty meals prepared by the Grateful Dead’s former chef, working at the Googleplex is likely the most fun part of the day for most of the staff. On the other side of the coin are the original investors who put up the money that made Google a reality. Guys like Michael Moritz of Sequoia Capital and John Doerr of Kleiner Perkins Caufield & Byers eventually want to see a return on the $25Million they invested in 1999. Sitting on an investment in the world’s most used information application and not seeing billions of dollars come from it must be galling for these VC’s. Recent stories from the Googleplex have the VC side applying immense pressure to the management side to go IPO.

Apparently the discussions have moved from theoretical to action-items as Google has hired Morgan Stanley and Credit Suisse First Boston to underwrite an IPO. As reported in Monday’s CNET News, an unsourced leak from within the Googleplex stated that Google’s management is asking for several protections for their workers and the culture that has formed around them. Clearly something is happening and the evidence points to a go-date in the very near future. (Please note, all IPO related statements originating from within the Googleplex are either leaks or speculation as Google has not issued any statements regarding an IPO.)

We are left wondering if another instant bubble is being blown or if its all a bunch of smoke. Investors should look very closely before leaping into the tech market. If, as many who are pushing for the IPO state, a Google IPO can help the rest of the tech-sector gain investment revenue, we are concerned that many are “pulling a Blodget” or simply pushing for something because they personally stand to gain from it. What is going to happen to Google when shareholder expectations become stakeholder-demands?

Google is different from Yahoo and MSN and just about every other business their size. Google is a great search engine and a tremendous business story. While many in the SEO world, myself included, have taken it to them recently, the bottom line is Larry and Sergey have built the world’s most popular search tool and have formed one of the coolest corporations that has ever existed. We do wish the world would be more cautious before jumping on the next big-band wagon. As is often the case, everyone wants a piece of success. Just remember the cynical truism that logically follows Santayana’s, “Historians learn history, the rest of us are fated to repeat it.”


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