By: Karen Pelletier

Company Overview

Terra Lycos is the result of a merger of two global Internet companies; Terra Networks and Lycos, Inc. in 2000

Although both Terra and Lycos were global Internet providers that linked users to online content and e-commerce, they both had very different approaches as individual companies

Lycos was a poster child for dot-com start-ups It began as a search engine research project by

Michael Loren Mauldin of Carnegie Mellon University in 1994

When the internet use started expanded world-wide Lycos went global

In June of 1997, Lycos and media giant Bertelsmann AG created Lycos Europe Lycos Europe is a localized version of the Lycos site

throughout Europe Lycos continued to grow with the use of partnerships

and acquisitions in more than 30 countries including France, Japan, Korea, Asia, Latin America, Canada, and many more!

Lycos Pre-Merger Nearly 31 million people each month used their services which

included web searching, chat rooms, e-mail, online shopping, news, auctions, streaming video programming, home pages, and free Internet access

Since 1997 Lycos has been profitable In 2000 the revenues reached $300 Million

• 70 percent of its revenues are from advertising and the remaining revenue is from e-commerce activities and licensing deals

Terra rose within Telefonica; a privatized telephone company of Latin America and Spain which offered dial-up modem access to consumers and small businesses

Telefonica expanded its Internet business by purchasing and integrating existing portals and ISPs in Spanish and Portuguese speaking countries

Telefonica created Telefonica Interactive in 1998 and it was starting to take control of various Internet companies It changed the name to Terra Networks in 1999 The parent company(Telefonica) had a 30 percent stake

in an IPO

As time passed Terra expanded geographically and into other Internet arenas Expanded to create a presence in Spanish and

Portuguese speaking countries Bought 30 percent stake in DeRamate.com (provider of

online auctions in Latin America) Created Terra Mobile; a wireless portal for Europe and

Latin America Partnered with Lotus to develop an instant messaging

service called Instanterra

Terra Network Pre-Merger World’s leading provider of ISP services to residential and

small office clients World’s leading provider of content for the Spanish and

Portuguese speaking markets Operated in 16 countries including Spain, Mexico, Chile,

Peru, United States and many more The revenues in 2000 were 82.5 million Euros with a net

loss totaled 267.3 million Euros• 40% revenues were from ISP subscription• 29% advertising• 50% e-commerce ventures

The Merge May 16, 2006 Terra agreed to buy and merge with Lycos

This agreement involved stock swap and massive cash infusion

Lycos shareholders receive less than half of the shares of the new company

Telefonica, which still owned 67% of Terra, agreed to underwrite a secondary offering to add $2 billion in cash to the newly formed company

The stock-based acquisition was valued at $12.5 billion• American-listed shares plunged in 2000 which cut $7 billion off

the buyout price Although the stock market was deteriorating at the time,

it was considered to be the world’s best capitalized Internet company with a cash horde of $3 billion

Benefits of the Merge Terra

Broaden its global arena out of Spain and Latin America Move towards increased profitability

Lycos Potential of a larger global company To keep up with the competitors

There was a 99.4% vote in favor of merging with Terra Terra Lycos provides Internet access to more than 5 million

customers worldwide

Strategy & Goals

The strategy was for the combined company to be a major player in the global Internet Operating in 41 countries, 21 languages, and reaching 91 million unique

monthly visitors Terra Lycos aggregates services and local and international content from

leading providers from around the world Provides online advertising and marketing, e-commerce and other web

services Terra Lycos’ headquarters is in Barcelona, Spain and its operations

headquarters are in Waltham, Massachusetts Chief executive officer is Bob Davis(former Lycos chief executive officer)

Strategy & Goals Cont. Expected revenues of $500 million in 2000 Hold the leading position in four of its eight primary markets:

Canada, Korea, Latin America, and the U.S. Hispanic market• Number 2 in Asia• Number 3 in Europe• Number 4 in United States

Since the companies complement each other well them joining forces together would create a global Internet player and improve both companies’ market positions

The company would leverage its important partners Bertelsmann- the third largest media company in the world Telefonica- the leading telecommunications company

• Provide content, commerce, and connectivity assets to create a distinct market differentiation for Terra Lycos

One Company With Two Different Strategies

Terra and Lycos were both global Internet providers that linked users to online content and e-commerce but the major difference between the companies were their approach

The major differences are the content creation and technical infrastructure These differences are due to the different history of the

companies and their different business cultures

History Differences

Terra- historic role as an ISP Created modem pools and points of presence Sizable local infrastructure investments Created its network by acquiring local Internet companies

• Chose to leverage the acquired local assets at the expense of creating a unified global architecture

Lycos- more idealized Internet company Offered service anywhere in the world from anywhere in the world

• Connected its servers to the Internet backbone

Strategy Differences Lycos and Terra used very different strategies for assembling the content

that attracted browsers and advertisers to the sites Lycos used a co-branding strategy to leverage the offerings of 3rd

party content providers Lycos developed 57 co-branding partnerships

• Externally created content was in Lycos- usable format

• The content resides on the developer’s network but appears at Lycos’ portal. Lycos routes traffic to partner content providers and shares the advertising revenues

Lycos created a global platform that had a common technical infrastructure that supports reuse of content in multiple countries

• Websites have same look and feel for different countries

Strategy Differences Cont.

Terra’s strategy was more focused on control and ownership Had a similar strategy to Telefonica’s original strategy of creating

an Internet presence in different Latin American countries Terra developed content itself after it acquired local companies

to acquire local expertise Used exclusive contracts to outsource content development Never co-branded content

Terra’s portal looked different depending on what country it was in and the content could not be easily shared

Latin American Strategy

Latin America is one of the only place where there was substantive overlap before the merger

The number of Internet users is currently small at 2.4 % but it is expected to grow 30% per year

The Internet revenues are expected to grow 54% annually Large growth in e-commerce revenues Advertising revenues are expected to grow the fastest

Lycos is a very global company but Terra’s start up has been in Latin America and much of its staff is located there

Terra Lycos needs to decide on what brand strategy and what model to apply

One thing Terra Lycos has to keep in mind when pursuing expansion in Latin America is that Spanish and Latin culture is not as fast paced as American culture Culture focuses on creating strong, long-term personal

relationships Terra Lycos will have to focus on a more personalized and

customer-orientated approach specifically for Latin America