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Filed pursuant to Rule 424(b)(3)
Registration No. 333-32604
PROSPECTUS
______________________
742,165 SHARES
LYCOS, INC.
COMMON STOCK
This prospectus relates to the public offering, which is not being
underwritten, of up to 742,165 shares of common stock, par value $0.01 per
share, of Lycos, Inc., which may be offered from time to time by stockholders of
Lycos or by donees, transferees or other successors in interest that receive
Lycos' shares as a gift or other non-sale related transfer. Lycos will receive
no part of the proceeds of such sales. 494,777 of the shares of Lycos common
stock described above were issued by Lycos in consideration of Lycos'
acquisition of common stock of Fast Search & Transfer ASA ("Fast"), a Norwegian
corporation (organization No. 979 158 831). Fast has also granted Lycos an
option (the "Fast Option") to acquire additional shares of Fast using Lycos
common stock as consideration upon exercise by Lycos of the Fast Option. The
remaining 247,388 shares covered by this prospectus relate to the potential
issuance by Lycos of additional shares of common stock upon exercise of the Fast
Option. See "Selling Stockholder" for further information. The 494,777 shares
were issued, and the 247,388 shares if issued will be issued, pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as
amended.
These shares may be offered by stockholders of Lycos from time to time in
one or more transactions as described under the "Plan of Distribution". To the
extent required, the number of shares to be sold, the name of any selling
stockholder(s), the purchase price, the name of any agent or broker-dealer and
any applicable commissions, discounts or other items constituting compensation
to such agent or broker-dealer with respect to a particular offering will be set
forth in a supplement or supplements to this prospectus. The aggregate proceeds
to any selling stockholder(s) from the sale of the shares offered from time to
time will be the purchase price of the shares sold less commissions, discounts
and other compensation, if any, paid by such selling stockholder(s) to any agent
or broker-dealer. The price at which any of the shares may be sold, and the
commissions, if any paid, in connection with any sale, are unknown and may vary
from transaction to transaction. Lycos will pay all expenses incident to the
offering and sale of the shares to the public other than any commissions and
discounts of underwriters, dealers or agents and any transfer taxes. See
"Selling Stockholder" and "Plan of Distribution."
Lycos' common stock is listed on The Nasdaq National Market under the
symbol "LCOS." On March 29, 2000, the last sale price of Lycos' common
stock was $66.25 per share.
______________________
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
FOR MORE INFORMATION, SEE "RISK FACTORS" ON PAGE 6.
______________________
The Securities and Exchange Commission may take the view that, under
certain circumstances, Lycos' stockholders and any broker-dealers or agents that
participate with such stockholders in the distribution of these registered
shares may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933. Commissions, discounts or concessions received by any such broker-
dealer or agent may be deemed to be underwriting commissions under the
Securities Act of 1933.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
______________________
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The date of this prospectus is March 30, 2000
WHERE YOU CAN FIND MORE INFORMATION
Lycos files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information Lycos files at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-
SEC-0330 for further information on the public reference rooms. Lycos' SEC
filings are also available to the public from commercial document retrieval
services and at the Website maintained by the SEC at www.sec.gov. Lycos has
filed a registration statement to register with the SEC the Lycos common stock
listed in this prospectus. This prospectus is part of that registration
statement. As allowed by SEC rules, this prospectus does not contain all of the
information you can find in the registration statement or the exhibits to the
registration statement.
Some of the important business and financial information that you may want
to consider is not included in this prospectus, but rather is "incorporated by
reference" to documents that have been filed by Lycos with the SEC. The
information that is incorporated by reference consists of:
. Lycos' Annual Report on Form 10-K, for the fiscal year ended July 31,
1999, as filed on October 29, 1999;
. Lycos' Quarterly Report on Form 10-Q, for the quarter ended October 31,
1999, as filed on December 15, 1999;
. Lycos' Quarterly Report on Form 10-Q, for the quarter ended January 31,
2000, as filed on March 16, 2000;
. Lycos' Current Reports on Form 8-K filed on August 6, 1999 (as amended
on October 7, 1999), September 16, 1999 and December 21, 1999 (as
amended on December 22, 1999 and January 4, 2000);
. The audited consolidated balance sheets of Wired Ventures, Inc. and
subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of operations and comprehensive income (loss),
minority interest and stockholders' (deficit) equity and cash flows for
each of the years in the three-year period ended December 31, 1998; the
unaudited consolidated balance sheet of Wired Ventures, Inc. and
subsidiaries as of March 31, 1999 and the related unaudited consolidated
statements of operations and comprehensive income and cash flows for the
three months ended March 31, 1999 and 1998; and our unaudited pro forma
combined condensed balance sheet and the related unaudited pro forma
combined condensed statements of operations, each as included in our
Current Report on Form 8-K filed on July 15, 1999;
. The description of Lycos' common stock contained in its registration
statement on Form 8-A, filed with the SEC on February 23, 1996;
. All documents filed by Lycos under the Securities Exchange Act of 1934
(e.g., Forms 10-Q and 8-K) after the date of this prospectus and prior
to the termination of this offering.
If there is any contrary information in a previously filed document that is
incorporated by reference, then you should rely on the information in this
prospectus.
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If you are a stockholder, you can obtain any of the documents incorporated
by reference through Lycos or the SEC. Documents incorporated by reference are
available from Lycos without charge, excluding all exhibits. You may obtain
documents incorporated by reference in this prospectus by requesting them in
writing to the following address or by telephone:
Lycos, Inc.
Attention: Investor Relations
400-2 Totten Pond Road
Waltham, Massachusetts 02451
(781) 370-2700
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THE COMPANY
Lycos is a global media company operating one of the Internet's leading
networks of separately branded websites. The Lycos Network is one of the most
visited online destinations in the world, attracting nearly one of every two
U.S. Internet users in November 1999. According to a Media Metrix report, the
Lycos Network of branded websites included four of the 20 most popular U.S.
sites on the Internet, and had over 29 million unique users in November 1999.
The Lycos Network enables users to quickly access and retrieve information,
communicate with other Internet users, easily establish online communities and
engage in commerce. Our popular websites provide a broad offering of integrated
content and services, attracting users into the Lycos Network through multiple
points of entry and creating a large and diverse audience. While users typically
access the Lycos Network for specific content through one of our branded sites,
they are encouraged to remain in the Lycos Network by the breadth of our product
offerings, and the easy navigation possible amongst our sites.
We derive our revenues primarily from online advertising and e-commerce.
Demand for online advertising is expected to grow significantly in the future.
According to Forester Research, the market for online advertising is expected to
grow from $3.3 billion in 1999 to $33.1 billion by 2004. We believe that we are
well positioned to serve this market as the Lycos Network provides advertisers a
large and diverse audience and the ability to segment and target that audience.
The wide variety of content and services available on the Lycos Network enables
advertisers to focus their promotional efforts on the Lycos Network sites most
relevant to their product or service offerings. The Lycos Network has attracted
a wide variety of advertisers, including Dell, Intel, Motorola, Johnson &
Johnson, Macy's, OfficeMax and Sears.
The electronic commerce, or e-commerce, market is also projected to
experience significant growth. International Data Corporation projects that e-
commerce revenues will grow from $50.4 billion in 1998 to $1.3 trillion by 2003.
We generate e-commerce revenue through two principal means. We integrate product
and service offerings from merchant partners directly into our search, directory
and community offerings on a topical basis. In addition, in October 1999, we
launched our online marketplace, LYCOShop, providing users with a seamless e-
commerce experience that incorporates products from over 2,000 retailers, as
well as classified advertising and auctions.
We expect that international users will become a substantial part of the
Internet user base in the future. According to International Data Corporation,
Web users outside the U.S. will increase from 79.4 million in 1998 to 325.5
million in 2003. We have broadened our offerings outside of the U.S. by
expanding into Latin America and by partnering with local media and technology
companies in Asia and Europe. We currently offer country-specific versions of
our Lycos search and navigation service and other selected network services in
Argentina, Belgium, Brazil, Chile, Denmark, France, Germany, Ireland, Italy,
Japan, Mexico, The Netherlands, Norway, Peru, Singapore, South Korea, Spain,
Sweden, Switzerland, the United Kingdom and Venezuela.
Our Strategy
Our goal is to be the most visited and utilized global online destination.
The essential elements of our strategy are to:
. expand the reach of the Lycos Network;
. increase the frequency and duration of user visits to the Lycos
Network;
. continue to provide comprehensive advertising solutions;
. provide a compelling e-commerce platform; and
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. expand the global presence of the Lycos Network.
Recent Developments
As part of our strategy to continue to expand our product and service
offerings and audience reach, in December 1999, we completed the acquisitions of
Quote.com and Gamesville.com.
. Quote.com is a leading online provider of financial content and tools
to independent investors, including stock quotes, news and research
information. With this acquisition, Lycos advanced its presence in the
online financial industry, bringing an added dimension to the Lycos
user experience and a new branded point of entry into the Lycos
Network.
. Gamesville.com is a leading online gaming site that is now the
featured product offering on the Lycos Games WebGuide.
Gamesville.com's approach to interactive gaming allows thousands of
registered contestants to compete for cash and other prizes in live
card games, trivia quizzes and other traditional games such as bingo.
According to Media Metrix, in November 1999, the Gamesville.com site
ranked third among the top 500 U.S. websites based on average duration
per visit of approximately 15 minutes.
In February 2000, we entered into a joint venture agreement with Bell
Canada to create a new Internet company, Sympatico - Lycos, to provide expanded
Internet resources for the business-to-consumer marketplace in Canada. As part
of the agreement, Bell Canada will invest $25 million to form the new company,
which will be majority owned by Bell Canada; Bell Canada has commitments to make
additional investments of $20 million, based on Sympatico-Lycos' working capital
needs. Bell Canada will also contribute a portfolio of business-to-consumer
Internet properties to Sympatico-Lycos. We will license to Sympatico-Lycos
applications such as the My Lycos customizable start page, free e-mail, chat,
shopping, homepage building and personalized news. The closing of the joint
venture is subject to completion of certain conditions, including certain
regulatory and other approvals. Separately, Bell ActiMedia and Lycos signed a
$40 million multi-year distribution agreement, under the terms of which Bell
products and services will be promoted to U.S. Lycos Network users accessing the
Network from Canada.
We were incorporated in Delaware in June 1995. Our principal executive
offices are located at 400-2 Totten Pond Road, Waltham, Massachusetts 02451, and
our telephone number is (781) 370-2700. We maintain a site on the Web at
www.lycos.com; however, the information found on our website is not part of this
prospectus.
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RISK FACTORS
The following risk factors should be considered in conjunction with the
other information included and incorporated by reference in this prospectus
before purchasing our common stock.
Our limited operating history makes it difficult to predict our performance.
We have a limited operating history for you to use in evaluating our
prospects. We generated revenues of $56.1 million for the fiscal year ended July
31, 1998 and revenues of $135.5 million for the fiscal year ended July 31, 1999.
We generated revenues of $56.0 million for the fiscal quarter ended October 31,
1999. Due to our limited operating history, you should not take the recent
revenue growth as indicative of the rate of revenue growth, if any, that you can
expect in the future. You should consider the risks, expenses and difficulties
frequently encountered by companies in their early stages of development,
particularly companies operating in new and rapidly evolving markets, such as
ourselves. We may not successfully address these risks, which include:
. the ability to continue to develop and extend the Lycos brand;
. the ability to maintain and increase levels of traffic on our
websites;
. the ability to maintain a premier position on the America
Online/Netscape Web browser or to enter into additional distribution
relationships and strategic alliances;
. the ability to continue to develop or acquire content, features and
functionality for our services;
. the development of equal or superior services or products by
competitors;
. the failure of the market to adopt the Internet as an advertising or
commercial medium;
. the reduction in market prices for Internet-based advertising as a
result of competition or otherwise;
. the ability to effectively generate commerce-related revenues through
sponsored services and placements in our services; and
. the success in attracting, retaining and motivating qualified
personnel.
As a strategic response to a changing competitive environment, we may
choose to make pricing, service or marketing decisions or acquisitions that
would adversely impact our operations and therefore increase our losses. Due to
the nascent nature of the Internet industry, we believe that period-to-period
comparisons of our operating results are not meaningful and that you should not
rely upon them as an indication of our future performance.
We have a history of significant losses.
We have incurred significant losses since our inception and may incur
losses in the future. As of October 31, 1999, we had an accumulated deficit of
$119.8 million. We reported a loss of $0.46 per share for the year ended July
31, 1998 and a loss of $0.60 per share for the year ended July 31, 1999. We
reported a loss per share of $0.29 for the fiscal quarter ended October 31,
1999. We currently expect that our operating
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expenses will continue to increase significantly as our sales and marketing
operations are expanded and as we fund further product development and acquire
complementary products and technologies. Our potential inability to keep short-
term expense levels in line with revenues could adversely affect our financial
results for any given quarter. It is possible that in some future quarter our
operating results may be below the expectations of analysts and investors which
could reduce the price of our common stock.
Our operating results can be affected by seasonality.
We have experienced, and expect to continue to experience, seasonality in
our business. Historically, users have made a smaller number of visits to our
websites and the websites of our partners during the summer and the year-end
vacation periods.
Our stock price is volatile and is affected by factors relating to the Internet
industry.
The price of our common stock has been and may continue to be subject to
wide fluctuations in response to any of the following events:
. quarterly variations in our results of operations;
. announcements of new technological innovations or new products and
media properties by us or our competitors;
. changes in financial estimates and recommendations by securities
analysts;
. the operating and stock price performance of other companies that
investors may deem comparable to us; and
. news relating to trends in our markets.
Also, the stock market in general, and the market prices for Internet-
related companies in particular, have experienced extreme volatility that often
has been unrelated to the operating performance of these companies. These broad
market and industry fluctuations may adversely affect the price of our common
stock, regardless of our operating performance. Additionally, fluctuations in
the market price of our common stock could result in stockholder lawsuits, which
potentially could impair our business.
We may not be able to maintain advertising revenues if the Internet is not
adopted as an advertising medium.
We earn a significant portion of our revenues by selling advertisements on
our Web pages. For the fiscal year ended July 31, 1999, advertising revenues
represented approximately 69% of our total revenues and for the fiscal quarter
ended October 31, 1999, advertising revenues represented approximately 70% of
our total revenues. We will not be able to sustain or increase our advertising
revenues if the Internet does not develop into an attractive and sustainable
advertising medium. For example, Internet users may purchase "filter" software
programs that limit or remove advertising from the user's desktop. The
widespread adoption of this software by users could negatively impact the use of
advertising on the Web. It is also difficult to predict which method of pricing
will be adopted by the industry or advertisers. For example, our advertising
revenues could decrease if advertising rates are based on the number of users
who access the advertiser's website from one of our network websites or seek
additional information about a product or service by "clicking" on the
advertisement, rather than rates being based solely on the number of times an
advertisement is displayed. Our strategy is to
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continue to develop advertising and other methods of generating revenues through
the use of our products and services. In order to maintain and increase
advertising revenues, we must develop a large base of users of our products and
services with demographic characteristics attractive to advertisers.
Additionally, we may be required to expand our advertising sales force, which
would increase our costs.
We may not be able to deliver or measure the delivery of advertisements
reliably.
The process of reliably delivering and tracking advertising placement
within large, high-traffic websites such as ours is an increasingly important
and complex task, and currently available software programs and other tracking
methods are rapidly evolving. We license an advertising management system from a
third party. To the extent that we encounter system failures or material
difficulties in the operation of this system, we could be unable to deliver
banner advertisements and sponsorships through our websites. Any extended
failure of, or other material difficulties with, our advertising management
system may require us to provide free advertising to our customers. In addition,
advertising clients may not advertise on our websites or may pay less for
advertising if they do not perceive our measurements to be accurate or reliable.
We may incur costs in connection with our arrangements with advertisers and
sponsors.
We sell advertising space on our websites and allow third-parties to
provide sponsored services and placements on our websites under agreements with
advertisers and sponsors which expose us to potentially significant financial
risks. In connection with these arrangements, we provide, and sometimes
guarantee, a minimum number of times that an advertisement is displayed or a
minimum number of user requests for additional information made by clicking on
the advertisement or promotional hyperlink. We may receive sponsorship fees as
well as a portion of transaction revenues received by these third-party sponsors
from users originated through our websites. These sponsorship arrangements
expose us to potentially significant financial risks, including the risk that we
may fail to deliver the required number of advertisement displays or user
requests for additional information. If we fail to deliver these minimums, the
fees payable to us may decline or we may be required to provide sponsorship
services to the sponsor for free for a limited "make good" period.
Our contracts with advertisers and sponsors typically have short terms and
are terminable on relatively short notice. Third-party sponsors may decide not
to renew the sponsorship agreements upon expiration. Some of these arrangements
also require us to integrate sponsors' content with our services. We must
dedicate resources and significant programming and design efforts to accomplish
this integration. We may not be able to attract additional sponsors or renew
existing sponsorship agreements when they terminate. In addition, we have
granted exclusivity provisions to some of our sponsors, and may in the future
grant additional exclusivity provisions. These exclusivity provisions may
prevent us for the duration of these exclusivity agreements from accepting
advertising or sponsorship agreements within a particular subject matter on our
websites or across our entire service network.
We depend on third-party relationships for distribution and content of our
websites.
We depend on a number of third-party relationships to attract users to our
websites and consequently to generate revenues. We require those third-parties
to provide users with access to our products and services. If we are unable to
attract users to our websites, advertising revenues could be impaired,
advertisers and sponsors may terminate their agreements with us, advertisers may
not be willing to pay as much as they currently pay to appear on the Lycos
Network and we may be required to supply our services under agreements with
advertisers for free.
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Browser services provided by AOL/Netscape.
We depend on our arrangement with AOL/Netscape relating to the positioning
of our products and services on the Netscape Web browser to create traffic on
our websites and consequently to generate revenues. If AOL/Netscape or any other
Web browser grants an exclusive arrangement for positioning on its Web browser
to our competitors, then our business may be impaired. In addition, users have
experienced difficulties due to browser failures unrelated to our systems,
products and services.
Although our agreements with AOL/Netscape may be terminated only under
particular circumstances, if we are unable to continue as a preferred provider
for AOL/Netscape, our websites could lose a material portion of our users, the
level of use on competing services could substantially increase and our websites
could become less attractive to advertisers, reducing our revenues.
Other third-party relationships.
We depend on website operators that provide links to our websites or
otherwise use our services to create traffic on these websites. We license some
technology and related databases from third parties, including search, telephone
directories, chat, street mapping and other similar services. We believe that
many of our third party relationships are important to our ability to attract
traffic and advertisers. Any errors, failures or delays experienced in
connection with these third party technologies and information services could
alienate our users and adversely affect our brand and our business. Although we
view these relationships as important, most of our arrangements do not include
minimum commitments to use our services or to provide access or links to Lycos'
products or services in the future, are not exclusive and generally have a term
of only one to three years. In addition, our partners may not regard their
relationship with us to be as important to their own respective businesses and
operations. Our partners may reassess their commitment to our products or
services at any time in the future, or may develop their own competitive
products or services. The failure of one or more of our partnering relationships
to achieve or maintain market acceptance or commercial success, or the
termination of one or more successful collaborative relationships, could
adversely impact our ability to conduct our business.
Content.
We rely on content developed by third parties. We believe that third party
content is an important element in attracting users to our websites. Failure of
these third party content providers to develop and maintain high quality
products and services or our inability to enter into agreements allowing our
users to access this content could impair our ability to attract users and
advertisers.
We face risks relating to our customers' liquidity.
The Internet as a commercial endeavor has been in existence for a
relatively short period of time. The costs of establishing a website are low,
and new online service providers, content providers and advertisers are launched
regularly. Many of our advertisers and electronic commerce sponsors were funded
with venture capital and other forms of financing before they proved to be
successful. Those companies that are unable to prove themselves successful
before they have spent their initial funding may find it difficult or impossible
to secure additional funding and, therefore, difficult to pay amounts due to us.
Our losses could increase if any of our advertisers or electronic commerce
sponsors fails to pay amounts due on a timely basis.
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We compete with a variety of competitors both to attract Internet users to visit
our websites and to attract advertisers and sponsors to place content on our
websites.
The market for Internet products and services, including those which we
offer to Internet users, is highly competitive. We compete with other providers
both to attract Internet users and to attract advertisers and sponsors. For
example, we compete with search program services that allow a user to search the
databases maintained by us and our competitors simultaneously. We also compete
indirectly with database vendors that offer information search and retrieval
capabilities with their core database products. Our community-based websites,
Tripod and Angelfire.com, compete with other community-based websites.
Additional competition may come from a variety of companies that have begun
to offer or have announced their intention to offer services similar to those
currently offered by us. For example, many large media companies have developed
or acquired Internet navigation services and are attempting to become "gateway"
or "portal" sites through which users may access the Internet, similar to the
sites maintained by us and our competitors. These entities may be able to
utilize their substantial financial resources and access to traditional media
outlets to promote their competitive businesses and access a substantial user
base. Additionally, companies with greater financial resources may acquire our
competitors or may enter into joint ventures and/or licensing arrangements
involving our competitors.
A number of companies offering Internet products and services, including
our direct competitors, recently have begun to integrate multiple features
within their products and services, including search and retrieval features. For
example, the Web browser offered by AOL/Netscape, which is a substantial source
of users for us, may incorporate and promote information search and retrieval
capabilities in future releases or upgrades. This integration of search and
retrieval capabilities could make it more difficult for Internet viewers to find
and to use our products and services.
We also compete with traditional off-line media, including print and
television, for a share of advertising budgets.
If our competitors become more successful than us in attracting users, then
our attractiveness to advertisers will be diminished. We believe that the
principal competitive factors in attracting users include:
. name recognition;
. quality of content and commerce offerings;
. site performance;
. ease of use;
. features; and
. quality of support.
We receive a majority of our revenue from selling advertising space on our
websites and allowing third parties to provide sponsored services and placements
on our websites under sponsorship agreements with us. There is intense
competition based on price in the sale of advertising on the Internet, and we
may not be able to compete successfully against our current or future
competitors.
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We may be subject to risks associated with e-commerce.
We believe that the portion of our business dedicated to e-commerce will
play a significant role in our future financial growth and development. In order
to support our electronic commerce initiative, we must rely on our third party
suppliers. The failure of our third party suppliers to provide quality service
to users of our websites, to deliver to our users on a timely basis the products
purchased on our websites, or to deliver satisfactory products may result in
user dissatisfaction, which may, in turn, cause users to stop visiting our
websites or using our services. In addition, to the extent that we are an
intermediary in electronic commerce transactions, it is possible that users may
involve us in claims associated with the sale of goods, including claims
relating to product liability and consumer protection. In addition, we may
suffer losses as a result of orders placed with fraudulent credit card data,
even though the consumer's payment for these orders has been authorized by the
associated financial institution.
We are uncertain whether our products and services will be accepted by the
market.
The market for our products and services has only recently begun to develop
and is rapidly evolving. An increasing number of market entrants have introduced
or developed products and services for use on the Internet. Our market depends
on the increased use of the Internet for information publication and
distribution and for commerce. Additionally, this market depends on the
development of the Internet as an advertising medium. Our future operating
results will depend upon:
. the growth of Internet advertising and commerce markets;
. the successful implementation of our advertising programs; and
. our ability to establish electronic commerce and licensing
relationships and other strategic alliances.
We cannot assure you that:
. the Internet advertising or commerce market will develop as an
attractive and sustainable medium;
. we will achieve or sustain market acceptance of our products and
services; or
. we will be able to execute our business plan successfully.
As is typical in the case of a new and rapidly evolving industry, demand and
market acceptance for recently introduced products and services are very
uncertain. The Internet industry is young and has few proven products. In
addition, the current Internet infrastructure may not effectively support the
growth, if any, that may occur in the use of the Web. Moreover, critical issues
concerning the commercial use of the Internet (including security, reliability,
cost, ease of use and access, quality of service and acceptance of advertising
and electronic commerce) remain unresolved. These critical issues may impact the
growth of the Internet, the placement of advertisements on the Internet or the
growth of the Internet as a means of electronic commerce.
Our systems may fail to function or may not have adequate capacity, which could
impair our ability to attract advertisers and users.
The satisfactory performance, reliability and availability of our services
and our network infrastructure are critical to attracting Internet users and
maintaining relationships with business customers and consumers. System
interruptions that result in the unavailability of sites or slower response
times for consumers would
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reduce the number of advertisements purchased and reduce the attractiveness of
our online services to business customers and consumers. Any increase in system
interruptions or slower response times could adversely impact our ability to
conduct our business. We have experienced system interruptions in the past, and
interruptions are expected to occur from time to time in the future.
We are dependent on hardware suppliers for prompt delivery, installation
and service of servers and other equipment and services used to provide our
products and services. Substantially all of our computer systems are located at
the New Jersey, California and Massachusetts sites of Exodus Communications. A
system failure at any of these locations may harm the performance of our
products and services. This system and, as a result, our business, is vulnerable
to damage from fire, floods, earthquakes, power loss, telecommunications
failures, break-ins and similar events.
Any substantial increase in traffic on the Lycos Network or on any of our
websites will require us to expand and adapt our network infrastructure. Our
inability to add additional software and hardware to accommodate increased
traffic on the Lycos Network or on any of our websites may cause unanticipated
system disruptions and result in slower response times. In addition, we
currently depend on a limited number of suppliers for certain key technologies
used to roll out and manage the Lycos Network. We may not be able to expand our
network infrastructure on a timely basis to meet increased demand and key
technology suppliers may not continue to provide us with products and services
that meet our requirements.
We must be able to adapt to technological change and to develop new products to
remain competitive.
The market for Internet products and services is characterized by rapidly
changing technology, evolving industry standards and customer demands, and
frequent new product introductions and enhancements. These market
characteristics are exacerbated by the emerging nature of this market and the
fact that many companies are expected to introduce new competitive Internet
products and services in the future. To be successful, we must continually
improve the performance, features and reliability of our products and services.
In addition, a key element of our business strategy is the development,
introduction and integration of new products and services that take advantage of
the increasing use of the Internet. We cannot assure you that we will be
successful in developing or integrating these products or services or that they
will meet with market acceptance. In addition, our new product releases may
contain undetected errors that require significant design modifications,
resulting in a loss of customer confidence in our products and services and,
consequently, viewer support, which will diminish the use of our products and
services.
We face risks associated with brand development.
We believe that establishing and maintaining the Lycos Network brand is
crucial to the continued expansion and attraction of our Internet audience. We
believe that the importance of brand recognition will increase in the future due
to the growing number of Internet sites. Promotion and enhancement of the Lycos
Network brand will depend largely on our ability to provide consistently high-
quality products and services. The Lycos Network brand could be impaired if:
. we do not provide consistently high-quality products and services;
. consumers do not believe that our products and services are of high
quality;
. consumers do not use new products and services which we introduce; or
. our new business ventures are not favorably received by consumers.
<PAGE>
14
The acquisitions and investments that we have made and may make in the future
may not be successful and may create unanticipated problems for us.
We have completed acquisitions of companies, technologies and assets that
we believe complement our business. We may not be able to identify additional
suitable acquisition candidates available for sale at reasonable prices or to
complete any desired acquisitions. In addition, we may not be able to
successfully integrate any or all of the businesses we have recently acquired
into our operations. Future acquisitions could result in potentially dilutive
issuances of equity securities, the incurrence of debt and contingent
liabilities, amortization expenses and write-downs of acquired assets.
Acquisitions involve numerous additional risks, including difficulties in
the assimilation of the operations, services, products and personnel of the
acquired company. Our systems, procedures or controls may not be able to support
increased operations resulting from acquisitions. Acquisitions also divert
management's attention from other business concerns. We also encounter risks by
entering markets in which we have little or no experience. Problems with an
acquired business could impair our performance. We have, in general, made
investments in companies involved in the development of technologies or services
that we believe are complementary or related to our operations (including our
investment in Fast). We may make investments of this type in the future. We have
invested in companies that are in an early stage of development and may be
expected to incur substantial losses. We cannot assure you that any investments
in these companies will result in any return, nor can we provide any assurance
as to the timing of any return.
We face risks associated with litigation.
We are subject to several purported class action lawsuits. One of the
complaints allege, among other claims, violations of the United States federal
securities law through alleged misrepresentations relating to our agreement to
enter into an announced and later terminated transaction with USA Networks and
certain affiliated companies. Each complaint seeks an unspecified award of
damages. We are also party to other lawsuits in the ordinary course of our
business. An adverse outcome in, or a decision to settle, these or other
lawsuits could result in significant costs to us. In addition, our senior
management may be required to devote substantial time to these lawsuits which
they could otherwise devote to our business. For a more detailed description of
these lawsuits, see "Business-Legal Proceedings."
We face risks associated with international expansion.
International sales, primarily from licensing our products and services,
accounted for less than 10% of our revenues for the fiscal year ended July 31,
1999 and the fiscal quarter ended October 31, 1999. As part of our business
strategy, we have entered into joint ventures in Europe, Japan, South Korea and
Asia. We recently launched localized sites in South and Central America.
We believe international expansion is important to our ability to continue
to grow and to market our products and services. In marketing our products and
services internationally, however, we will face new competitors. In addition,
our ability to enter international markets will be dependent upon our ability to
create localized versions of our products and services. Furthermore, to the
extent our various international operations are conducted through joint
ventures, our success will also depend to a significant extent on the
performance of our joint venture partners who generally are responsible for day-
to-day operations. We cannot assure you that we will be successful in creating
localized versions of our products and services, marketing or distributing our
products abroad, or that, if we are successful, our international revenues will
be adequate to offset the expense of establishing and maintaining international
operations. To date, we have limited experience in marketing and distributing
our products internationally.
<PAGE>
15
There are difficulties and risks inherent in doing business on an international
level, such as:
. compliance with regulatory requirements and changes in those
requirements;
. trade barriers;
. uncertainty regarding protection of intellectual property rights;
. difficulties in staffing and managing international operations;
. longer payment cycles;
. problems in collecting accounts receivable;
. political instability;
. fluctuations in currency exchange rates; and
. potentially adverse tax consequences.
If one or more of these factors were to occur, our business and operating
results may suffer.
We are dependent on intellectual property and our methods of protecting our
intellectual property may not be adequate.
Our success depends significantly upon our proprietary technology. We
currently rely on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
proprietary rights. We generally enter into confidentiality agreements with our
employees, consultants and partners. We have registered and applied for
registration of certain service marks and trademarks, and will continue to
evaluate the registration of additional service marks and trademarks, as
appropriate. In addition, Carnegie Mellon University has licensed a patent
issued in the United States relating to our search and indexing technology to us
on a perpetual basis. Other parties may challenge this patent. If challenges are
brought, the patent may be invalidated. Also, we cannot assure you that we will
develop proprietary products or technologies that are patentable, that any
issued patent will provide us with any competitive advantages or will not be
challenged by third parties, or that the patents of others will not impair our
ability to do business. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products or services or
to obtain and use information that we regard as proprietary. The laws of some
foreign countries do not protect proprietary rights to as great an extent as do
the laws of the United States. Our means of protecting our proprietary rights
may not be adequate. Additionally, our competitors may independently develop
similar technology, duplicate our products or design around our intellectual
property rights.
We may become involved in intellectual property litigation which could impair
our ability to conduct our business.
There has been substantial litigation in the computer industry regarding
intellectual property rights. We may become involved in claims and counterclaims
with third parties regarding infringement with respect
<PAGE>
16
to current or future products or trademarks or other proprietary rights. Any
infringement or other claims or counterclaims could impair our business because
they could:
. be time-consuming;
. result in costly litigation;
. divert management's attention;
. cause product release delays; or
. require us to redesign our products or require us to enter into
royalty or licensing agreements which may not be available on terms
acceptable to us, or at all.
We are subject to concerns regarding privacy of personal information about users
of our products and services.
We maintain a privacy policy which is displayed on each of our websites.
Our policy is not to disclose willfully any individually identifiable
information about any user of our products or services to a third party without
the user's consent. This policy and user choices regarding the dissemination of
personal information collected on our websites, which may include personal
identification information, demographic profile data, user preferences and
website behavioral data, are accessible to users of our personalized services
when they initially register. Despite this policy, however, if third persons
were able to penetrate our network security or otherwise misappropriate users'
personal information, we could be subject to liability claims. These could
include claims for unauthorized purchases, impersonation or other similar fraud
claims, as well as claims for other misuses of personal information, for example
for unauthorized marketing purposes. In addition, the Federal Trade Commission
and several states have been investigating some Internet companies regarding
their use of personal information. We could incur additional expenses if new
regulations regarding the use of personal information are introduced, if our
privacy practices are investigated or if our privacy policies are viewed
unfavorably by users or potential users.
We may face potential government regulations and legal uncertainties which may
impair our business.
We are not currently subject to direct regulation by any government agency,
other than regulations applicable to businesses generally. There are currently
few laws or regulations directly applicable to access to, or commerce on, the
Internet. However, due to the increasing popularity and use of the Internet, it
is possible that a number of laws and regulations may be adopted with respect to
issues such as the protection of databases, user privacy, pricing and
characteristics and quality of products and services. For example, as of April
2000, our LycosZone for Kids website will be subject to federal regulation
regarding child privacy. The adoption of laws or regulations may decrease the
growth of the Internet. This decrease could in turn decrease the demand for our
services and products or increase our costs of doing business. Currently, with
the acquisition of Gamesville.com, we offer Lycos Network users a form of online
interactive gaming which includes various games where users compete without
financial consideration for cash prizes. To the extent these gaming activities
become subject to future regulation, this regulation could substantially
restrict the online gaming activities we offer.
Due to the global nature of the Internet, it is possible that, although
transmission of our services originates from operations centers in New Jersey,
California and Massachusetts, the governments of other states and foreign
countries may attempt to regulate our transmissions or to prosecute us for
violations of their laws. Violations of local laws may be alleged or charged by
state or foreign governments. We may unintentionally
<PAGE>
17
violate these laws and these laws may be modified, or new laws enacted, in the
future. It is also possible that states or foreign countries may seek to impose
sales taxes on out-of-state companies that engage in commerce over the Internet.
In the event that states or foreign countries succeed in imposing sales or other
taxes on Internet commerce, the growth of the use of the Internet for commerce
could slow substantially.
We may be liable for information retrieved from the Internet.
Because material may be downloaded from Internet services operated or
facilitated by us and be subsequently distributed to others, it is possible that
claims will be made against us on the basis of defamation, negligence, copyright
or trademark infringement or other theories based on the nature and content of
these materials. We could be held liable for information contained on the Lycos
Network which we have not generated or compiled. These claims could be based on
us providing access to obscene, lascivious, inaccurate, or indecent information.
Although we carry general liability insurance, our insurance may not cover
potential claims of this type, or may not be adequate to indemnify us for all
types of liability that may be imposed. Any imposition of liability that is not
covered by insurance or is in excess of insurance coverage could impair our
business. In addition, our provision of access to Internet content or
advertisements on the Lycos Network that users may find objectionable could harm
our reputation and reduce the value of our brand.
We may not be able to manage effectively the potential growth of our businesses.
Our businesses have grown rapidly in recent periods. The growth of these
businesses has resulted, and, for us, is expected to result in growth in
employee levels, in the establishment of new offices and in increased
responsibility for both existing and new management personnel. In addition, this
growth has and will put additional pressure on existing operational, financial
and management information systems. To the extent we continue to grow and do not
manage this expansion successfully, we may be unsuccessful in executing our
strategy and operating our business.
We are dependent upon key senior management.
Our success depends to a significant degree upon the contributions of our
executive management team. The loss of the services of members of our executive
management team could adversely impact our business.
We must hire and retain skilled personnel to be successful.
Our success depends upon our ability to attract and retain highly qualified
management, technical and sales and marketing personnel. The process of locating
and hiring personnel with the combination of skills and attributes required to
carry out our strategy is often lengthy and intensely competitive. The loss of
the services of key personnel or the inability to attract additional qualified
personnel could adversely impact our business.
Our systems may experience difficulties related to Year 2000 computer problems.
The codes of many currently installed computer systems and software
products accept only two-digit entries in the date code field and cannot
distinguish 21st century dates from 20th century dates. Many companies' software
and computer systems, including ours and the companies we depend on, may need to
be upgraded or replaced so that they will be able to distinguish 21st century
dates from 20th century dates in order to comply with Year 2000 requirements and
therefore be Year 2000 compliant. At and since January 1, 2000,
<PAGE>
18
Year 2000 problems have not been significant and wide-spread computer failures
have not materialized. Year 2000 problems could still occur, especially
after January 1, 2000.
To the extent that we fail to identify and remedy any non-compliant
internal or external Year 2000 problems, or the Year 2000 phenomenon creates a
systemic failure beyond our control, like a prolonged telecommunications or
electrical failure or a prolonged failure of third-party software on which we
rely, we could be prevented from operating our business and permitting users
access to our websites.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance and include statements about our plans, objectives, products and
services as well as our expectations and intentions. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of such terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks outlined
under "Risk Factors," that may cause our or our industry's actual results,
levels of activity, performance or achievements to be materially different from
any future results, levels or activity, performance or achievements expressed or
implied by any forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform these
statements to actual results.
<PAGE>
19
USE OF PROCEEDS
Lycos will not receive any of the proceeds from the sale of these shares of
common stock. All proceeds from the sale of these shares of common stock will be
for the account of the Selling Stockholder, as described below. See "Selling
Stockholder" and "Plan of Distribution" described below.
SELLING STOCKHOLDER
The following table sets forth, as of the date of this prospectus, the name
of the Selling Stockholder, the number of shares that the Selling Stockholder
owns as of such date, the number of shares owned by the Selling Stockholder that
may be offered for sale from time to time by this prospectus, and the number of
shares to be held by the Selling Stockholder assuming the sale of all of the
shares offered hereby.
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Beneficially Owned If All Shares
Prior To Offering And Being Being Registered Hereunder
Registered For Sale(1) (2) Are Sold (1) (2) (3)
- ------------------------------------ ------------------------------------- -----------------------------------------
Selling Stockholder Number Percent Number Percent
------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Fast Search & Transfer ASA 742,165 * 0 *
</TABLE>
* Less than 1.0%.
(1) The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities and Exchange Act of 1934, and
the information is not necessarily indicative of beneficial ownership for
any other purpose. Under Rule 13d-3, beneficial ownership includes any
shares as to which the individual has sole or shared voting power or
investment power and also any shares which the individual has the right to
acquire within 60 days of the date of this prospectus through the exercise
of any stock option or other right.
(2) The shares of common stock included in this column includes the 494,777
shares of common stock currently owned by the Selling Stockholder, as well
as 247,388 shares of common stock issuable if Lycos chooses to exercise the
Fast Option.
(3) Assumes that the Selling Stockholder will sell all the shares set forth
above under "Shares Beneficially Owned Prior to Offering and Being
Registered for Sale." There can be no assurance that the Selling
Stockholder will sell all or any of the shares offered hereunder.
<PAGE>
20
PLAN OF DISTRIBUTION
The shares of common stock covered by this prospectus may be offered
delivered and sold from time to time by the Selling Stockholder, including
donees, transferees, pledgees or other successors in interest that receive such
shares as a gift or other non-sale related transfer. The Selling Stockholder
will act independently of Lycos in making decisions with respect to the timing,
manner and size of any sale. The Selling Stockholder may sell the shares on The
Nasdaq National Market, or otherwise, at prices and under terms then prevailing
or at prices related to the then current market price or at negotiated prices.
The shares may be sold by one or more of the following means of distribution:
(a) a block trade in which the broker-dealer so engaged will attempt to sell
shares as agent, but may position and resell a portion of the block as principal
to facilitate the transaction; (b) purchases by a broker-dealer as principal and
resale by the broker-dealer for its own account pursuant to this prospectus; (c)
an over-the-counter distribution in accordance with the rules of The Nasdaq
National Market; (d) ordinary brokerage transactions and transactions in which
the broker solicits purchasers; and (e) in privately negotiated transactions. To
the extent required, this prospectus may be amended and supplemented from time
to time to describe a specific plan of distribution. In connection with
distributions of the shares or otherwise, the Selling Stockholder may enter into
hedging transactions with broker-dealers or other financial institutions. In
connection with these transactions, broker-dealers or other financial
institutions may engage in short sales of Lycos common stock in the course of
hedging the positions they assume with the Selling Stockholder. The Selling
Stockholder may also sell Lycos common stock short and redeliver the shares to
close out such short positions. The Selling Stockholder also may enter into
option or other transactions with broker-dealers or other financial institutions
which require the delivery to the broker-dealer or other financial institution
of shares offered hereby, which shares the broker-dealer or other financial
institution may resell pursuant to this prospectus (as supplemented or amended
to reflect such transaction). The Selling Stockholder also may pledge shares to
a broker-dealer or other financial institution, and, upon a default, the broker-
dealer or other financial institution, may affect sales of the pledged shares
pursuant to this prospectus (as supplemented or amended to reflect such
transaction). In addition, any shares that qualify for sale pursuant to Rule 144
may be sold under Rule 144 rather than pursuant to this prospectus.
In effecting sales, brokers, dealers or agents engaged by the Selling
Stockholder may arrange for other brokers or dealers to participate. Brokers,
dealers or agents may receive commissions, discounts or concessions from the
Selling Stockholder in amounts to be negotiated prior to the sale. These brokers
or dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 in connection
with these sales, and any commissions, discounts or concessions may be deemed to
be underwriting discounts or commissions under the Securities Act of 1933. Lycos
will pay all expenses incident to the offering and sale of the shares to the
public other than any commissions and discounts of underwriters, dealers or
agents and any transfer taxes.
In order to comply with the securities laws of certain states, if
applicable, the shares must be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirements is available and is complied with.
Lycos has advised the Selling Stockholder that the anti-manipulation rules
of Regulation M under the Securities and Exchange Act of 1934 may apply to sales
of shares in the market and to the activities of the Selling Stockholder and
their respective affiliates. In addition, Lycos will make copies of this
prospectus available to the Selling Stockholder and has informed it of the need
for delivery of copies of this prospectus to purchasers at or prior to the time
of any sale of the shares. The Selling Stockholder may indemnify any broker-
dealer that participates in transactions involving the sale of the shares
against certain liabilities, including liabilities arising under the Securities
Act of 1933. In addition, Lycos has agreed to indemnify in certain
circumstances the Selling Stockholder against certain liabilities, including
liabilities arising under the Securities Act and Exchange Act. The Selling
Stockholder has agreed to indemnify in certain circumstances Lycos against
certain liabilities, including liabilities arising under the Securities Act and
Exchange Act.
<PAGE>
21
At the time a particular offer of shares is made, if required, a prospectus
supplement will be distributed that will set forth the number of shares being
offered and the terms of the offering, including the name of any dealer or
agent, any discount, commission and other item constituting compensation, any
discount, commission or concession allowed or reallowed or paid to any dealer,
and the proposed selling price to the public. We cannot assure you that the
Selling Stockholder will sell all or any of the shares.
Lycos has agreed with the Selling Stockholder to keep the registration
statement of which this prospectus constitutes a part effective until the
earlier to occur of (i) the sale of all the shares covered by this prospectus
and or (ii) January 28, 2001; provided, however, that in the event that Lycos
-------- -------
exercises the Fast Option and tenders Lycos common stock to Fast as payment for
such Fast capital stock upon such exercise, Lycos will keep the registration
statement effective until the earlier to occur of (x) the sale of all the shares
covered by this prospectus or (y) one year after the date of Lycos' exercise of
the Fast Option. one year after the date of this prospectus. Lycos intends to
de-register any of the shares not sold by the Selling Stockholder.
<PAGE>
22
BUSINESS
Overview
Lycos is a global media company operating one of the Internet's leading
networks of separately branded websites. The Lycos Network is one of the most
visited online destinations in the world, reaching nearly one out of every two
U.S. Internet users in November 1999. According to a 1999 Media Metrix report,
our network of branded websites contained four of the twenty most visited U.S.
destinations on the Web. The Lycos Network enables users to quickly access and
retrieve information, communicate with other Internet users, easily establish
online communities and engage in commerce. Our popular websites provide a broad
offering of integrated content and services, attracting users into the Lycos
Network through multiple points of entry and creating a large and diverse
audience. During November 1999, we generated more than 2.5 billion page views
and, according to Media Metrix, reached more than 29 million unique users.
The Lycos Network provides an attractive medium for advertisers, who can
tailor their offerings to reach our large and diverse audience by advertising
across the Lycos Network or toward narrower demographic segments by advertising
in a specific site or content area. The Lycos Network has attracted a wide
variety of advertisers, including Dell, Intel, Motorola, Johnson & Johnson,
Macy's, OfficeMax and Sears. Our large audience and distinctly branded sites
also appeal to large and small e-commerce merchants. We facilitate e-commerce in
two key ways. First, we integrate the product and service offerings from
merchant partners such as barnesandnoble.com directly into our search,
navigation and content offerings. Second, through our recently established
LYCOShop, we offer an online shopping marketplace that enables users to easily
purchase a broad variety of goods and services without leaving our sites.
We use our recognized brands and Internet operating expertise to create
appealing country-specific content and service offerings for Internet users
around the world, either independently or through joint ventures with local
media and technology companies. We currently offer country-specific versions of
our Lycos search and navigation service and other selected network services in
Argentina, Belgium, Brazil, Chile, Denmark, France, Germany, Ireland, Italy,
Japan, Mexico, The Netherlands, Norway, Peru, Singapore, South Korea, Spain,
Sweden, Switzerland, the United Kingdom and Venezuela. Through the expansion of
the Lycos products and services into these markets, we believe we have
established our position as a global Internet leader.
The Lycos Network
The Lycos Network attracts a broad demographic base of Internet users
through independently branded websites, each of which seeks to address different
interests and needs. Although users typically access the Lycos Network for
specific content through one of our separately branded sites, they are
encouraged to remain in the Lycos Network by the breadth of our offerings and
the easy navigation amongst our sites. The Lycos Network is primarily composed
of the following websites:
lycos.com - a comprehensive portal which offers search and directory
accompanied by deep vertical content.
hotbot.com - a sophisticated search service that provides users the
ability to perform advanced Web searches.
tripod.com - a personal publishing community, featuring quality user-
generated content created through easy to use homepage
building tools for beginners and experienced users.
<PAGE>
23
angelfire.com - a personal publishing community, similar to Tripod,
but with a focus on a younger age group.
whowhere.com - a home address, e-mail address and telephone number
directory that assists users in locating individuals
worldwide.
mailcity.com - a Web-based e-mail service that offers users a
personalized e-mail account accessible from any
computer with an Internet connection.
quote.com - a broad-based financial site that provides financial
market data such as stock and mutual fund quotes, news
and research.
sonique.com - a website featuring our proprietary music player, which
allows our users to download and listen to various
audio formats.
gamesville.com - an interactive gaming site featuring virtual card
games, trivia quizzes and traditional games such as
bingo.
Wired News - located at Wired.com - a daily news service offering
reporting and analysis of technology trends.
LYCOShop - located at Shop.Lycos.com - an online consumer marketplace
offering products from over 2,000 retailers.
We encourage users to remain within the Lycos Network through the use of
links, promotions, shared content and banner advertisements that feature other
Lycos properties. For example, when a user conducts a search using the Lycos.com
search service, we offer the user the opportunity to perform the same search
using our HotBot service with one click. Through integration and cross-promotion
of the Lycos Network of websites, we intend to increase the frequency and length
of user visits.
We believe that our network strategy enables Lycos to appeal to a large and
an increasingly diverse Internet audience. As a result, the Lycos Network
provides an attractive medium for advertisers who seek to perform broad or
targeted advertising as well as for online merchants. Between January 1998, the
month before Lycos formally launched its network strategy with its acquisition
of Tripod, and November 1999, Lycos' reach in the U.S. grew from approximately
14% of home users and 22% of users at work to approximately 45% of total U.S.
online users, according to Media Metrix.
Strategy
Our objective is to be the most visited and utilized global online
destination. The essential elements of our strategy include:
. Expand the Reach of the Lycos Network. We intend to continue to
increase the number of users of the Lycos Network through partnerships
and alliances, the expansion of existing and addition
<PAGE>
24
of new brands, and by providing enhanced content and services to our
users. We will continue to enter into agreements to provide direct
access to our products and services through computer hardware and
software companies, such as IBM, Internet service providers (ISPs),
such as Juno, and providers of wireless and broadband Internet access,
such as Ericsson and RCN. We seek to aggressively extend the
recognition of the Lycos brand through online and off-line advertising
and promotional campaigns in order to broaden the recognition of the
various brands comprising the Lycos Network. We will also continue to
enhance and expand the breadth and scope of our content, products and
services to ensure that the Lycos Network provides appealing content
to attract and retain users.
. Increase the Frequency and Duration of User Visits to the Lycos
Network. We believe that we can increase the frequency and duration of
our users' visits to the Lycos Network by continually expanding the
content, features and functionality of our product offering. We
provide content and services through a variety of brands across the
Lycos Network in an easy to navigate format that enhances the user
experience and extends the duration of a user's visit to our sites.
Throughout the Lycos Network, we promote our sites through the use of
links, shared content and banner advertisements, making it easier for
users to access additional content, functions and features while
remaining within the Lycos Network.
. Continue to Provide Comprehensive Advertising Solutions. We believe
that our multi-brand strategy segments our user demographics more
effectively than a single brand strategy and provides an attractive
platform for measurable, targeted, cost-effective online advertising.
Not only do we provide advertisers with the ability to target our
large and diverse user base through network-wide advertising, but
advertisers can purchase site-based advertising on the individual
network sites, thus targeting the demographic group that is specific
to that site. We also assist our advertisers in developing innovative
ways to reach their target audiences online. We design and offer
customized packages that include the ability to change advertisements
quickly and frequently; to link a search advertisement to a specific
term or topic; to target advertisements based on demographics,
geographic location and topical categories; and to track daily usage
and other information.
. Provide a Compelling E-Commerce Platform. We believe that we are well
positioned to take advantage of the expected growth in the purchase of
goods and services through the Internet. We integrate product and
service offerings from merchant partners directly into our search,
directory and community offerings on a topical basis. For example,
through our arrangement with barnesandnoble.com, a user who conducts a
search on a particular topic is presented with a link to the
barnesandnoble.com website which contains a list of books on the
topic. In addition, LYCOShop provides buyers and sellers with a
seamless e-commerce experience, incorporating products from over 2,000
retailers as well as auctions and classified ads.
. Expand the Global Presence of the Lycos Network. The number of
Internet users outside of the U.S. is projected to grow rapidly over
the next several years. In order to take advantage of this growth, we
have extended the Lycos products and services to countries in Europe
and Asia by creating joint ventures with prominent local media and
technology companies. These joint ventures allow us to reduce the
costs and launch time associated with global expansion as well as
leverage our operational and brand strengths and the promotional,
marketing and sales strengths of our partners. We have also recently
expanded our presence to include Argentina, Brazil, Chile, Colombia,
Mexico, Peru and Venezuela. We expect to launch additional sites in
Asia, Europe and Latin America during calendar year 2000.
<PAGE>
25
Products and Services
Lycos offers a comprehensive suite of online products and services. Our
principal offerings are described below.
Premier Navigation Functionality
Lycos offers our users the ability to quickly and easily find and access
text, audio, video and other rich media content on the Web. Lycos' primary
navigation products include:
Search. We offer two general search services-HotBot and Lycos Search.
HotBot is designed for a sophisticated user while Lycos Search appeals to a
mainstream user. Since many users enter the Internet through search services,
Lycos and HotBot generate a significant portion of the Lycos Network traffic.
HotBot has received many industry awards for its search service, including
"Best Search Engine" by US News & World Report (November 1999) and "Editor's
Choice Search Engine (1999)" by PC Magazine. In addition, in December 1999
HotBot was selected as the favorite search service of Internet users surveyed by
the Wall Street Journal. We also offer our users Lycos Rich Media Search, which
enables them to find, download and listen to various music, audio and video
formats (such as MP3).
Guides and Directories. Lycos provides its users with an easy-to-use
framework to efficiently explore the Internet through a series of guides and
directories. Lycos' topic-based WebGuides provide categorized areas of interest
that enable users to browse through related information. In an alliance with
AOL, we also offer a version of the Open Directory which is a collection of
websites organized by volunteer editors who have significant interest and
expertise in the topics to which they contribute. The Open Directory compiles
highly relevant links in an easy to navigate database.
Reference Services. Lycos provides a suite of products for its users to
locate other individuals, businesses, products and places. WhoWhere?, a home
address, e-mail address and telephone number directory, assists users in
locating individuals worldwide. Other principal reference services offered by
Lycos include a yellow pages product, which allows users to locate businesses
throughout the United States by searching according to category, business name,
business address or keyword; Lycos Classifieds, which gives users a convenient
way to find where to buy and sell goods and services online; and Lycos RoadMaps,
which allows users to obtain driving directions and maps to virtually any street
address in the United States.
Content and Information Resources
Lycos provides a variety of content offerings throughout the Lycos Network,
such as:
Games. We recently acquired Gamesville.com, one of the leading online
gaming sites, that is now the featured product offering on the Lycos Games
WebGuide. According to Media Metrix, in November 1999, the Gamesville.com site
ranked third among the top 500 U.S. websites in average usage at approximately
15 minutes per day. The Gamesville.com offering supplements our existing menu of
games which includes various board, card and other traditional games.
Gamesville.com offers users the opportunity to win cash and other prizes
competing in virtual card games, trivia quizzes and other traditional games,
such as bingo. There is no fee for playing these games, and no money is wagered.
Music. Lycos has created a comprehensive group of products in the music
category, under the brand Lycos Music (music.lycos.com). These products include
an MP3 search engine, a 35 channel radio network broadcast over the Internet, a
catalog of sound files created by independent bands, and news and information
from Rolling Stone and Billboard magazines. We have augmented these products
with other relevant offerings,
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such as free homepages on which artists can publish their songs and fans can
publish fanpages, and our Sonique music player, which allows users to download
and listen to various music and audio formats.
Personal Finance. Lycos recently acquired Quote.com, a leading personal
finance content site. Lycos provides users with finance and investing tools
through both its Quote.com site and through Lycos Investing
(lycos.investing.com). Quote.com and Lycos Investing provide users with stock
quotes, charts, news, research and analysis, as well as the ability to create
and maintain information on a personal portfolio of stocks, all without charge.
In addition, Quote.com offers users fee-based premium services, including
streaming real time stock quotes.
Kids. LycosZone (lycos.zone.com) provides a unique collection of
products, content and services for children. We believe LycosZone has rapidly
become one of the most popular websites targeted to children. The offerings
include age-specific games, educational tools and special sections for parents
and teachers. LycosZone provides links to a large number of national and local
educational and information resources geared to children of all ages. LycosZone
users are protected by our proprietary SearchGuard online filter, which aims to
block out potentially inappropriate content.
Technology. Lycos offers daily, in-depth news and analysis of the
technology industry and its impact on business, culture and politics through our
Wired News and HotWired (hotwired.lycos.com) services. These services keep users
informed on the latest developments and trends across a broad range of
technology topics. In addition, our Webmonkey (webmonkey.com) offering provides
a wide array of tutorials on Web technology for both amateur and professional
Website developers.
Health. In collaboration with Healtheon/WebMD, Lycos Health WebGuide
(webmd.lycos.com) provides a comprehensive health resource. This WebGuide
provides medical reference tools and a full-range of information about healthy
living, including medical news, health tips, chats with medical experts and
specialized communities to help users stay informed about various health issues.
Personalization
Through MyLycos, we provide users with the opportunity to personalize their
Lycos experience. MyLycos delivers a personalized version of the Lycos service,
including features such as news, weather, stock quotes, sports scores,
horoscopes, lottery results, local television listings and website reviews, all
tailored by each individual to his or her preferences. We believe MyLycos
provides a value-added service to our users that increases their overall use and
duration of visits to the Lycos Network.
Online Community Products
Lycos provides a number of services to allow its users to create and
actively manage communities around topics that interest them. Lycos believes
that users who become involved with Lycos online community products and services
are more likely to return to those sites in the future. Consequently, Lycos
seeks to develop an active, loyal user base by building significant community
features into the Lycos Network through the following online products:
Personal Publishing. Through its Angelfire and Tripod services, which
together comprise one of the Web's largest online communities, Lycos offers
users the online publishing tools necessary to create and publish their own
personal homepages. The simplest pages can be created and published in minutes,
yet the tools provided allow a user, without any programming skills, to create a
"professional-looking" site that incorporates photos, images, graphics, audio
and video files, and a guestbook. Through what are commonly known as
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"affiliate programs", users also can create links to e-commerce sites and earn
credit towards purchases by referring visitors to those e-commerce sites.
Clubs. Lycos Clubs (clubs.lycos.com) offers users the ability to create
their own topic-based clubs enhanced by features such as instant messaging, e-
mail, paging, chat and photo albums that are seamlessly integrated into each
club. Instead of leaving a club to use these features, club members can
instantly communicate from within the club. A creator of a club can open the
club to the general public or can restrict access to a particular group of users
by requiring a password.
E-mail/Instant Messaging. Through our MailCity product, Lycos offers
users a free, personalized Web-based e-mail account which can be accessed from
any computer with an Internet connection. Since MailCity users do not need to
change their e-mail addresses when they move or change Internet service
providers, the same e-mail address can be used indefinitely. In addition, in an
alliance with AOL, we launched the Lycos Instant Messenger service
(messenger.lycos.com), enabling Lycos users to communicate instantly with each
other and with AOL members.
Chat and Bulletin Boards. Lycos offers users the opportunity to
participate in online chat sessions, in which users can interact, in real time,
with multiple users from all over the world. Lycos Chat (chat.lycos.com)
regularly features hosted chats with celebrities and experts on topics of
interest to Lycos users. Lycos Bulletin Board (boards.lycos.com) allows users to
post messages to existing message threads or create a new thread by posting a
message on a topic or topics of the user's choice.
Advertising Revenue
According to Forrester Research, worldwide online advertising revenue is
expected to grow from $3.3 billion in 1999 to $33.1 billion in 2004. The large
and diverse audience reach of the Lycos Network, combined with our ability to
segment and target that audience, provides advertisers with an attractive
platform to promote their goods and services. The wide variety of content and
services available on the Lycos Network enables advertisers to focus their
promotional efforts on the Lycos Network sites most relevant to their product or
service offerings. Lycos advises customers on advertisement placement and
design, enabling them to develop and monitor their advertisements for
effectiveness. To facilitate these services, Lycos provides advertisers with
online reports showing impressions (an impression is a one-on-one view of an
advertisement by the end user) and the number of times users "click through"
an advertisement to visit the advertiser's site.
We generate advertising revenue primarily by placing banner advertisements
and sponsorship links on the Web pages that are displayed on the Lycos Network.
From each advertisement, a viewer can link directly to the advertiser's website,
thus affording the advertiser the opportunity to interact directly with a
potential customer. Our advertising contracts generally have a term of one to
twelve months. Advertising contracts are sold primarily as:
. a site-based or network-based contract under which a customer is
guaranteed a number of impressions placed throughout a particular site
or the entire Lycos Network; or
. contracts targeted to a particular audience or user, either in
connection with one of our topical WebGuides or in connection with
specified word searches (for example, when "automobile" is searched,
an automotive or car manufacturer advertisement appears).
We employ a direct sales force to address the new and evolving requirements
of the Internet advertising market. We have hired the majority of our sales
force from the advertising industry because we believe that an experienced sales
force is critical to initiate and maintain relationships with advertisers and
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advertising agencies. Lycos employs advertising sales personnel in Atlanta,
Boston, Chicago, Dallas, Los Angeles, New York, Miami, Philadelphia and San
Francisco.
Electronic Commerce Revenue
International Data Corporation estimates that revenues from e-commerce will
grow from $50.4 billion in 1998 to $1.3 trillion in 2003. According to a 1999
study by CBS Marketwatch, 78% of all online users search and navigate the Web
for product and service information while 36% of all online users search and
navigate the Web with a specific intent to buy. With the Lycos Network reaching
nearly one out of two U.S. Internet users in November 1999, Lycos represents an
attractive e-commerce platform. Lycos provides opportunities for our users to
purchase products and services throughout the Lycos Network both by integrating
commerce opportunities into contextually relevant placements on the Lycos
Network sites and through our online marketplace, LYCOShop.
Lycos Network E-Commerce Activities
We believe that integrating e-commerce opportunities into the Lycos Network
search and navigation services provides an easy and useful shopping experience
for our users. Specifically, we integrate the opportunity to purchase related
products and services into the results of commerce-related searches performed by
our users. In addition, we provide certain merchant partners with prominent
positioning for their product or service offering in appropriate sites within
the Lycos Network. In return, Lycos generally receives a fixed fee and a share
of the related e-commerce revenue.
Our e-commerce agreements typically have one to three year terms. In some
instances, we have entered into exclusive sponsorship arrangements for certain
commercial categories. Our e-commerce relationships include agreements with the
following companies:
AT&T - provides Lycos users with an ability to purchase telecommunication
services over the Internet.
barnesandnoble.com - provides Lycos users with the opportunity to
purchase books throughout the Lycos Network.
First USA Bank - provides Lycos users with a wide range of online banking
products through its WingspanBank.com online bank.
Fleet Credit Card Services - provides Lycos users with a Lycos branded
credit card.
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LYCOShop
In October 1999, we launched LYCOShop, an online marketplace offering
thousands of products and services from over 2,000 brand name retailers and
small specialty stores, including: Eddie Bauer; FogDog Sports; REI; and The Gap.
In addition to online retailing, LYCOShop provides our participating merchants
and users with the ability to conduct online auctions and list classified
advertisements for products and services. LYCOShop provides its users with
valuable services, including product reviews and search, navigation and
community at each stage in the buying cycle so that shoppers can research their
buying options, discuss products and services with other consumers and compare
product and price features prior to making a purchase. LYCOShop also provides
shoppers the convenience of a "universal shopping cart" which allows shoppers
to purchase items from more than one merchant within LYCOShop without having to
re-register their personal information (such as credit card and delivery
information) with each merchant. LYCOShop provides telephonic customer support
to augment online support and provides users with a rewards program to increase
customer loyalty. During the holiday season in 1999 (Thanksgiving to Christmas),
the number of unique users on LYCOShop was 450 percent greater than our shopping
traffic during the same period in 1998.
For participating merchants, LYCOShop features a sophisticated store-
building product that permits large and small retailers to create and maintain
online stores, accept credit card purchases, track sales, and also sell their
products through auctions and classifieds. Lycos generates revenue from LYCOShop
through merchant site hosting fees, slotting fees and by charging merchants a
percentage of each transaction's value. Our participating merchants provide
fulfillment and distribution services for LYCOShop.
Acquisitions and Strategic Alliances
We pursue acquisitions and alliances with strategic partners in order to
increase the number of visitors to the Lycos Network, the frequency with which
our users visit the Lycos Network and the amount of time they spend on the Lycos
Network each visit.
Recent Acquisitions
We have continued to expand our product and service offerings and audience
reach by acquiring businesses, technologies, content and services. Since
February 1998, we have completed eight acquisitions, including the following
acquisitions which we completed in December 1999:
. Quote.com. Quote.com provides information, tools and trading
capabilities to independent investors, including financial news, stock
quotes and research. Among the tools offered on the Quote.com website
are "QCharts", a Windows-based real-time market analysis and
transaction tool that gives users the ability to set up their own
"trading workstation" by enabling them to open multiple charts and
portfolio sheets all updating automatically in one window of their
computer screen. Quote.com significantly enhances Lycos' financial
content offering and provides Lycos with high-quality products,
content and functions in a widely used area within the Lycos Network.
. Gamesville.com. Gamesville.com is a leading interactive entertainment
community where members compete for prizes by playing multi-player
real-time games. The Gamesville.com acquisition complements Lycos'
strategic goal of keeping users in the Lycos Network for longer
periods of time. Additionally, because of the information that
Gamesville.com's users permit us to access through the registration
process, Gamesville.com delivers state-of-the-art, 1-to-1 targeted
database marketing solutions to brand name advertisers.
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We continuously identify and evaluate potential acquisition candidates and
in many cases engage in discussions and negotiations regarding potential
acquisitions. We currently have no agreements with respect to any proposed
acquisitions.
Strategic Alliances
To increase traffic to the Lycos Network, enhance the functionality of our
products and services and extend the Lycos brand, we seek to enter into
strategic relationships with business partners who offer content, distribution
and technology capabilities as well as marketing and cross-promotional
opportunities. To date, we have more than 250 alliances with a variety of
companies. Examples of our strategic alliances include:
Content
Healtheon/WebMD - Through our agreement with Healtheon/WebMD, we provide
our users a comprehensive suite of health-related information. This information
has been incorporated within the existing Lycos Network websites and is co-
branded with Healtheon/WebMD.
Rolling Stone - We have an agreement that allows us to incorporate content
from Rolling Stone, including artist reviews, into Lycos Music. This content is
co-branded, with both the Rolling Stone and Lycos brands prominently featured.
Preview Travel - Preview Travel provides us with travel-related content
that is displayed on a co-branded version of the Preview Travel site, which is
linked to contextually relevant pages on the Lycos Network. This content
includes a "fare finder" and other information about travel deals, travel news
headlines and destination guides by location. Lycos users can complete all of
their travel plans through this co-branded Preview Travel site.
Distribution
Computer Manufacturers and Software Developers - Lycos' products and
services are a default offering on software such as IBM's Lotus Notes, and
hardware such as IBM's Aptiva and Thinkpad computers.
Internet Service Providers (ISPs) - We have agreements with a number of
ISPs, including Juno and RCN, under which Lycos is a default offering on their
homepages.
AOL/Netscape - Lycos has been designated as a "Premier Provider" of
search and navigation services accessible from the "Net Search" button on the
Netscape browser. AOL/Netscape will commit search exposures during the term of
the Netscape Agreement to Lycos' search services in exchange for a per-
impression payment by Lycos based on the actual number of exposures delivered to
Lycos by AOL/Netscape.
Technology
Fidelity - Under our agreement with Fidelity, we provide personalization
technology for their PowerStreet online trading initiative. In return, we
receive prominent mention in PowerStreet advertising and sponsorship by Fidelity
of our Quote.com website.
Fast Search & Transfer - We have an agreement with Fast Search and Transfer
that allows us access to their state-of-the-art MP3 music search technology. We
have incorporated this technology with our existing
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music content to provide our users with the ability to find, listen to and
discuss music. We have recently entered into an agreement to invest in Fast
Search & Transfer which closed in January 2000.
LYCOShop - We have entered into agreements with a number of companies,
including Open Market, Verio, Fairmarket, Frictionless Commerce, NetPerceptions,
ePinions and NetCentives, to use their underlying technology for our LYCOShop e-
commerce initiative. These technologies enable store building, transaction
processing, auctions, value-based comparisons, a recommendation engine, product
reviews and the Lycos Rewards program. Our partners typically receive a
commission from us on LYCOShop sales in exchange for use of their technology.
Ericsson - We are currently developing, in conjunction with Ericsson,
wireless.lycos.com, a website that will enable subscribers to view content
through Short Message Service and Wireless Access Protocol cellular phones. This
service will be co-marketed with Ericsson to wireless carriers with the goal of
making it the default offering for mobile users by offering personalized
services such as stock quotes, news and messaging capabilities.
Strategic Investments
Lycos has made direct strategic investments or received warrants in
privately-held Internet services companies whose products are integrated into
the Lycos Network. The companies in which we have made investments include:
. FairMarket, a provider of auctions to business merchants and Web
communities;
. Bidder's Edge, a provider of tools and services that enable online
auction users to easily and automatically find similar items from
multiple online auctions;
.
. Frictionless Commerce, a developer of comparison shopping technologies
that take into account options such as price, product features, brand
reputation and delivery time;
. iCOMS, a provider of engineering, operational and merchant support for
e-commerce services; and
. Fast Search & Transfer ASA, a provider of state-of-the-art MP3 music
search technology..
We have also made investments in Mail.com (which completed its initial
public offering in June 1999), PlanetAll (which was acquired by Amazon.com in
August 1998) and Wit Capital (which completed its initial public offering in
June 1999).
International Expansion
We believe the international markets will be a significant part of the
Internet base in the future. According to International Data Corporation,
Internet users outside the U.S. will increase from 79.4 million in 1998 to 325.5
million in 2003, a compound annual growth rate of approximately 33%. We often
seek to broaden our offerings of localized versions of our products and services
to users outside the United States by partnering with prominent local media and
technology companies. These arrangements are designed to leverage our brands,
technology and Internet operating expertise with their promotional, marketing
and sales strengths with the goal of reducing the time to market and costs
associated with our global expansion. In addition, our partners provide local
expertise and infrastructure, localized content and financing.
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We have established our position as a global Internet leader. We currently
offer 50 localized sites in 22 countries, primarily consisting of localized
versions of the Lycos search and navigation service, the Tripod community
service and the MailCity e-mail service. By creating sites in native languages
with local content and partnering with prominent local companies, we believe
that we can improve the experience for Internet users in their own countries.
Our current international operations are:
Lycos Europe. In May 1997, we entered into a joint venture agreement
with Bertelsmann Internet Services to create localized versions of the
Lycos search and navigation service and the Tripod community site
throughout Europe. This joint venture, named Lycos Bertelsmann GmbH & Co.
KG, is owned 50% by Lycos and 50% by Bertelsmann Internet Group. Lycos
Bertelsmann currently operates localized versions of the Lycos.com and
Tripod sites in Belgium, Denmark, France, Germany, Ireland, Italy, The
Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom.
Lycos Japan. In March 1998, we established Lycos Japan KK as the basis
for a joint venture to promote and operate a Japanese version of the Tripod
and MailCity websites. Our joint venture partners are Sumitomo Corporation,
one of the largest companies in Japan, Internet Initiative Japan, one of
Japan's largest Internet service providers, and Kadokawa, a major Japanese
publisher. Lycos beneficially owns approximately 45% of the joint venture.
Lycos Korea. In March 1999, we established Lycos Korea to promote
localized versions of the Lycos and Tripod websites. Our joint venture
partner is Mirae Corporation, a prominent South Korean high-technology
company. Lycos and Mirae each own 50% of the joint venture.
Lycos Asia. In September 1999, we established Lycos Asia to promote
localized versions of the Lycos and Tripod websites in more than 10
countries in Asia, including Singapore, China, Taiwan, Hong Kong, India and
Malaysia. Our joint venture partner is Singapore Telecommunications, and we
each own 50% of the joint venture. Lycos Singapore was launched in December
1999 and both simplified and traditional Chinese language services are
expected to be launched in early 2000.
Lycos Americas. In October 1999, we launched localized versions of the
Lycos and Tripod websites in Argentina, Brazil, Chile, Colombia, Mexico,
Peru and Venezuela as well as a United States-based Spanish language
version of the Lycos and Tripod websites. These sites are currently owned
entirely by us.
In February 2000, we entered into a joint venture agreement with Bell
Canada to create a new Internet company, Sympatico - Lycos, to provide expanded
Internet resources for the business-to-consumer marketplace in Canada. As part
of the agreement, Bell Canada will invest $25 million to form the new company,
which will be majority owned by Bell Canada; Bell Canada has commitments to make
additional investments of $20 million, based on Sympatico-Lycos' working capital
needs. Bell Canada will also contribute a portfolio of business-to-consumer
Internet properties to Sympatico-Lycos. We will license to Sympatico-Lycos
applications such as the My Lycos customizable start page, free e-mail, chat,
shopping, homepage building and personalized news. The closing of the joint
venture is subject to completion of certain conditions, including certain
regulatory and other approvals. Separately, Bell ActiMedia and Lycos signed a
$40 million multi-year distribution agreement, under the terms of which Bell
products and services will be promoted to U.S. Lycos Network users accessing the
Network from Canada.
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Lycos Ventures
In July 1999, we formed Lycos Ventures, a $75 million venture capital fund,
in conjunction with Bear Stearns, Mellon Ventures, Sumitomo Corporation, Vulcan
Ventures and others to make early stage investments in companies involved in e-
commerce, online media or Internet technology. We have committed to invest up to
$10 million of the $75 million fund. To date, this fund has made investments in
several companies, including LifeMinders, FogDog Sports, Conducent Technologies,
Tekmetrics and Planet Feedback.
Marketing and Branding
We support the Lycos Network globally through an integrated marketing and
branding strategy that includes advertising, public relations and promotions.
Our plan is designed to increase awareness of the Lycos brand, enhance loyalty
and increase usage of the Lycos Network. We believe that continuing to enhance
our brand name recognition is important to attract new users. We seek to
differentiate our offerings by giving them a personality, principally through
our mascot, "Lycos", the black Labrador retriever, and our "Go Get It" slogan.
Our advertising emphasizes that using the Lycos Network is fast, friendly and
fun. Our marketing efforts seek to create a Lycos brand that is consistent in
all of the countries in which we operate.
We advertise both online and through traditional media, such as broadcast
and cable television, local radio, consumer and trade magazines, newspapers and
billboards. We are also extending the Lycos brand name by promoting our products
and services through other media, such as books, movies and videos. Our online
advertising includes banner advertisements throughout the Lycos Network and
across many other sites on the Internet. In addition, we promote each of the
sites within the Lycos Network both by creating hyperlinks among the member
sites and through banner promotion within the Lycos Network. We also promote the
Lycos brand through non-traditional marketing channels, including:
. professional sports sponsorships, such as sponsorships of a NASCAR
racing team, and an NFL and NHL team, Major League Indoor Soccer, NCAA
basketball games and an America's Cup yacht, and hosting special event
sites such as golf's 1999 USOpen.com and football's 1999
Superbowl.com; and
. co-branded and cross-promotions with various packaged good companies,
retail outlets and media companies such as Universal Studios, Pepsi
and Ticketmaster.
We also enter into strategic alliances with companies such as Fidelity and
Intel that include co-branded cross-promotions designed to generate off-line
media exposure.
Operations and Technology
We use a combination of proprietary and licensed technology to provide our
users with search and navigation services and capabilities that differentiate
the user experience of the Lycos Network from that of our competitors. Our
proprietary technologies include search technology, MyLycos personal page,
SearchGuard online filter, and Tripod and Angelfire personal publishing tools.
Through third parties, we license technologies such as search, directory
services, advertisement serving, commerce transaction processing, online product
reviews and value-based comparisons.
The Lycos search and indexing technology was originally developed at
Carnegie Mellon University. In June 1995, Lycos entered into a license agreement
with Carnegie Mellon University pursuant to which Carnegie Mellon University
granted Lycos a perpetual, worldwide right to use and sub-license the Lycos
search and indexing technology and other intellectual property rights, including
the "Lycos" trademark and the domain
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name lycos.com. CMU has been issued a patent in the United States relating to
Lycos' search and indexing technology.
Most of our technological infrastructure operations are provided to us by
third parties. Exodus Communications hosts our servers and provides network
redundancy. Our outsourcing relationships have allowed us to grow quickly and
have reduced the costs associated with staffing and equipment.
Research and Development
We focus our efforts both on developing our internal technologies and
integrating the technologies of our partners. We continue to develop proprietary
technologies that differentiate the Lycos user experience (such as MyLycos),
tools that strengthen the relationship between our sites (such as universal
registration) and methods of improving targeted advertising and e-commerce on
the Lycos Network. We are also working with partners to distribute our content
over broadband and wireless networks.
Competition
The market for Internet products and services, advertising and e-commerce
is highly competitive. Lycos believes the principal competitive factors in this
market are name recognition, quality of content and commerce offerings, site
performance, ease of use, features and quality of support.
A number of companies currently offer competitive products in our target
markets. The primary competitors of our products and services are other
companies providing online services and include About.com, Amazon.com, AOL, Ask
Jeeves, Buy.com, CMGi's AltaVista, Disney's GO Network, DealTime, Excite@Home,
FortuneCity, GoTo.com, Go2.net, Google, Infospace, Looksmart, Microsoft's MSN,
mySimon, NBCi (including Snap and Xoom), CBS StoreRunner, theGlobe.com and
Yahoo!. In addition, a number of companies offering Internet products and
services, including direct competitors of Lycos, recently have begun to
integrate multiple features within the products and services they offer to
consumers. These competitors have integrated competing products and services
through internal development, acquisitions, joint ventures and licensing
arrangements.
Employees
As of December 31, 1999, Lycos' U.S. operations employed 919 persons,
including 457 in sales and marketing, 357 in research and development, product
development and service operations and 105 in finance and administrative
functions. Lycos also employs 69 independent contractors for software
development, documentation, artistic design and editorial reviews. In addition,
our international joint ventures employ an additional 250 persons in Europe and
Asia. None of our employees is represented by a labor union and Lycos considers
its employee relations to be good.
Properties
Lycos' corporate headquarters is located in Waltham, Massachusetts. We also
have principal operating offices in New York City and San Francisco. We also
maintain sales offices in Atlanta, Boston, Chicago, Dallas, Los Angeles, Miami,
New York, Philadelphia and San Francisco. We expect that we will need additional
space as we continue to expand our business and believe that we will be able to
obtain additional space as needed on commercially reasonable terms.
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Lycos maintains substantially all of its computer systems in the
California, New Jersey and Massachusetts sites of Exodus Communications. Lycos'
operations are dependent in part upon its ability to protect its operating
systems against physical damage from fire, floods, earthquakes, power loss,
telecommunications failures, break-ins or other similar events. Furthermore,
despite the implementation of network security measures by Lycos, its servers
are also vulnerable to computer viruses, break-ins and similar disruptive
problems. The occurrence of any of these events could result in interruptions,
delays or cessations in service to users of our products and services which
could adversely impact our ability to operate our business.
Legal Proceedings
In February 1999, Lycos announced its intention to enter into a transaction
with USA Networks and certain affiliated companies pursuant to which, among
other things, Lycos would have been merged into a subsidiary of USA Networks. In
May 1999, the parties to the proposed transaction terminated the proposed merger
by mutual agreement.
Prior to the termination, eight purported class action lawsuits were filed
in the Court of Chancery for the State of Delaware in and for New Castle County
by shareholders of Lycos allegedly on behalf of all common stockholders of
Lycos. The complaints requested, among other things, that the proposed
transaction be enjoined or that rescissionary damages be awarded to the
purported class and that plaintiffs be awarded all costs and fees, including
attorneys' fees. Since the proposed merger was terminated, the suits have been
inactive. We believe that the allegations in the complaints are without merit
and, as a result of the termination of the proposed merger, are now moot.
Also prior to the termination of the proposed merger, certain purported
securities class action lawsuits were filed in the United States District Court
for the District of Massachusetts. The suits, which have since been
consolidated, allege, among other claims, violations of United States securities
laws through alleged misrepresentations and omissions relating to the announced
transaction with USA Networks. The consolidated complaint seeks an unspecified
award of damages. We believe that the allegations in the consolidated complaint
are without merit and intend to contest them vigorously. On October 22, 1999, we
filed a motion with the court to have the lawsuit dismissed for failure to
adequately allege violations of the securities laws.
In November 1999, AIWF Trust, a former shareholder of WiseWire Corporation,
filed a lawsuit in the Court of Common Pleas of Allegheny County, Pennsylvania
against WiseWire, representatives of former shareholders of WiseWire, and Lycos,
as WiseWire's alleged successor in interest. In this lawsuit, AIWF Trust alleged
that pursuant to a 1996 subscription agreement between AIWF Trust and WiseWire,
AIWF Trust was entitled to 2,500,000 million shares of WiseWire common stock
instead of the 25,000 shares it received. AIWF Trust seeks the equivalent of
2,500,000 shares of WiseWire common stock in Lycos common stock, which amounts
to approximately 748,000 shares of Lycos common stock. Lycos believes that the
allegations in the complaint are without merit and intends to contest them
vigorously. In addition, Lycos has asserted a claim against the escrow deposit
created in connection with Lycos' acquisition of WiseWire, which currently
contains approximately 329,000 shares of Lycos common stock.
<PAGE>
36
LEGAL MATTERS
The validity of the shares offered will be passed upon by Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts, counsel to Lycos.
EXPERTS
The consolidated financial statements of Lycos at July 31, 1999, 1998 and
1997 and for each of the years in the three-year period ended July 31, 1999,
incorporated in this prospectus by reference to Lycos' Annual Report on Form 10-
K for the year ended July 31, 1999 and the Form 8-K/A filed with the SEC on
January 4, 2000, and the consolidated financial statements of Wired Ventures,
Inc. at December 31, 1998 and 1997 and for each of the years in the three-year
period ended December 31, 1998 incorporated by reference to the Form 8-K filed
with the SEC on July 15, 1999, have been audited by KPMG LLP, independent
auditors, as set forth in their reports thereon included therein, and are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
