Terra Lycos: Profiting from Information Products

INSEAD

05/2003-5108 This case was written by Theodoros Evgeniou, Assistant Professor of Information Systems, at INSEAD, based on public material and on the earlier case Terra Lycos: Creating a Global and Profitable Integrated Media Company written by Patricia Reese, Research Associate, under the supervision of Soumitra Dutta, the Roland Berger Chaired Professor of E-Business and Information Technology, and Theodoros Evgeniou, Assistant Professor of Information Systems, all at INSEAD. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

N.B. PLEASE NOTE THAT DETAILS OF ORDERING INSEAD CASES ARE FOUND ON THE BACK COVER. COPIES MAY NOT BE MADE WITHOUT PERMISSION. INSEAD 1 5108

On a bright mid-September morning in 2002, Rafael Bonnelly, Terra Lycos’ vice-president of content management, was examining the traffic and revenues from his company’s websites. The message was clear: visitors to his portal spent most of their time in ‘user generated’ sites, such as chat rooms, personal web hosting, email, etc, which, unfortunately, generated very little, if any, revenue per visitor. Although the ‘Terra generated’ content, such as news and music sites that Bonnelly’s global team spent its time and budget creating yielded higher revenues per visitor, it attracted less people, for less time, and for not enough revenues. The goal was clear: have Terra’s customers visit Terra generated sites more often while at the same time make them pay more for all sites and services. And therein lay the problem: How does one get customers to pay for a service which was previously free, and remains so on your own or competitors’ websites?

In the highly competitive and rapidly changing portal environment, contenders found themselves facing a clearly Darwinian challenge – adapt or risk extinction. In 2002, Terra Lycos trailed its three heavyweight contenders, AOL-Time Warner, Microsoft/MSN and Yahoo! Like all portals, Terra was suffering from a serious backlash in Internet advertising revenues, its key revenue source during the dot.com bubble. It was now time for major changes in its strategy and business model if the company were to become a top-tier player in the international portal market…or even survive. By reviewing the evolution of the portal environment with its successes (AOL and Yahoo!) and failures (Snap.com and Excite@Home), what lessons could Terra Lycos extrapolate in developing its new strategic focus? What kinds of revenue streams should it explore to achieve positive earnings as quickly as possible? What hurdles would it need to overcome towards this direction? How could it create new revenue sources in an industry where ‘free’ was traditionally the ‘secret’ reality?

Creating Terra Lycos

It was the Big Bang of the Internet industry: the announcement on 10 January 2000 that America Online, Inc. (AOL) was merging with Time Warner, Inc. to create a multi-brand media and communications behemoth. The new company would have more than US$30 billion in combined revenues with diverse online and offline brands such as AOL, Time, CNN, Warner Brothers, Netscape and Looney Tunes.

While growth by acquisition was not new in the Internet world, the sheer size and breadth of the AOL-Time Warner deal threatened to completely reshape the Internet portal landscape in one masterstroke. What would such a deal mean for independent companies like Yahoo! and Lycos?

A mere month after the merger, representatives of Terra Networks approached Lycos’ CEO Bob Davis about joining the two companies. The first meeting in February 2000 between Davis and representatives of Terra Networks did not go well. Davis recalled slamming the door after only 15 minutes when he realized that Terra was interested in buying out Lycos, not in establishing a joint venture as he had been led to believe.1 Yet Terra persisted, eventually

1 Davis, R. (2001) Speed is Life: Street Smart Lessons from the Front Lines of Business, New York: Doubleday.

Copyright © 2003 INSEAD, Fontainebleau, France. INSEAD 2 5108 getting Bertelsmann Chairman and CEO Thomas Middelhoff, a friend of Davis, to bring him back to the table. Terra also brought in some very big guns – its Spanish telecommunications parent, Telefónica, which had net profits of €2.5 billion and billed more than €28 billion in 2000.

By 16 May 2000, the parties had hammered out a US$12.5 billion stock deal, which closed on 27 October 2000 at US$6.5 billion due to their sagging stock prices. Telefónica promised a rights offering that would give the new company €2.2 billion in operating capital – some of the deepest pockets around for an Internet company – and gave Terra a 49% stake in a new wireless joint venture called Terra Mobile, together with Telefónica Móviles, the mobile subsidiary of Telefónica. (Terra’s stake in Terra Mobile dropped to 20% in January 2002.) Bertelsmann agreed to a five-year US$1 billion deal to make checks out for advertising and services to Terra Lycos. The German media company also gave Terra Lycos exclusive access to its content, including BMG artists like pop star Christina Aguilera and Random House authors Louis L’Amour and Danielle Steel.

The deal was positively viewed as it combined Terra’s obvious strength in Latin American markets, the deep pockets of Telefónica, and access to one of the world’s largest wireless networks, with Lycos’ brand name, online properties, strong US presence and positive bottom line. Touting itself as the newest global media company in the world, Terra Lycos could boast of operations in 42 countries and 19 languages by late 2002. It controlled 142 websites reaching 120 million unique users, who racked up on average 368 million page views per day in late 2002. The total number of subscribers jumped from one million to just under seven million. Terra Lycos was now ready to take on the market leaders. “It makes it a real equal of the Yahoos of the world and a great near-equal for AOL,” noted one shareholder.2 Terra Lycos now had ambitions to become a real equal of the top three portals in actual numbers, too. The goal became winning the portal war and capturing the lion’s share of the portal market.

A Brief History of Portals and the Portal Wars

A portal is defined as “a site that aggregates an array of content and offers a range of services to be the home page for as many users as possible.”3 With already more than 2.85 million websites online in 1998,4 portals early on became extremely popular because they gave surfers a coherent view of the web and provided them with tools, like search engines, online shopping and free email. Revenues generally spring from one of the following sources: advertising (Yahoo!, Lycos), subscriptions (AOL), or e-commerce (Amazon.com).

There are two categories of portal: horizontal (Lycos, MSN and Yahoo!) and vertical or ‘vortals’, which cover specific industries or demographic groups such as Raging Bull for

2 “Lycos, Terra Complete Merger,” Bloomberg News. 27 October 2000. Quote from Brian Grove, a principal at Vaughan Nelson Scarborough & McCullough.

3 Hu, J. “Racing to the Start Line,” CNET News.com, 14 May 1998.

4 “June 1999 Web Statistics,” Online Computer Library Center, posted on the SIMS website at the University of California at Berkeley. http://www.sims.berkeley.edu/research/projects/how-much- info/Internet/wwwdetails.html.

Copyright © 2003 INSEAD, Fontainebleau, France. INSEAD 3 5108 finance or iVillage for women. The development of the first portal is generally attributed to Jerry Yang and David Filo, who created ‘David and Jerry’s Guide to the World Wide Web’ in January 1994. Within five months, more than 100,000 people had accessed the guide of these two Stanford doctoral students. Yahoo! and the portal business model were born.5

The beginning of the portal wars can be traced to 1998 when companies started taking note of the huge profits that portals like Yahoo! were raking in. Yahoo’s net revenues for 1998 (US$203.3 million) had tripled over the previous year.6 Soon other online and offline companies such as Disney, NBC and Microsoft followed suit – some more successfully than others. In mid-1997 Netscape decided that if it was receiving more than 100 million hits per day, then it had a good incentive to create its own portal.7 (Netscape is now part of AOL- Time Warner.) Disney got into the act by developing Go.com, which it closed down in January 2001, and Microsoft decided to realign its Internet strategy throwing more than US$1 billion in marketing behind msn.com in October 2000.

So why were so many portals battling it out? Pure economics was the major driver. “There’s always been the belief that more of the prize goes to the dominant player and that there’s a huge reward for being number one,” said Andrea Rice, a research analyst at Deutsche Bank Alex Brown. “What those people who are not AOL or Yahoo! are struggling with is that the gap is so vast, and more vast than they had expected.”8

Reworking Terra Lycos’ Business Model: In Search of New Revenue Streams

The first priority of Joaquim Agut, a former General Electric executive and now executive chairman of the newly-formed company, was pushing Terra Lycos into the black. While 2000 was a spectacular year for Terra Lycos with an 87% increase in revenues and 336% more subscribers,9 the tech bubble continued to deflate. Advertising revenues sunk, and given that the Terra Lycos’ revenue mix was heavily advertising-dependent (to the tune of 75% with the remaining 25% coming from its ISP business), the company was hard hit by the downturn. The newly combined company’s share price kept heading south, dropping from a high of US$27.12 to a low of US$4.50 between October 2000 and 2001, remaining around US$4.50 thereafter. In June 2001 the Financial Times named Terra Lycos the second worst performer of 2000, with a negative shareholder return of minus 87%.10

5 “The History of Yahoo! - How It All Started,” http://docs.yahoo.com/info/misc/history.html, 2 August 2001.

6 Yahoo! 1998 Annual Report, p. 15.

7 Cusumano, M.A. and D.B. Yoffie (1998) Competing on Internet Time, New York: The Free Press, p. 37.

8 Hu, J. “Is There Room for Sites Other Than AOL or Yahoo?” CNET News.com, 27 April 2000.

9 Terra Lycos, Annual Report 2000, p. 9.

10 Martin Dickson, “European Performance League 5: Lack of strategic focus among the also-rans: Poor performers,” Financial Times, 29 June 2001, p. 5 (surveys).

The company needed to introduce and exploit new online and offline revenue streams as quickly as possible, but which ones? Like other portals, it had been exploring all possibilities: upgrading content, broadband services, mobile portals, subscriptions, iTV, offline media, and e-commerce. Some of the possible revenue streams looked promising, but it was like putting your chips on the table before the roulette wheel spins; each number looks good until the ball drops. Bonnelly believed Terra Lycos’ best hope was in reaching that sweet spot, or intersection, between customer relationship management (CRM), business and brand objectives. “If we are able to execute on these three, then we stand a chance of breaking into the majors,” he stated.11

Is Paid Content King?

So far very few sites – apart from sex sites – were actually charging for content. Of those non- sex sites that were doing so, such as Consumer Reports12 and wsj.com, Dow Jones’ online version of the Wall Street Journal,13 very few seemed to be pulling in a profit. As Bonnelly remarked:

“We see our role as making your offline life easier. If we make it easier for you, then you are probably going to pay…Content is what helped AOL to become a huge corporation, out of reach in terms of its revenues. No other entity can generate those kinds of numbers—not even Yahoo.”14

AOL’s market dominance and continued ability to generate revenues in the face of flagging advertising had other portals looking to follow in its footsteps. AOL borrowed the subscription concept from cable companies that succeeded in getting people to pay because their programming was considered ‘premium’ vis-à-vis the free channels and thus, worth paying for. Terry Semel, CEO of Yahoo! commented: “There’s lots of great programming on CBS and NBC for free…Yet many people pay to watch ‘The Sopranos’ [HBO’s TV series on the mob].”15

Nonetheless, the difference between charging for a few extras and actual monthly billing (and revenues) is like the difference between using a computer that runs on a 386MHz microprocessor and one running at 2GHz. And others were already starting to follow AOL’s lead: Yahoo! was introducing more paid services, and Terra Lycos was looking at a similar cable strategy.

11 Rafael Bonnelly, Classroom presentation, INSEAD, Fontainebleau, France, 29 May 2001.

12 Mullaney, T.J. “Sites Worth Paying for?” Business Week, 14 May 2001.

13 Olsen, S. “If you post it, will they pay?” CNET News.com, 29 March 2001.

14 Bonnelly, Classroom presentation.

15 Stone, B. “Learning the Ropes,” Newsweek, 30 July 2001, p. 31.

Shopping Around: Vertical Acquisitions and Developing e-Commerce Capabilities

In terms of content development, Terra Lycos was also buying stakes or launching new companies in areas where it did not necessarily have all of the required expertise, but could add value in the form of its Internet capabilities. Such was the case with Uno-e, an online bank started by Banco Bilbao Vizcaya Argentaria (BBVA), one of Spain’s leading banks, in which Terra owned a 49% stake. Uno-e served 149,000 clients in Latin America and Europe as of September 2002.16 Other examples of the company’s strategic partnerships and launches included its travel holdings: a 55% stake in the US booking site OneTravel.com17 and a 50-50 JV in the Latin American travel site Rumbo (with Amadeus, the travel technology provider owned by Air France, Lufthansa and Iberia). Terra Lycos was also moving into B2B car sales with BBVA, and B2E (business-to-employee) e-business centers offering administrative functions to small and medium-sized enterprises, with Emplaza. This latter was a joint venture with software company Meta 4, with Terra having 80% of the JV since July 2002. Here, it is clear that Terra Lycos was not just interested in content but also in converting its users into online customers.

Prior to the merger, both Terra and Lycos were on the buying path, aggressively scooping up properties (Exhibit 4). Terra acquired nine properties in a little over a year and Lycos, seven, between January 1998 and August 2000. While Terra Lycos had a healthy cash position of €2.2 billion, the buying spree was calmed somewhat by an obsessive focus on its return to profitability.

Agut told shareholders that Terra was interested in vortals specializing in finance, travel, real estate and entertainment, “I am only interested in acquiring an audience that I can turn into paying clients…Vertical portals that add content or technology, or that sell services, are more important for me than page hits or viewing figures.”18 For example, the company acquired Raging Bull for US$10 million in January 2001 and Quote.com when it merged with Lycos. These two financial sites boosted Terra Lycos’ content in an area (personal finance) where user-generated income was high. These vortals would help differentiate and fill the gaps in Terra Lycos’ content, making it more attractive to paying customers. And once the ad market recovered, Terra Lycos would have another advantage, as the new industry trend was towards advertising on vortals and other niche markets.

While Terra Lycos considered its launches and acquisitions as a factor driving growth that diversified and strengthened its bottom line, there were inherent difficulties to it, such as: switching acquired companies over to the same platforms and software; resolving branding issues; getting new employees from different countries to embrace a single company culture; and trying to create a coherent range of services…to name but a few. For example, recent acquisitions meant that the company suddenly found itself juggling four different content management systems. It acquired and started installing a global content management system in June 2001.

16 Uno-e website press release. 8 November 2002.

17 OneTravel.com website press release, 12 March 2001.

18 Crawford, L. and R. Waters, “Terra Lycos signals shift in US strategy,” Financial Times, 7 June 2001, p. 31 (London 2nd ed.).

Offline Brand Extensions

Terra Lycos was also looking at how to extend its brands in the offline world: “Can we take these brands we have developed on the Internet and put them everywhere else?” Bonnelly asked. Why should the company limit itself just to those consumers who have Internet access?

Terra was looking to emulate experiences like Endemol’s ‘Big Brother’ show. This widely syndicated reality TV program had spun off merchandise, video, magazines, games, websites, wireless applications, and so on. In fact, Terra Lycos was working on creating magazine, radio and television shows for its online personals service, Matchmaker.com. The company also published print magazines such as Punto Net in Chile and Lycos Business Magazine in Spain.

Co-branding was another revenue-generating possibility. Bonnelly pointed out that by co- branding a website with Endemol’s Argentinean version of Big Brother, Terra Lycos moved up from the number six to the number two spot in the country. “The Internet is only one more distribution channel for brands, and it is the relationship of users with these brands that will create value,” he said.19

What about the Customers?

In making the customer number one, Agut’s blue-chip background proved extremely useful. One of his first acts to get the company on track was to introduce Terra Lycos managers to ‘old economy’ standardized tools and measures to contain costs and increase revenues. The most far-reaching of these was Six Sigma, a ‘highly disciplined process’ embedded in the culture of his former employer, GE: “The central idea behind Six Sigma is that if you can measure how many ‘defects’ you have in a process, you can systematically figure out how to eliminate them and get as close to ‘zero defects’ as possible.”20 (Exhibit 2)

The CRM-Six Sigma process placed the customer at the heart of its analysis “to satisfy customer needs profitably.”21 The methodology started with a DFSS, which defined the product or process, with an emphasis on collecting data from the customer’s viewpoint. Once the data was analyzed, a ‘business case’ was written, in which defects were defined and improvements were proposed. Then the phase of quantitative data collection began. Analysis of the data collected should reveal ‘variances’ or changes in process or business practices. Only then could the company begin working on the improvement of the process or product in question. When as many defects as possible had been eliminated, quality control measures were put in place to monitor the product or process improvements and ensure continued savings.

This customer focus was expected to allow the company to create specific offers for targeted consumer groups like the Spanish MTV site for teens, interactive games like Banja

19 Bonnelly, Classroom presentation.

20 http://www.ge.com/sixsigma/makingcustomers.html, 16 October 2001.

21 Terra Lycos presentation, “DFSS (Design for Six Sigma) for e-Business,” September 2001, p.3.

(http://banja.terra.es) for teens and males aged 18-35, personal finance offers for adults, etc. This attention to process-related development differed vastly from the frenzied, undisciplined growth-at-all-costs approach that many start-ups and established companies seemed to adopt at the height of the dot.com craze.

Reality Bites: How Do I Brand Thee?

One of the company’s first acts was to appoint a task force in September 2000 to consider the issue of branding. A strong brand allowed portals to distinguish themselves from the competition, pull off successful brand extensions and bring in revenues by charging for what would be free if provided by a weaker brand. Yahoo! was a clear example where branding had helped it to become not only one of the world’s most recognized brands, but also maintain its leading market position.

In terms of branding, the news was good and bad for Terra Lycos. In bringing the two companies together, it wed the Lycos brand, well known in the US and European markets, with the Terra brand strong in Latin American and Hispanic markets. Yet the branding strategies the two companies used prior to the merger differed greatly, and one of the company’s biggest challenges had been working out how to combine the two.

Prior to the merger, Lycos followed a multi-branded ‘network’ approach, offering a variety of stand-alone brands. It bought diverse properties, leaving the new properties with their original names. Thus Lycos increased its offering, while hoping to retain surfers within its network: “The Lycos Network combines the best aspect of the network television model – its incredible reach – with the best aspects of the cable television model – its terrific audience segmentation – and puts those assets into the far more trackable, more accountable framework for the web.”22 But this approach never really seemed to work.

One analyst noted, “Lycos was a victim of their own strategy because they never did figure out how to integrate all those properties they bought. Lycos ended up with seven or eight different brands, some of which were directly competitive with each other. They never presented a clear vision.”23 While Lycos claimed that it had a 95% recognition rate among web surfers,24 no one was really sure what the brand stood for: “[Lycos] doesn’t mean anything to consumers, but it does mean something to advertisers. But it can’t survive on one side of that equation. They must unify both sides of the equation,” said another analyst.25

22 Lycos Press Release, “Lycos Acquires Wired Digital,” 6 October 1998, http://www.lycos.com/press/wired.html.

23 Ince, J. “Portals: Who Gets the Bigger Slice?” Upside, March 2001, 13, 3, pp. 166-174. Quote from Barry Parr of International Data Corporation.

24 Terra Lycos, Annual Report 2000, p. 13

25 Hu, J. “Is there room for sites other than AOL or Yahoo?” CNET News.com, 27 April 2000. Quote from Charlene Li of Forrester Research.

Another lamented that the Lycos brand “certainly has not achieved as much of a brand appeal and unique sensibility as Yahoo! or America Online.”26

Terra, on the other hand, took an umbrella approach, rolling its multiple brands into the Terra fold. This was the strategy Yahoo! used to build its brand into the most recognizable name on the Internet. Tim Koogle, Chairman and CEO of Yahoo! (January 1999 to April 2001) noted: “Some of our competitors, like Lycos, Infoseek, and Excite, built an array of fragmented brands, and they never reach critical mass. We built a big consumer base and then extended off of that. Comprehensiveness and integration of services under one consistent brand is hugely powerful, and it drives serendipitous consumption.”27

Terra Lycos was slowly moving towards an overall brand strategy that it hoped would help monetize its users. As brand manager Pablo Aranguren remarked, the company wanted to reduce its current number of 16 brands to around three.28 He pointed out that a study found that most Tripod users were unaware that it was owned by Lycos, so having a multi-brand network provided little value to the master brand. The same study also concluded that the Terra brand was almost unknown outside of Latin American markets, and that the Lycos brand was clearly seen as a second-tier brand.

One of the biggest outcomes of the new branding strategy was the company’s decision to redesign the Lycos website. Code named ‘Project Genesis,’ the redesign was launched in October 2001 and it gave Lycos more of a Terra look. The new design also promoted the company’s open-basic-premium (OBP) cable-type content strategy.

Conclusion: Some Progress but the Road Remains Uncertain

In its move from pure play to a multi-integrated channel, Terra Lycos’ central aim was to break into the top-tier of portals dominated by AOL-Time Warner, MSN and Yahoo! In comparison to its rivals, the company felt closest in match to MSN, but wanted to add in the financial power of a captive subscriber base like AOL. MSN acted as a showcase for Microsoft products, developed proprietary technology such as its Instant Messenger and Explorer browser and had big bucks to throw behind its marketing. Terra Lycos wanted to do the same type of cross marketing and selling on its sites and also had a large cash pile, thanks to Telefónica, to carry it through. AOL was envied for its subscriber base, which had 30% of the US market in late 2002, worldwide brand recognition, and could engage in offline promotions and draw from enormous media resources thanks to its acquisition of Time Warner. Like Yahoo!, which was expanding in the corporate marketplace through Yahoo! Corporate Portals (US$60 million in revenues in 2000), Terra Lycos was also looking to new marketplaces such as B2B and B2E.

26 Andrews, W. “Commentary: What does Lycos offer Terra Networks?” (Gartner Viewpoint), CNET News.com, 16 May 2000.

27 Ince, “Portals: Who Gets the Bigger Slice?”, Upside, March 2001, 13, 3, pp. 166-174. Quote from Barry Parr of International Data Corporation.

28 Pablo Aranguren, interview, Madrid, Spain, 17 September 2001.

Off to a rough start initially, Terra Lycos had tightened up the ship, bringing in former GE executive Joaquim Agut to guide the company through this crucial period. In adapting ‘old economy’ tools to this ‘new economy’ company, Agut was pushing cost-cutting and revenue diversification to reach the ‘can’t-miss’ goal of positive EBIDTA in 2002. Yet given that innovation in the portal environment is quickly followed by imitation, what kinds of revenue streams would prove most useful in helping Terra Lycos to distinguish itself from its competitors? What ‘old economy’ lessons and ‘new economy’ examples would prove useful to overcome the hurdles on the way to profitability? Though the company had a strong cash position and the best geographic positioning, it still trailed the Big Three, AOL-Time Warner, Microsoft/MSN and Yahoo! in market reach, branding recognition and, most importantly, profits.

Exhibit 1 Competitive Analysis of Paid Services in 2001

Paid Services Lycos Yahoo AOL MSN Terra P = Paid, F = Free Search Spidering F P P P Personal Publishing Web page building F P P P Web pages – extra disk F P F Web pages – html tools F P F Email extra disk F P F F F Entertainment Video F F F F Online personals P F F P F Music downloads P F F Online gaming F F P F F e-Books P Business and Finance Finance/quotes P P P Small business services F P P P F Small business directory F P F F Business cards P P P P2P payment F P P P Bill payment F P P P Funds transfer F P P P Domain registration P P P F Access and Communication Mobile services P F ISP P P P e-Commerce Auctions P P P P P Reserve auction P Travel P P P P P Careers P P P P F Consumer reports P Source: Adapted from Terra Lycos, internal documents, 2001.

Exhibit 2 Six Sigma

Developed by Motorola University, Six Sigma29 is a highly disciplined, customer-oriented quality process designed to eliminate product and process defects, with the aim of getting as close to ‘zero defects’ as possible (3.4 defects per million opportunities for each product or service). Six Sigma is used by companies such as General Electric (GE), Motorola and Nokia. GE first began using Six Sigma in 1995, and it is estimated that the company saved more than US$10 billion in the first five years it was implemented. GE proclaims “Six Sigma has changed the DNA of GE—it is now the way we work—in everything we do and in every product we design.”30 The methodology was introduced into Terra Lycos as soon as Joaquim Agut, a former GE executive, took the reins in August 2000.

The Six Sigma methodology merits its own dictionary. It has generated terms such as DFSS (Design for Six Sigma), DMADV (Define, Measure, Analyze, Design, Verify) for new product development or DMAIC (Define, Measure, Analyze, Improve, Control) for improving an existing process or product. It is a ‘full-company’ experience, leaving no department or service untouched and requiring intensive employee and management interaction. It achieves this through the use of ‘Black Belts,’ team leaders who work full-time on the project and ‘own’ the process. The methodology is flexible, and companies can adapt it to fit their particular industry and specifications. Results are linked directly to financial savings and/or consumer satisfaction.

Terra Lycos has adapted Six Sigma throughout the company. Examples of projects where it has been used include: new e-business introduction, next generation improvements on existing web services, B2C, B2B and B2E projects and electronic networks.

For Terra Lycos, DFSS31 means: 1. Identifying key customers by segments. 2. Conducting customer research and data collection. 3. Specifying CTQs32 customer requirements. 4. Measuring current performance and competitors. 5. Prioritizing, analyzing and implementing new features.

29 Sigma, the 18th letter of the Greek alphabet, is a statistical term measuring process performance. 30 http://www.ge.com/sixsigma. 31 Terra Lycos, internal presentation, “DFSS Design for Six Sigma for e-Business,” September 2001, p. 8. 32 CTQ or Critical To Quality is a measurable customer-performance requirement key to his or her perceived quality.

Terra Lycos – DFSS Model for e-Business: DMADVM33

MGPP = Multi-Generational Product Plan means: Do as much right as possible the first time (Generation 1), improve later adding new features (Generation 2) and then add more features (Generation 3).

QFD = Quality Function Deployment is a document that converts the VOC (Voice of the Customer) into technical requirements.

For more information on Six Sigma, consult the following websites: http://www.isixsigma.com or http://www.ge.com/sixsigma.

Define Measure Analyze Design Verify Measure

yBusiness yIdentify yIdentify yDevelop yExecute yGather strategy existing and prioritize business and and customer yDevelop markets functions technology evaluate needs yCTQs for e-business design pilot ySpecify model design ySpecify yPrepare pilot yLaunch CTQs yMGPP yReview technology plans yCollect yImprove/ and project CTQ targets components customer redesign plan for ySelect feedback service Generation 1 development yDevelop options Generation 2 plan

MGPP QFD & Benchmarking QFD & Benchmarking

33 Terra Lycos, internal presentation, “DFSS Design for Six Sigma for e-Business,” p. 12.

Exhibit 3 Paid Content Viability Analysis

Terra Lycos uses the Paid Content Viability Analysis (developed in collaboration with Jupiter Media Metrix), a leader in the measurement and analysis of the Internet and new technologies on commerce and marketing. Instead of taking a stab in the dark as to what content should be developed, dropped or revamped, the company uses the index to gather and process quantitative data allowing it to make strategic decisions on how to use the content. The index defines and measures three areas: content, market, and financial attributes.

In content attributes, the index gauges the proposed content’s enrichment value (the customers’ perception of how the content will improve their lives), its quality, its exclusivity (whether similar online content exists and at what price) and its entertainment value. The index also takes account of the market through the size of the potential audience and its discretionary budget and financials in discerning the costs for staff, marketing, technology, production, potential for cannibalization on and offline). The net value assesses the content’s inherent qualities: whether it is searchable, its instantaneity, its special depth, its absences of geographic and temporal limits, and whether it facilitates interaction and a sense of community with authors or like-minded consumers.

Content Attributes Net Market Financial Value Attributes Attributes Enrichment Content Content Entertainment Audience Potential Synergistic Financial value exclusivity quality value discretionary market potential feasability budget size Weighting 2 1.5 1 .5 1-3 2 1 1 1 Score A B c d e f g h Weight x 2a 1.5b 1c .5d 2e 1f 1g 1h score

2a+1.5b+1c+.5d = A 2e + 1f = B 1g + 1h = C

x A N.V. + B + C

The index yields a total which then determines the prospects for the content: 10-20 = low near-term prospects 20-30 = fair near-term prospects 30-40 = good near-term prospects 40-50 = very good near-term prospects 50-60 = excellent near-term prospects

Once the content has been analyzed, Terra Lycos can integrate the content into its OBP (open, basic and premium) plan. Content with low promise will be integrated into the open or free plan, content with medium promise into the basic plan (flat fee payment) and the high promise into the premium plan (most profitable).

So, for example, in analyzing its personal publishing offering, Terra Lycos finds that it yields an overall potential total of 45.66, indicating that it has very good near-term prospects. However, the company’s current offering only reaches 39.46, meaning that it still has the potential to increase the viability of its product, and hence its value to a paying audience. The rating of 45.66 indicates that personal publishing is a high-end, lucrative product that should be included in Terra Lycos’ premium plans.

Exhibit 4 Examples of Terra Lycos Products and Offerings

With its incredible financial resources, Terra Lycos was expected to go on a buying spree following its merger in November 2000. While the new company did scoop up five properties between November 2000 and January 2001, the spree was soon cut short by the company’s focus on attaining positive EBITDA.

Launch or Product or Service Description Acquisition Angelfire.com* Aug. 1998 Web community Banco Uno-e Jan. 2000 Online banking services in Europe and Latin America Banja Dec. 1999 Online community interactive game for teens. Had 32,000 registered users in Feb. 2001. Bumeran.com Dec. 2000 Latin American career site CIERV July 1999 Designs communications products (web pages, intranets, virtual communities) Disney Blast June 2000 Latin American children’s site, featuring interactive games, songs and videos Gamesville.com* Nov. 1999 Interactive gaming site Lycos 411 April 2001 US service where operators provide mobile users with information and can send emails Iberwap Jan. 2001 Mapping service Ifegenia Plus June 2000 Virtual education and cultural content portal LYCOShop* Oct. 1999 Online shopping, e-commerce Magazines (print) Punto net (Chile), Lycos Business Magazine (Spain), etc. Matchmaker.com* June 2000 Personal classified ads Myrice.com (Lycos Asia) Jan. 2001 Chinese portal, one of China’s 20 most popular sites OneTravel.com Nov. 2000 Number four travel booking portal in US Ordenamiento de Links Especializados April 1999 Internet search engine (Olé) Quote.com* Dec. 1999 Multimedia financial vortal. Also transmitted via iTV with jagfn.tv Rumbo.com March 2000 Online travel agency serving Spanish and Portuguese-speaking markets Raging Bull Jan. 2001 Financial services site Sonique* Aug. 1999 MP.3 player Terra Networks Intangibles July 2000 Provider of Internet services Tripod* Feb. 1997 Personal-page builder, web community Virtual studios n.a. Offer complete audio and visual production. Transmit around 400 live events per day Wired Digital (Hotbot, Webmonkey, July 1999 Comprises a search engine, developer’s Hotwired, Suck.com, WiredNews)* news, tech news, and commentary Whowhere* Aug. 1998 Online directory *Acquired through Lycos merger.

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