Lycos U.S. Changes...Everything

In two dramatic announcements this week, Lycos U.S. said it will shed its portal strategy to become a vast social network; the company also inked a 5-year deal with 24/7 Real Media to outsource display ad sales, ad serving and analytics for its Internet properties.

“This is totally an untapped space. We’ll enter the market already in the leadership position because of where we’ve been,” said Mark Stoever, executive vice president of Terra Lycos, U.S., of the company’s new direction.

He stressed the new business model capitalizes on the company’s experience in online publishing, dating and search. “Lycos will be the first to bring together the entire spectrum of ways people connect online,” he noted.

Lycos says the revenue potential for its new model lies in subscriptions and contextually targeted ads. Google provides contextual ads for Lycos through a deal with its parent, Terra Lycos .

The company plans to relaunch its homepage in two weeks as a “hub for personal connections.” That’s step one in a phased rollout with a corresponding national advertising campaign. Lycos search will emphasize enabling users to navigate between various professional, personal, family, business and affinity sites.

The company hopes to convert users into paid subscribers of premium sites or to bundled packages of sites and services. Stoever wouldn’t comment on specific prices or packages, but indicated the company will experiment with multiple models to see what works.

The company also hopes building cores of audiences around various niche sites will attract advertisers.

Social networks have been a growing online phenomenon. Currently, there are over 100. There’s been a pronounced lack of consensus whether, or if, there’s a business model in aggregating such communities. Many enthusiasts belong to multiple networks for business, friendship, dating and other purposes. Lycos hopes its large network of sites will attract users who want to join only one online community that offers multiple affinity groups.

Stoever is confident Lycos can platform a dating customer into a subscriber to job, health, finance, family, or other categories Lycos is a player in, as well as encourage them to use the company’s Web services, including site building and Weblogs. “We’re excited by our progress in building a subscription business, but not at expense of advertising,” he said. “We’re building an audience that advertisers want to reach as well.”

Jupiter Research Advertising Analyst Gary Stein expressed skepticism, “Subscription-based to boost revenues? That’s a tough path,” he commented. “Everyone else claimed great results, a rebound in online advertising: Yahoo, AskJeeves, DoubleClick and aQuantive. [This] makes it seem that they weren’t able to catch any part of the next wave.”

Sites in Lycos’ U.S. network include Angelfire.com, Atrea.com, Azeler.es, Educaterra.com, Gamesville.com, HotBot.com, Ifigenia.com, Invertia.com, Lycos Zone, Maptel.com, Matchmaker.com, Quote.com, RagingBull.com, Rumbo.com, Tripod.com, Uno-e.com and Wired.

As it focuses on building its new network, Lycos will outsource all display advertising sales to 24/7 Real Media, a windfall for the latter company that will represents an estimated $11 to $15 million in revenues the first year of the 5-year deal. The terms of the contract were not disclosed.

With 50 million U.S. unique monthly visitors, Lycos U.S. becomes by far the largest component of the 24/7 Web Alliance, currently comprised of over 700 sites with 11 million monthly unique visitors. With the addition of Lycos, the network becomes the Internet’s fourth largest media entity.

“Right off the bat we have a lot more to offer an advertiser than we did before,” said David Moore, chairman and CEO of 24/7 Real Media.

As part of the deal, 24/7 Real Media’s Open AdStream will serve ads to all Lycos U.S. properties. In addition, the company’s Insight XE analytics technology will provide analytics and enable behavioral targeting on Lycos sites.

“[The technology] will give us the ability to target audiences better than anyone except maybe some of the desktop media,” said Moore.

The extent of Lycos’ internal restructuring in the wake of today’s announcements is not yet clear. In addition to sales force reductions, the company says it will “de-emphasize” certain businesses not key to the new strategic direction, and reassign some current staff members. Stoever does not rule out closing of selling off some Lycos properties “On a case-by-case basis. We’re not going to be the leaders in auto, or real estate or travel.”