BOSTON (05/31/2000) - Tim Wright knows acquisitions. As the head of technology at CD-ROM publisher SoftKey (which later became The Learning Co.), he helped oversee more than 20 of them. Wright was also a central observer when toy maker Mattel Co. made its ill-fated purchase of The Learning Co., which was completed in May 1999. Wright's short stint at Mattel proved very practical; it taught him how not to handle an acquisition.
"I learned that above all else, you don't impose tight constraints from above, that you treat the staff you've acquired with respect and you keep the products shipping," he says. After several months at Mattel, Wright, a certified scuba diver and former mathematics lecturer at the University of West Indies in London, began to look for other challenges.
In November 1999, he found one when web portal network hub Lycos Inc. came calling. The fast-growing company based in Waltham, Massachusetts, was searching for its first CIO. "They were looking for someone with experience in acquisitions, someone who knew how to handle multiple staffs of skilled people and knew how to blend disparate pieces together," he says.
When it comes to acquisitions, some companies search for products, technologies and services that complement their current product line; the end result is that the acquired companies are swallowed whole. Networking equipment giant Cisco Systems Inc. often brings its acquisitions on board this way, blending them in completely and centralizing all operations. "It's hard to argue with the results Cisco gets," says Jonathan Poe, vice president and analyst in Stamford, Connecticut-based Meta Group Inc.'s executive directions program. "Their successes [in acquisitions] speak volumes," says Poe. This strategy is a particularly good one for Cisco because the company can integrate new offerings into its existing product line in an effort to provide customers with a broad set of tools. The skilled engineers Cisco acquires can continue to develop and advance the company's products even as they are added to the Cisco catalog.
THE POWER OF CONFEDERATION But as Lycos demonstrates, there's another way to go about the acquisition game. While Lycos is quick to centralize back-office operations such as human resources, payroll and accounting, the company goes to great lengths to allow its acquisitions to maintain their individual identities. Lycos is discovering that letting acquisitions live on works well, especially in the dotcom world where there are more independent-minded entrepreneurs than profits.
"In managing an acquisition, you're really looking for the sweet spot between centralization and complete autonomy," Poe says, adding that too much centralization can strangle an acquired company and cause an exodus among the creative people who've just been brought in. And in the dotcom world, where creativity is the currency on which websites live or die, losing top-quality, smart people can irretrievably harm a company's long-term prospects.
Lycos' strategy is to keep its acquisitions of internet-based companies in a loose confederation. This tactic is designed to keep the smaller companies nimble--and to keep the employees at those companies from jumping to greener, less restrictive pastures. For example, Gamesville.com, a gaming and entertainment site Lycos purchased in November 1999 for US$207 million, has continued to roll out timely new games, including college and professional basketball tournament contests that might have been held up completely if the company had been forced to meet several layers of bureaucratic approval. And instead of being threatened by the success of its acquisition, HotBot, Lycos allowed the search site to maintain its autonomy from the main Lycos search directory. By doing so, Lycos and HotBot are both among the web's top 10 search engines and together draw more visitors than a merger of the two would have.
At Lycos, it's Wright's job to weave the corporate technology pattern around acquisitions, to discover how best to use technology and the human and network resources to support the autonomous confederation of high-traffic websites Lycos has acquired.
LAYING THE GROUNDWORK When Lycos makes an acquisition, it does more than just sign an agreement. Wright wants to ensure that the acquired company keeps operating normally. "I talk to the company and make sure it understands we want it to run business as usual. I don't want to scare anyone, so I try to make [the employees] feel at home," he says. Doing so will begin to help assuage fears of customers and even employees who may think that everything will change under new ownership. This is particularly critical with internet businesses that derive much of their value from the caliber and size of their audience.
Wright also brings up some of the fringe benefits that come with an association with Lycos. "We let [the acquired companies] know right away that we can help them by redirecting our traffic to their site and recirculating traffic back their way," Wright says. Redirecting traffic can make a tremendous difference when you're talking about the Lycos network's 82 million average daily page views and 3.5 billion page views per month. By recently funneling and recirculating Lycos network site visitors to its new acquisitions, Lycos easily tripled the traffic on both the Gamesville.com and Quote.com sites, Wright says. This kind of traffic boost pays off handsomely in advertising revenue for the acquired sites.
Wright's soft sell approach doesn't go unnoticed by founders at acquired companies. "The first thing Wright said to us was, 'Keep doing what you're doing, and keep your product moving,'" recalls Stuart Roseman, CTO and cofounder of Gamesville.com.
Roseman has loved being an entrepreneur and enthusiastically says, "There's nothing like the excitement of building something yourself." And yet, the merger with Lycos hasn't dimmed this independent spirit. "How can being part of the fourth-most-visited network in the world be a bad thing?" he asks. "Has the size held us back, kept us from being nimble and responding quickly to challenges, has it somehow changed our entrepreneurial spirit? Not in any way.
We're still doing our own thing, and we're still focused on conquering the world. Being part of Lycos will allow us to do that more easily," he asserts.
PERSONNEL MATTERS No matter how big a welcome mat Lycos throws out, it's still not easy for other managers at acquired companies to give up control. After all, many have an emotional stake in their companies, having poured themselves into starting something from scratch. Wright is sensitive to the hand-holding that is often required. "What you find with [employees at] many startups is intense loyalty to the application they've built and to the people who are there," says Wright. "You have to be sensitive to that and try to harness the passion and the skills they have. Challenge them with work and responsibility and help them unleash their ideas."
One of the chief challenges in an acquisition is keeping the good people who have just been brought on board. The best way to do this is by giving them professional development incentives, such as added network management responsibilities, additional certification training and clear career paths and goals, things they may not have had at a startup. Competitive pay--not just stock options--will also likely be something they'll appreciate and something they may not have had in a small company.
Another, perhaps even larger issue may be finding a challenge for the founders.
"Incentivizing founders can be very difficult," says Wright. "They've just made a snot load of money and now they don't have to work so crazily anymore." While at Lycos, Wright has met founders who subsequently had little to do after being acquired because they were no longer controlling day-to-day operations. In some cases, Lycos has found that it's better to pay mavericks to walk away entirely than to have them stay on and grow frustrated. "In some situations, the sooner you can reach this path of least resistance the better," Wright says.
Another carrot Lycos dangles to acquired companies is removing the burden of administrative tasks. Wright sees to it that all the mundane, everyday worries--including traffic monitoring, router and firewall management, server administration, load balancing, database support and even legal services--are taken off the shoulders of acquired companies, leaving them to concentrate on site development. Doing this allows Lycos to have some administrative oversight of the new sites coming into its network, while gaining some economies of scale with its own suppliers.
But not every acquisition is suddenly given free run of the corporate candy shop. "We're a large network, and each [site] believes that it is the most important piece to us," Wright says with a sigh. "We're also profitable and want to stay that way, which means that there are resource limitations.
Sometimes I have to say no." Wright recalls explaining to other network divisions why he intended to spend marketing and promotional resources on newly bought Quote.com and Gamesville.com and not on their sites that had higher visitor counts; with greater growth potential among the newcomers, it made sense to invest in them.
MIX AND MATCH The Gamesville.com acquisition was exactly what Lycos was looking for--an innovative, sticky website that had found a way to get people to sign up for targeted e-mail direct marketing by tapping into their gaming and entertainment interests.
"We're now looking for [potential acquisitions with] deep content that holds viewers longer and that can also add to our financial results," says Ron Sege, executive vice president at Lycos. Both Gamesville.com and Quote.com, a September 1999 addition, have average user session lengths of more than an hour, and Gamesville.com's business model--built around sophisticated database direct marketing to registered users--was particularly enticing, both on a financial and technological level.
It's not just finances and technology that Lycos takes into account when contemplating an acquisition. "We want to make sure our cultures are similar" before taking on a new acquisition, says Sege. "If they're interested in the [site] user experience, if they've built a great infrastructure and if they either make money or have good potential for making money, they'll be a good fit."
The acquisitions planning starts long before Wright gets involved, but his expertise is called on to make sure Lycos isn't about to purchase a technology mess. In any acquisition, the CIO can look for potential trouble in several areas. If the fundamental business of the company is built on old technology and excising that creaky piece will cause the business to crumble, it's best to steer clear. Lycos particularly looks for outdated databases, software applications that have been too heavily customized, older operating systems and system components that have a history of not scaling well.
In its under-the-hood inspections, technology troubles caused Lycos to pull out of two potential acquisitions, Wright says. One of those companies has since gone out of business; the other is still independent.
FINDING THE BEST Another of the first things Wright does when Lycos makes an acquisition is sit down with the new teams and learn what they do well. "I want to know who we've just brought on board, what each individual's expertise is, what motivates him or her and where the core expertise of the company lays," Wright explains. In doing so, Wright determined that the network operations center run by Quote.com was just what Lycos needed for a corporate command network monitoring center. He centralized all network monitoring there and reorganized all of Lycos' disparate operations teams so that they now respond directly to this center rather than to a chain of command in their former company.
Along the same vein, Wright turned up a team of reporting experts who had joined Lycos when it spent $83 million to acquire Wired Digital in October 1998. The team had built a very scalable and robust reporting and data extraction process for Wired using Red Brick and Informix, so Wright put them to work as his core enterprise reporting team. Now all network management, product and traffic management, and financial reporting is centralized under this one group.
In addition to gaming expertise, the purchase of Gamesville.com brought on board many skilled database developers, since Gamesville.com's business model depended on tailored database marketing campaigns. Before the acquisition, Lycos had its own group already working on game community development. Wright quickly moved the best of that bunch in with Gamesville.com and pulled out Gamesville.com's best database experts to be part of a central database team.
This group now helps each portion of the Lycos network--from Angelfire and HotBot to GuestWorld, Tripod and WhoWhere--set up, refine and optimize its database resources.
Wright's knack for finding the best and the brightest is a skill that Lycos was looking for. "When Lycos approached me initially, they were quite vague about what they needed," Wright recalls. "They said, 'We know we need help building a reliable, scalable infrastructure, and we don't know how to leverage the skills we have on board. Can you do that?' To accomplish that, I've spent a lot of time with directors, managers and developers asking them about their specialized skills. I've found that we have within our ranks one of the finest collections of technical people around."
Wright has also used this technical skills collective to build a central architecture team that advises him about new and innovative technologies. "This group is charged with finding technology that will help us deliver more and larger content faster and more reliably," Wright says.
NOT SO FAST Tom Nolle, president of CIMI Corp., a Voorhees, New Jersey-based consultancy, says Lycos will be challenged to lay out an infrastructure to fit its business model because "a large business model requires focus and planning far ahead, which is almost contrary to what's happening on the internet."
Wright responds that Lycos doesn't have a traditional slow-moving corporate culture. "When we identify a need, we move very quickly," he says. Wright explains that he is planning for future network needs by centralizing basic network functions. At the same time, Lycos allows divisions to stay flexible and responsive by letting them focus their attention and expertise on their core products and their competition. If they see something that needs to change, they can quickly adjust it because they don't have to cut through layers of corporate tape.
Not everything Wright has tried has worked. "I thought I could centralize customer service because that worked well at The Learning Co., but it didn't work here," he says. "Customer service is product-centered, and the type of specialized support required for a financial site such as Quote.com is completely different from the support Gamesville.com needs." Lycos had even scouted locations for a centralized service center but hadn't yet begun to evaluate technologies when Wright scrapped the idea after an early look a potential staffing costs.
Lycos is still also working out the kinks in its universal registration process. In order to make personalized Lycos Network services such as MyLycos or Quote.com useful, each site requires information about the visitor. Wright and his developers are attempting to fold as much of that registration process into one form without slowing down site performance. "It's a complex balance.
We're building a robust system to handle up to 1 million registrations a day, while keeping in mind that we don't want to affect an individual site," Wright explains.
Even with these small stumbles, Wall Street observers think Lycos has approached the acquisition process very well. "It was one of the early leaders in acquiring [internet] market share through strategic acquisitions at good prices," says Andrea Williams Rice, managing director of internet research at Deutsche Banc Alex-Brown in San Francisco. "Wall Street's perception of Lycos has changed because of how smart it has been in making acquisitions and how well it has integrated them. It's pretty impressive to see Lycos take on so many acquisitions and still be one of the few internet-based companies that's turning a profit."
Wright and Lycos feel that they've found the right way to bring in acquisitions under their corporate umbrella, nurture and feed them, and turn them into productive and profitable scions. They give them room to grow by pruning off and centralizing some of the basic everyday administrative and network functions, but Wright knows that too much heavy-handed oversight will crush entrepreneurial spirit.
"My job is to help Lycos deliver content faster, cheaper and better," he says.
"So far, by combining our resources the right way and using the staff to its best advantage, I think we're doing just that."
Stewart Deck didn't win Gamesville.com's NCAA basketball pool, but he's still alive in the backgammon tournament. Bring him back to reality by sending an e-mail to sdeck@cio.com.
THE FUTURE OF TECHNOLOGY STARTS HERE One advantage of working for a sizable company like Lycos is that vendors fight each other to give the CIO sneak peaks of new technologies. But keeping track of all these new opportunities is more than one person can handle, so Tim Wright has assembled a team of bright technology enthusiasts from within the company's ranks to help him make sense of vendor pitches and find out what on the technology horizon could benefit the Lycos network in the future.
The group has four full-time members who do this exclusively. Other Lycos staffers (including the chief of security) also add their advice and expertise to the mix. Their mission, says Wright, is to determine the next technologies that will help Lycos run more efficiently.
To ferret out the bleeding-edge technologies that will give Lycos a boost, the group members read plenty, meet with vendors for demos, get input from colleagues and attend conferences. Wright says the twice-yearly Web Monster conference is an especially useful one for the group "because it's packed with web gurus and oddly intense technology-obsessed people." Members also become experts in specific areas and write up white papers on topics including global network load balancing, service level agreements and assessing security in an effort to determine Lycos' strengths and potential weaknesses.
Many vendors have asked these Lycos future technologies team members to assist them by serving on user advisory councils and committees. Such an arrangement benefits both parties. Vendors seek user insight and input from members of the Lycos team because of their corporate independence (Lycos isn't owned by a larger conglomerate) and their vendor neutrality. And by serving on advisory committees at Akamai, Exodus, Microsoft and Storage Networks, Lycos is able to have "a distinct influence" with its vendors on product direction and development, Wright says. -S. Deck SHOPPING BASKET Lycos has been on a buying spree, spending nearly $685 million on acquisitions since February 1998. Its haul includes the following:
February 2000: Valent Software: Developer of community-building software: $45 million November 1999: Gamesville.com: Games website: $207 million September 1999: Quote.com: Financial services website: $78.3 million August 1999: Internet Music Distribution Inc.: Developer of Sonique PC audio player: $37 million October 1998: Wired Digital Inc.: Developer of HotBot, Wired News and Suck.com:
$83 million
August 1998: WhoWhere: Online directory, e-mail and homepage building: $133 million August 1998: GuestWorld: Developer of online guest-book services: $3.9 million April 1998: WiseWire Corp.: Developer of customized and personalized search tools: $39.8 million February 1998: Tripod Inc.: Online community developer: $58 million.