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Lycos: Jumping On the Wireless Bandwagon

With MSN, Yahoo! and AOL dominating the portal space, it is difficult for the other portals to differentiate themselves. Do we really need more than these three? After all, the Big Three are, in a sense, a massive black hole, which sucks up much of the online advertising revenues. For this leadership, the Big Three have attained substantial market valuations, whereas the remaining have been muted.

Well, one strategy for survival is to merge with a brick-and-mortar player. This is what Infoseek did, when it teamed with Disney. Or, another example is AOL, which is in the process of merging with Time-Warner.

One company that is trying to set itself apart from the competitive crowd is Lycos (LCOS). In fact, this is a company that demonstrated the perils of linking-up with a brick-and-mortar company. USA Networks tried to purchase Lycos for $15.6 billion. But the deal seemed to be very disadvantageous to Lycos. The deal quickly collapsed.

A merger does seem to be likely. The valuation on Lycos has fallen substantially. What's more, the company is showing profits - so a buyout would not be a drag on a brick-and-mortar player.

True, Lycos has impressive numbers. Yet, it still has much progress to catch-up to the mega portals. Forrester Research shows that Yahoo, AOL and MSN account for a total of 15 percent of total Net traffic. All other portals total for only 5 percent. So, given this bleak environment, teaming with another company would definitely be a smart idea.

But there is a more intriguing possibility: wireless. With the recent investment of Qualcomm into Netzero, there may be a trend for wireless companies to enter the portal game.

In the past few days, there have been rumors of Vodafone AirTouch to purchase Lycos. It would be highly beneficial to Lycos, as it will give the company a way to differentiate itself. What's more, Lycos does not have much baggage because it is primarily a portal and does not have any entanglements with brick-and-mortar behemoths. Of course, Vodafone has tremendous distribution, as well as cash reserves. Finally, to make wireless truly beneficial, there needs to be content. Lycos has that in spades.

Ultimately, Lycos will need to make a bold move. While the company is growing and is profitable, it will likely remain hamstrung from the dominance of the Big Three. A buyout deal with Vodafone should be enough to change the situation.