Lycos gets its start

It’s extremely rare that a tech startup delivers a 3000x return for investors but Lycos did just that. Their journey began with a piece of search technology developed by professor Michael Mauldin at Carnegie Mellon University. He created an algorithm for effectively spidering and indexing the web and knew he had an important innovation. He worked with the tech transfer office of the university to commercialize the technology and through them connected with venture capital firm CMGI. They established a company and CMGI ended up purchasing 80% with CMU and Maudlin splitting the remaining 20%. CEO Bob Davis was brought in before there were any employees, customers or products- on day one it was just him and the search technology.

He spent the first month building out a team and formulating a clearer vision of what the company would be. They were entering into the search engine portal space already occupied by formidable competitors Infoseek, Excite and Yahoo. Lycos had what they felt was a key cornerstone of the search technology but they eventually ditched the pursuit of the technology and focused on being a media company. The deal they inked with CMU required that they maintain a Pittsburgh presence. Having the company headquartered in Boston and their engineering hub based in Pittsburgh created some early communication challenges in the company. “It’s only a short plane ride from Boston to Pittsburgh, but it was almost the equivalent of oceans between us, because you’re not able to walk down the corridor and say, ‘Hello. What can we do next?’ This added a substantial burden for the company.”

The Lycos brand

Davis says, “We worked very hard on our positioning and our branding of the company in terms of what we wanted it to be. We tried to be this safe, comfortable environment for folks that were just trying to figure out the Internet. We thought of ourselves as the Internet on training wheels… So we weren’t trying to be the souped-up Maserati that could go 120 miles an hour. And we weren’t trying to be a cramped up little Beetle. We liked to think of ourselves in that analogy as the family sedan, the Ford Taurus. Not the sexiest out there, but very purposeful in what we did.”

In thinking about the brand we’re creating for JumpBox, it’s very similar to the Lycos brand. We’re the reliable, quick way to get going with Open Source server apps that doesn’t require technical knowledge as a prerequisite. We have the ability for those power users that want to get under the hood with shell access to the VM and “tweak the carbs” but for the average user who just wants their application to work with as little hassle as possible, the default path is a near-zero configuration scenario. Another parallel with the Lycos story is that we developed the appliance platform technology that lets us deploy these applications as a single file that works across any OS running any of the major virtualization platforms. But that’s not ultimately our magic. As in the Lycos story, another company can and will create a similar technology- our defensibility will rest on the brand we develop. We saw the name JumpBox as being the way to refer to this type of software deployment, in the way that Xerox is often used interchangeably with photocopier. We’re certainly a technology company at this point but it’s conceivable that someday we’ll Open Source our own platform and shift to being a marketplace for others to buy and sell applications running as JumpBoxes.

The impact of their licensing deals

Arguably the strategy that was most effective for Lycos was its licensing deals. They were able to generate fast cash and expanded visibility for the brand by selling their technology to companies like AT&T, Prodigy and CompuServe and having “Powered by Lycos” buttons everywhere. Davis says, “[These partnerships] were incredibly important for us early on. We had a number of license agreements with companies that would pay us several hundred thousand to millions of dollars to use our technology. So we got a lot of cash from that and then we had a lot more visibility as well.”

The equivalent parallel in our JumpBox world would be the notion of licensing our virtual appliance platform to ISV’s for them to wrap their software offerings as JumpBoxes. We’ve discussed the possibility of attacking this from a consulting basis vs. productizing the appliance creation tool set itself and selling that to ISV’s. The consulting approach generates immediate cash and certainly helps our visibility if we license the technology to a high-profile ISV tons of customers and manage to keep our branding on the boot screen, but it also pulls us away from the main engineering effort at hand which is building out the library of apps to make it interesting. More likely is the prospect that we’ll create a provisioning tool for ISP’s that allows them to become resellers and sell JumpBox apps into their existing customer base. The prospect of hosting virtualized appliances should be attractive to any hosting provider that has grappled with supporting client requests in a shared hosting environment.

Growing pains

Lycos doubled and tripled in size each year providing unique challenges of scaling a company. Davis says, “I think how much we grew so fast surprised me, and I think the most satisfying thing for me was being able to scale the company through all of that growth. We were growing 200 percent to 300 percent a year, every year. People don’t realize that a rapidly growing company is crumbling within and feels pain every hour of every day because nothing works the way it was designed as little as a year before… things are breaking every day. The accounting system that I used in ‘95 was useless in ‘98… everything would crumble, and you needed to be one step ahead of that all the time. So amazing growth was a challenge, but it was an awful lot of fun.”

A strong exit

Lycos had the largest exit of any of the Founders stories. Following a failed merger with USA Networks in 1999, they persevered on with their business and met with a huge payout. Davis says, “We stayed with it and a year later, Terra came knocking at the door and offered us a very attractive price. We sold Lycos for $5.4 billion, which represented a return on venture capital investment of about 300,000 percent.” They still hold the record for fastest IPO in NASDAQ history (nine months from founding to offering!). Bob Davis now works as managing general partner at Highland Capital Partners VC firm.

This entry was posted by Sean Tierney on Thursday, May 31st, 2007 at 9:30 am and is filed under Blog. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.