The Ultimate Guide to Internet Deals

"There are a lot of $5 million and $10 million companies out there that are looking to hitch their wagon to something larger, but they don't get the attention of a Yahoo! or an @Home or an Amazon," says Peabody. "Often they have a technology that leads you to say, 'We could build this in six months.' But in our world, six months is an eternity."

Working with Ethan Zuckerman, 26, a technology specialist who also came to Lycos as part of the Tripod acquisition, Peabody appeals to the founders of Internet startups in a way that Ciccone can't appeal to them. "We don't use an investment banker, and we don't come in with spreadsheets," Peabody explains. "We talk about code. We talk about products. It's deprofessionalized. It's techie-to-techie, entrepreneur-to-entrepreneur. I know what it's like to have a company with five people."

One representative acquisition involved GuestWorld, the company that created the most widely used software for putting guestbooks on personal home pages. With 800,000 registered members, GuestWorld was clearly the leader in its category, and Lycos bought the company last June for $3.9 million. (Like most of Lycos's deals, this one was an all-stock transaction.) "We did the GuestWorld acquisition inside of a week, from first contact to term sheet," crows Peabody. "Doing that kind of a deal helps us move faster. I think some of the best value that we'll get will come from those little deals -- from being crafty and street-smart."

Once Lycos starts negotiating, it blocks out as much outside interference as possible. "To get the other company's undivided attention, we like to sign a letter of intent as soon as we can," says Guilfoile. "And we ask for a 30- or 60-day period in which to sit down and do our due diligence." In many cases, though, once Lycos shows an interest in a company, other portal sites declare their interest -- which in turn encourages the object of Lycos's affection to start shopping around. "We're big fans of handing out offers with a fuse attached: If you don't commit within 12 hours, this deal blows up," says Peabody. "We want each deal to happen fast. We don't want to give the other company time to talk with our competitors."

II. How to Make a "Standard" Deal

Back in 1995 -- ancient history by Web standards -- streaming audio was simply the latest cool idea to hit the Net. Seattle-based RealNetworks (known back then as Progressive Networks) introduced the first version of its RealPlayer, a tool that lets Internet users listen to speech and music on their computer without having to wait for a huge file to download.

From the start, though, RealNetworks understood that its undeniably nifty technology would wither if it didn't sign deals with strong content and distribution partners. When the technology was launched, the companies that supplied programming for it included National Public Radio and ABC News. Today 85% of Web sites that use streaming media do so via RealAudio or RealVideo. Among those content providers are more than 3,000 radio stations as well as hundreds of television broadcasters. By the end of last year, there were more than 48 million registered users of RealNetworks technology, and that technology had emerged as a de facto standard.

How do you make your technology a standard? By making lots of deals. "We're smack-dab in the middle of building the Internet into the next mass medium," says Len Jordan, 33, RealNetworks's senior vice president of media systems. "Deal-making skills are an important commodity here. You have to partner with a lot more companies than I would ever have imagined. You have to be sharp in understanding what your company's core assets are -- and what its core desires are. You have to be efficient in matching your assets and desires with those of your partners, and you can't be shy about moving aggressively to make things happen." And on the Net, Jordan adds, you never know where your most valuable partners will turn up. "If you're DaimlerChrysler, there's not going to be another car manufacturer tomorrow that you have to know about," says Jordan. "Because the capital requirements are so high, you'd know about any competitor years ahead of time. But on the Internet, a bunch of college kids in Illinois can come up with Mosaic, and that company can turn into Netscape in a very short time. In our industry, you can't ever say that you know who all the players are, because new players are emerging all the time."

That's why Jordan has developed an internal radar to scope out potential partners. He is a devoted user of online news services like TechWeb, CNet, and Quicken.com, and he sifts through a half-dozen trade publications a week. When he first heard about Inktomi Corp., for example, Jordan was intrigued by the company's caching technology, which makes files more accessible to users by storing copies in several locations across the Internet. "We instantly saw that their [Inktomi's] technology could reduce the cost of streaming media, and we struck up a relationship with them. They were a young company at the time, pre-IPO, and knowing about them was just a matter of having our ears pricked up."