Killeen and Chief Technology Officer Timothy Wright notified management of their intentions to quit Lycos last week, sources said, although the company is not expected to announce organizational changes until Monday at the earliest.
"Steve's frustration was growing. He felt Lycos was being increasingly run out of Spain and he was their puppet in the U.S.," a source said. "He felt Spain was holding back a lot of Lycos' growth."
Killeen and Wright did not return phone calls seeking comment. A Lycos representative said the company does not comment on rumors.
The departures bring to a close the latest chapter in the short history of Lycos, the fifth most-visited Web property in October 2002 with some 37 million unique visitors, according to a report from online traffic measurement company Nielsen/NetRatings.
Killeen joined the company nearly two years ago after Terra NetworksLycos for $12.5 billion, marking the first time a foreign company had acquired a U.S. portal. The idea behind the deal was to combine Terra's Internet service provider with Lycos' Web presence to dominate in countries outside the United States. Along with the deal, German media giant Bertelsmann said it would purchase up to $1 billion in advertising over five years from the Lycos portal.
Like other Internet darlings, however, the unit had a steep fall from grace when the dot-com bubble burst, blowing out the online advertising market and turning once enormous valuations inside-out.
In a major setback, Bertelsmann in April said it would renegotiate the remaining $675 million of its advertising deal, a situation that today remains unresolved. Meanwhile, traffic to Lycos.com has slipped considerably while the company's top competitors, America Online, MSN and Yahoo, have watched traffic grow.
Lycos attracted about half as many visitors in October as Yahoo, which ranked first for that month with some 78 million unique visitors, according to NetRatings.
This has not been lost on Wall Street.
"Regarding (Terra's) U.S. online media, the business continued to disappoint as revenue fell 7 percent sequentially...in a period where competitors such as Yahoo and MSN were showing sequential growth," Jeffrey Fieler, a Bear Stearns analyst, wrote in a recent research report. "Our view is that the U.S. business remains challenged as the No. 4 player in a difficult market."
A struggle for control
Despite the unit's troubles, analysts give Killeen high marks for his tenure at the company.
Killeen stepped into Lycos CEO Bob Davis' shoes shortly after the Terra acquisition, serving in the then-new position of president of Terra Lycos USA. He previously had served as president of integrated marketing provider Marketing Services Group and also had held the position of chief executive of Raging Bull, a stock-related message-board site.
When Killeen was hired, Joaquim Agut, Terra Lycos' executive chairman, said: "Stephen's exceptional leadership qualities and experience running (profit and loss centers), Internet companies and large organizations made him the perfect choice for this new, pivotal role at Terra Lycos."
Even before Lycos faltered, executives in Spain had begun to take steps aimed at giving them considerable control over the company.
Three months after the acquisition closed, Davis, taking the title of vice chairman but keeping no executive role at Terra Lycos. Lycos Chief Financial Officer Ted Philip also moved into a diminished role, assuming the title of senior vice president of strategic planning and mergers and acquisitions.
"In hindsight, that was a pretty telling sign," said David Joyce, an analyst with Guzman.
Spain's influence continued to grow over the past two years asleft, oversight of the corporate finances for the merged company was moved overseas, and few major investments were plowed back into the U.S. portal.
These days, Terra Lycos is focusing on the globalization of certain properties, which in turn will reduce the influence of its U.S. operations and of Lycos, sources said. Some of this focus will be on spending more resources on fully developing online dating, search and games properties to be launched at Terra Lycos' sister sites around the world.
The company also operates Web sites in Canada, Europe, Asia and Latin America, under names such as HotBot.com, Angelfire.com, RagingBull.com and Gamesville.com. Terra Lycos is the largest access provider in Spain and Latin America.
Retrenchment, rather than growth, appears to be management's recipe for now, believe analysts, who note the company recently cut 21 percent of its U.S. work force.
"The company is sitting on a $1.8 billion cash hoard," Joyce said. "Now would be the time to acquire other portals or content players and bolster Lycos. They could make these acquisitions at fire sale prices. But the company hasn't talked about a clear strategy for Lycos. I can't figure out the strategy for them. They need to formulate one and communicate it."