Tough road ahead for GeoCities

GeoCities is locked in a virtual version of urban warfare.

In its quest to become the leading Internet community, venture-backed GeoCities is rushing to build the foundation for a sturdy, prosperous civilization--and it is determined to get there independently. But it faces increasingly stiff competition, especially since Lycos (LCOS) last month agreed to buy Tripod for $58 million in stock in an effort to add community to its Internet directory.

"What we are facing is a race for real estate," said Allen Weiner, director and principal analyst of online strategies at Dataquest. "We are seeing all the different companies all trying to come up with as many as products and services that will [be a complete] online experience. This is not 'if you build it they will come,' but rather 'you better build it good.'"

Key to GeoCities' future is its search for a new chief executive since the beginning of the year to replace founder David Bohnett, who said he will remain as chairman after the new CEO is found. That, in turn, is essential for the company's plans for an initial public stock offering this year.

Until it goes public, GeoCities is trying to bolster its offerings and revenues by opening its GeoShops program to turn the site into a "community plus commerce" destination. GeoShops lets individuals run stores from their personal Web pages for a monthly fee.

That followed deals with Egghead Software (EGGS) and Amazon.com (AMZN) to make the software retailer and online bookseller anchor tenants.

This overall e-commerce strategy, along with other fee services that GeoCities offers, is expected to diversify the company's revenues. Eighty percent of the company's income is based on advertising and 20 percent on commerce and value-added services like GeoPlus. In two years, Bohnett predicted, 40 percent of revenues will come from sources other than advertising.

"Companies like GeoCities are expanding their offerings to somewhat approximate the experience on AOL (AOL). Content and communications equal success," Weiner said. "To succeed, they need to offer email, chat, community, news, and stock quotes, and it must be highly customizable. Commerce is a natural offshoot."

The new services are designed to add membership at the company, which recently announced that it has more than 1.5 million "homesteaders," or individuals who keep a personal Web page on GeoCities. The company predicts to pass the 2 million mark by August or September.

But others are attempting to build communities based on similar goals. Internet directories such as Excite (XCIT) and Infoseek (SEEK) are also aiming to create loyalty through personalization.

"Competion has increased over the last year," said Dick Hackenberg, vice president of marketing at GeoCities. "Many of major players are recognizing the value of community and involvement and repeat visits and loyalty."

Last week, GeoCities doubled the amount of space available for standard free home pages to 6MB from 3MB. Rival Tripod upped available space to 5MB from 2MB just days earlier. New players also have emerged, such as TheGlobe.com, which claims it has more than 1.2 million members.

GeoCities allows users to create and post free personal home pages in one of its 40 themed communities. It is attempting to bring people together who share similar ideas, and create a sense of belonging.

"When you have someone who has their own self-expression on their site, they will talk about it and generate more traffic," Hackenberg said.

But word of mouth goes only so far. Like so many other businesses in a new market, GeoCities must spend to grow.

The company was wooed last year by a handful Internet companies that wanted to form their own community through an acquisition of GeoCities. The company held its ground, however, and instead lined its pockets with another round of financing.

GeoCities received $25 million in January in a deal with Softbank and Yahoo (YHOO), putting to rest at least temporarily rumors of a possible Yahoo buyout.

Softbank is investing $51 million in the deal, with $25 million in cash going directly to GeoCities and the remainder coming from the purchase of GeoCities shares.Yahoo is investing a $5 million in equity for its interest in the company.

Bohnett said the company has two principal shareholders, CMG@Ventures and Yahoo/Softbank, which each holds more than 30 percent of the company. CMG@Ventures has invested in PlanetAll and Lycos, as well.

Andy Hayducky, chief financial officer CMG@Ventures, said that when the investments were made in the companies, they offered different services. The evolution of these businesses, however, has made them much more similar--and, therefore, competitors.

"When we purchased the license to develop Lycos, it was supposed to become a search engine, but it has become much more than that," Hayducky said.

Other GeoCities investors include Intel (INTC), Chase Capital Partners, InnoCal, and Flatiron Partners.

Last week, GeoCities was named the sixth-most-visited site in February, according to Media Metrix. Tripod held the 11th spot.