Lycos Europe, a vestige of one of the first internet search engines, is touting itself as a possible acquisition target for a US media or telecoms group seeking scale in Europe’s fragmented online markets.

Christoph Mohn, chief executive of the loss-making portal, said it had appointed Dresdner Kleinwort to conduct a strategic review after concluding that it lacked the scale to compete with the likes of Google and Yahoo.

In an interview with the Financial Times, the heir to the Bertelsmann media empire admitted that Lycos Europe “could have made a much more aggressive play” had it been backed by US shareholders. The company, originally a joint venture between Bertelsmann and Terra Networks of Spain, floated in March 2000 with an equity value of €5.5bn. Bertelsmann and Spain’s Telefónica, which acquired Terra, still control 51 per cent, but Mr Mohn said Lycos Europe did not fit either shareholder’s corporate culture.

At Monday’s price of 51 cents per share, the group is now worth just €160m ($248m), little more than the €149m in cash and other investments it reported at March 31.

“A typical US shareholder would look much more aggressively at the upside,” Mr Mohn said. “European funding is much more risk averse. In the US you have the feeling that when people believe in an idea and a strategy they don’t mind so much about the numbers.”

Lycos Europe could be a valuable partner for a US or Asian media or telecoms company, he said. “If you want to enter the internet industry, to do that on a greenfield [basis] is very difficult. If you take Lycos Europe as a starting point, in comparison to what other entry strategies would cost you, it’s a very cheap way.”

An existing US-based internet group such as Yahoo or AOL could also find value in Lycos Europe, he said.

Lycos Europe originally licensed products supplied by its former US parent, Lycos, which was bought by Daum Communications, the South Korean portal, for $95.5m in 2004.

“The problem was Lycos didn’t deliver world-class products either in the US or Europe,” Mr Mohn said. Although the Lycos search engine ranked alongside Yahoo and Excite a decade ago, “Yahoo pulled away by having a better product”.

Lycos Europe now comprises online advertising sales, hosting, domain and price-comparison platforms and a research business. In spite of several rounds of cost-cutting, it reported that losses before interest, tax, depreciation and amortisation increased last year from €4.6m to €18.2m.

Mr Mohn said its main assets were its “friendly” brand, its user base, a profitable domain name business, its Decido portal to help online shoppers choose between competing products, and a pan-European billing system that allowed products to be launched quickly in multiple countries.

Europe’s record in creating world-class internet companies was improving, but not quickly enough, he added. “The internet industry here is not developing very well. US players have created 90 per cent of the value in the industry so far.”

The reason, Mr Mohn said, was that European start-ups were too slow to attack the larger US market.

“People spend too much time setting up things in their home market then going from France to Belgium and from Belgium to Germany. Once they’re done, there are already established US players in their market.”

European policymakers needed to bridge the “huge gap in critical mass in research” by encouraging a “virtual Silicon Valley” structure to connect companies and universities and allow them to exchange ideas on subjects such as semantic search.

Mr Mohn said the strategic review would conclude in the second half of 2008.