Europe’s Net in shock as five high flyers bail out

A wave of top-level defections from leading European Internet companies over the past month has brought on a bout of soul searching in the industry.

The list of departures reads like a conference organiser’s dream. Bob Davis of Terra Lycos SA, James Kinsella of Tiscali SpA, Fabiola Arredondo of Yahoo Europe, Pierre Besnainou of Liberty Surf Group SA and Philip Crawford of InterX – arguably, the top five Internet CEOs in Europe – have all vacated their jobs.

Various theories have been put forward for this ominous mass exodus. The question seems to be: have they bailed out because the pressure of an industry in turmoil has become too great for them, or have they taken the chance to pursue more interesting projects because the new economy is so vital?

“You’ve got to wonder, ‘Why now?'” notes Andrew Moffat, a London-based analyst with ABN Amro.

By now, everyone is well aware of the projections of dramatic slowdowns in the online sector. But could the stormy forecasts be really so bad that they have led some of the most bullish executives in the industry to jump ship? Confidence has clearly been shaken. “This is a vulnerable time,” Moffat says.

The soul-searching has spurred conspiracy theories too. For instance, Moffat floated the idea that as a result of Arredondo’s departure, Yahoo may seek to sell its European operation and abandon the continent altogether to focus on its business back home, which is declining for the first time.

Merrill Lynch analyst Peter Bradshaw disagrees, saying Europe is still a high-growth region for Yahoo and one it’s reluctant to give up. Bradshaw says the resignations are a result of power struggles: “They all had reasons behind it. There’s no structural problems with the industry that’s causing them to leave at the same time.

“But if it’s proving anything, it shows that the pressures at the top in the industry are very fierce at the moment, particularly in the current environment of mergers and consolidations.”

The single most unsettling resignation is that of Arredondo, the 34-year-old wunderkind of Yahoo Europe, who transformed the portal from a ragtag group into a profitable, $114 million business in less than four years. She is not speaking publicly about her departure. And the company is saying little more. According to a terse statement issued last week, Arredondo has resigned to pursue “private business interests”. She will remain with the company for an interim period, perhaps to help appoint a successor.

Since Arredondo’s departure there has been speculation in the Spanish press that she may be considering a top post at Terra Lycos, headquartered in Barcelona. She is also known to have been cementing her ties with Spain’s corporate world lately and was recently appointed to the board of Bankinter, a medium-sized investment bank which is very active in e-banking.

According to sources close to Yahoo, Arredondo was frustrated with the U.S. parent’s heavy-handed management. The last straw came when the U.S. company abandoned plans to spin off and float Yahoo Europe, which would have given Arredondo the prominent position of leading Europe’s biggest online media company.

Davis, Kinsella and Besnainou have each bailed out after contentious mergers. Davis left four months after his U.S. portal merged with Spanish giant Terra. The ensuing marriage was rife with management clashes, leading to his departure. French entrepreneur Besnainou left Liberty Surf last week after his company was absorbed by Terra’s acquisitive Italian rival Tiscali. And Kinsella left less than two months after the merger between Tiscali and World Online was consummated – in part because of differences with Renato Soru, Tiscali’s founder and chairman. (One of the issues was whether staff should be allowed to lunch at their desks.) At InterX, the board, displeased with the company’s tumbling share price, is believed to have forced Crawford out. But it’s unlikely that the former managing director of Oracle U.K. will be out of the game for very long.

When Liberty Surf’s Besnainou announced his resignation last week from the French ISP (Internet Service Provider), not many people were shocked to see him go. Though a tireless crusader for Liberty Surf – which he founded 20 months ago – he has made it clear he doesn’t agree with Tiscali’s strategy.

“Besnainou didn’t feel a pan-European ISP was a viable concept and that is the strategy all the big ISPs are following,” said Matt Lewis, an analyst at ArcChart, a research affiliate of investment bank ArcAssociates. “I can see his point to some extent, because unless you have a really solid backbone, then it’s going to very difficult.” Lewis said Tiscali will “struggle to generate revenues” without its own massive pan-European backbone.

Many observers also believe Besnainou was driven to leave because Tiscali plans to make layoffs in the Liberty Surf group and possibly to do away with the brand. Indeed, Tiscali’s Soru has said the company will shave