Problems @Home
forbes.com
Broadband star @Home had big cable backers and a speedy network. Then it spent $7 billion for the Excite portal--and got a massive case of heartburn.
Problems @Home
By Daniel Lyons
THE SCHEME WAS AS AUDACIOUS AS it was expensive: @Home, the hotshot high-speed Internet service, would acquire a leading portal and make it the opening window for customers. Then it could offer videos, music and TV news feeds and stake out the high ground in the brave new broadband Web.
That, at least, was the plan when @Home paid $7 billion in stock for Excite one year ago.
Wall Street isn't buying the idea. The market value of the combined Excite@Home has collapsed, at times falling below even the price paid for Excite. Chief Executive Thomas Jermoluk made a mistake paying $780 million for Blue Mountain, an online greeting card Web site that hasn't done much to boost ad sales. He quit in May. His successor, George Bell, had moved to Boston, and now commutes to Excite@Home's office in Redwood City, Calif. The cable partners that were to be @Home's key outlet now are walking away, alienated by AT&T, which took control of Excite@Home after gaining a stake when it bought the cable systems of Tele-Communications Inc.
The turmoil has hurt the business. Excite's traffic had dribbled downward to 15 million until December, when the acquisition of Blue Mountain gave them a boost. However, ad revenues are flat at $80 million a quarter.
Excite@Home was formed in 1995, the brainchild of John Doerr and William Randolph Hearst III, two venture capitalists at Kleiner Perkins Caufield & Byers, who recruited its engineers and managers. Their vision: Line up big cable backers and build a company to be their conduit for offering high-speed Internet access over cable TV systems. Kleiner shared ownership of @Home with TCI, Cox Communications and Comcast and recruited Jermoluk, a former president at Silicon Graphics, to run it.
Excite started life as an Internet search service. Also funded by Kleiner in 1995, the company grew into a broader Internet portal under the guidance of Kleiner partner Vinod Khosla. George Bell, formerly of Times-Mirror Magazines, came in as chief executive.
The two Kleiner companies merged in part out of desperation. Excite was losing ground to stronger portals like America Online, Yahoo and Lycos. @Home needed better content in order to lure subscribers. In January 1999, with Kleiner's blessing, the two companies announced a merger. By marrying content and carriage, so went the thinking, the firms would have both snazzier offerings and faster delivery than AOL was offering over phone lines.
But two months after Excite and @Home's betrothal, AT&T bought TCI, @Home's biggest shareholder. That's when the trouble started.
Biggest problem for AT&T was the deal TCI had signed making @Home its exclusive access provider for Web service. The other two cable owners, Cox Communications and Comcast, had made the same promise.
AOL cried monopoly. The cable systems were akin to common carriers and should be forced to open up their systems to rival Internet service providers, it declared. The scent of government regulation put a scare into the cable companies, which also saw extra financial upside in dealing with AOL.
"The cable companies not only realized that the closed-access system was no longer feasible, but they also woke up and realized, 'Hey, if we could get AOL and all these other companies running on our systems, we could make a lot more money,' "says Cynthia Brumfield, president of Broadband Intelligence, a market research firm in Bethesda, Md.
In March AT&T took over the board seats that Cox and Comcast had held, agreeing to buy out Cox and Comcast after Jan. 1, 2001 if they want out. That wouldn't be such a bad deal for the cable firms: AT&T must pay at least $48 a share for their Excite@Home stakes, and lately the stock has been hovering around $20. |
