"Why Infoseek Walked?" Red Herring Article... Good Reading...
(Well, Red Herring at least has done a very good follow-up
article.)
WHY INFOSEEK WALKED
By Peter D. Henig
May 12, 1998
When Netscape (NSCP) announced that it would
choose one search engine as its primary partner for its
Netcenter Web site -- and that it would take an equity
stake in the company it chose -- Infoseek (SEEK),
with a share price undervalued compared to its
competitors, seemed like a lock. But in the end,
Infoseek says it walked away from Netscape's table.
Why?
"It's not a black and white situation," says Les Wright,
Infoseek's chief financial officer. "We had our view of a
win-win, and [Netscape] had theirs, and we just
couldn't meet."
Was it really as simple as that?
$70 million ain't peanuts
When Netscape announced it had inked the deal with
Excite (XCIT) instead of Infoseek, the hefty $70
million Excite agreed to pay for 50 percent of the
search rotation raised a few eyebrows. Infoseek had
been paying for 35 percent of Netscape's search
rotation, and had enjoyed a boost in pageviews from
12.3 million in December 1997 to 17.3 million in
March.
With its existing traffic deal delivering such substantial
growth, it would seem that Infoseek had a lot to lose
by walking away from the table. Or would it? Even
though Netscape delivered 30 percent of Infoseek's
page views in the fourth quarter of 1997, that number
had declined to 26 percent by the end of the first
quarter of this year, indicating either that Infoseek was
broadening its viewer base beyond Netscape, or that
the speculation about Netscape was true -- that traffic
on Netscape's pages wasn't keeping pace with industry
growth.
"We were negotiating very hard for our own position,
and from our perspective there was a guarantee of
traffic, so that wasn't too much of a concern," said Mr.
Wright, taking the high road. So what was it that made
Infoseek walk -- the money? "Money was just one of
many factors we were looking at," he hedged, playing
the classic CFO.
"Of a half dozen factors on the list, I can probably tell
you money was not at the bottom of the list."
Mr. Wright ticked off some of the other criteria:
"Money, traffic guarantees, technology sharing." The
sticking point, however, "was about the wind-up and
wind-down." The wind-down -- what happens after
the two-year agreement ends and all of the traffic
suddenly goes away -- was another key issue for
Infoseek. Using Excite as an example, Mr. Wright
noted that of Excite's Netscape-generated traffic, 75
percent would be coming from Netscape-branded and
cobranded Netscape/Excite traffic. "In two years," said
Mr. Wright, "you're going to have to unwind from that,
and that's something we weren't sure we really wanted
to do."
Who wins?
Was all of the attention paid to this deal -- including
some of our own -- justified? The market appears to
agree that Netscape has been a declining asset ever
since Microsoft put it between its crosshairs. And with
Netcenter traffic growth falling off, would Netscape's
primary partner really have won anything by winning
this deal?
"It's not clear that the winner would actually be the
winner," agreed Mr. Wright. "As you saw a shift in the
analysts' view [of the Netscape deal for a single
partner], we saw a shift as more details were looked
at."
Did Excite blow it? "If you're asking me if we would
have taken that deal, then no, we would not have taken
that deal," said Mr. Wright. "But that doesn't mean it's
a bad deal for Excite."
Making up for lost traffic
While it's still negotiating for some of the remaining
search traffic from Netcenter, Infoseek must now plan
for life with less traffic, at least in the short term. "In the
near future we estimate that we will have 2 to 3 million
fewer page views per day," said Mr. Wright. "But the
farther you go out, the greater the likelihood we will
recapture that and then some."
Deals such as its recent buyout of community chat
service Web Broadcasting System and a partnership
with AT&T on its a cobranded Internet service
provider business are just part of the strategy, which
includes internal growth and acquisitions.
On the revenue side, Infoseek also plans some efforts.
"Sponsorships are definitely at the top of the list, then
commerce-oriented deals after that," said Mr. Wright.
"If we have gaps in our service, it's in facilitating
commerce."
One last thing
We felt a bit like Columbo, but we couldn't let Mr.
Wright leave without asking him "one last thing." Didn't
it come down to one thing that made them walk away?
One dealbreaker?
"Yes, it did come down to one thing," said Mr. Wright.
"But I can't talk about that; it's a small industry."
Was it something Jim Barksdale said? |
