With AltaVista IPO on Tap, Trouble Signs Are Emerging
May 7, 1999
By BOB SULLIVAN
MSNBC
When Compaq Computer Corp. announced plans to spin off its AltaVista
portal site in January, conventional wisdom held it would be the biggest
Internet initial public offering of 1999. Compaq pledged aggressive
enhancements that would impress investors and make AltaVista competitive
with the likes of Yahoo! Inc., Excite Inc. and Lycos Inc. But four months
and $500 million worth of acquisitions later, not much has changed at
AltaVista. The site has slipped out of the Internet's top 10 list, its chief
technology officer just quit and many analysts think AltaVista's window of
opportunity is closing fast.
When then-Chief Executive Eckhard Pfeiffer announced Jan. 26 that
Compaq planned to spin off its AltaVista search engine, there was little
surprise. With portal sites like Yahoo, Excite and Lycos commanding huge
valuations from investors, it seemed obvious that Compaq would try to cash
in on its valuable Internet asset.
Soon after, the company gobbled up two portal-enhancing Web sites:
Shopping.com, an e-commerce mall, for $220 million, and Zip2.com, a city
guide that competes with Microsoft Corp.'s Sidewalk and America Online
Inc.'s Digital Cities, for a reported $300 million.
But Compaq's rocky ride since has included a dismal fourth quarter, a stock
slide, the ouster of Mr. Pfeiffer and little evidence that Zip2 or Shopping.com
was becoming part of an AltaVista portal.
And now comes word that AltaVista's co-creator and chief technology
officer, Louis Monier, who stood to make a huge windfall from the IPO, has
quit the company to join a start-up called Doublebill.com.
Does this mean the AltaVista IPO is in jeopardy? Not at all, said AltaVista
CEO Rod Schrock.
"The IPO is going to happen this year," Mr. Schrock said. "We're going to be
very bold and decisive."
But there's been nothing bold and decisive about AltaVista so far this year.
In fact, Altavista.com doesn't even link to Zip2.com, and its links to
Shopping.com are barely noticeable, mixed in among links to other
e-commerce sites. That has some analysts wondering about the company's
ability to make the nimble changes necessarily to compete in the fast-paced
portal arena.
"You'd think at this point in time they'd put up a link or at least not promote
competitors like Ticketmaster," said Lisa Allen, an analyst with Forrester
Research. "You've got to act quickly. Is this Internet time? No, it's
downtime."
Art Russell, an analyst at Edward Jones, said problems at AltaVista mimic
problems the rest of Compaq has had.
"There's a lot of bureaucracy at Compaq," he said. "They're spinning their
wheels. You haven't seen the kind of changes you would expect if they're
trying to pull the sites into a portal."
And there's more bad news. Despite AltaVista's integration of Shopping.com
during the past two months, traffic to that site has actually slipped, according
to NetRatings. In fact, traffic to all of AltaVista slipped from March to April,
dropping the search engine out of the top 10. Further, its visitors are the
"least sticky" of any Net portal's: While the average visitor to Yahoo stays on
Yahoo sites for more than an hour, according to NetRatings, AltaVista's
users leave after 11 minutes. And they don't head to Shopping.com,
Zip2.com or even Compaq.com to shop for Compaq products. Most of
them head to Yahoo-owned Geocities, Lycos-owned Tripod or AOL.com
"If they're trying to be a consumery search site ... then driving traffic to
Geocities or Tripod is OK," said Peggy O'Neill, Internet analyst at
NetRatings. "But if it's supposed to be a commerce vehicle to push Compaq
boxes, then there's a problem."
All this is easily explained, says Mr. Schrock. Compaq is simply pulling its
punches while it works behind the scenes, planning to re-launch a bold new
AltaVista site later this year. He said the site has consciously held back on
integration of new services while it ramps up back-end technology.
"We're going to take press criticism. I'm not worried about that," he said.
"Behind the scenes we're putting together a transaction infrastructure and
supply chain to handle a 10-times increase in traffic.... We have focused the
last three months on building the company."
And the company hasn't been completely inactive -- just Wednesday,
Shopping.com announced its "125% satisfaction guarantee" come-on.
Customers can return any product they buy at Shopping.com for any reason
and get a full refund plus a shopping.com gift certificate worth 25% of the
purchase price.
That offers little comfort to analysts who see Yahoo, Excite and other top
portals securing their leadership positions while AltaVista stands still.
"They were late to the table to turn themselves into a portal and think they
could compete," Ms. Allen said. "There's also an element of them not having
the right people in place who can integrate these new properties and turn
them into a new business. Developing content and e-commerce is not like
building PCs."
And the loss of Mr. Monier had to sting. He wrote the complex algorithm
that is the basis of AltaVista's robust search engine.
"My departure was purely for personal reasons," Mr. Monier said in an
e-mail to MSNBC. "I have pulled AltaVista for four years now, so it was
time for me to move onto something new." On April 26, Mr. Monier
announced he would take a position on the board of directors of a Web site
called DoubleBill.com, which has financial backing from Silicon Valley
investment banking firm Kleiner Perkins Caufield & Byers. The company
isn't yet disclosing details of its business.
But a former co-worker suggested that Mr. Monier left because he was
simply fed up with Compaq's indecision.
"It's got to be a huge frustration for him to see this thing moving so slowly,"
Mr. Russell, the Edward Jones analyst, said. "The longer they screw around
with it, the shorter the time frame that window will remain open."
The Post-PC Sales Market
AltaVista is critical to Compaq as it tries to recover lost earnings. Compaq's
online PC sales strategy has been in flux -- in February, it ordered all Web
resellers, including shopping.com, to stop offering Compaq PCs online for 90
days to give the company time to consider its plans. Chief rival Dell
Computer Corp. currently enjoys an advantage in online PC sales (Dell
claims $14 million in daily sales; Compaq says it sells $10 million at
compaq.com), but it can't match the Internet eyeballs Compaq commands
through the popular search engine.
And with profit margins on PC sales fast eroding, Web sites will be key to
tapping a much more profitable business for PC makers -- peripheral sales.
"There's a lot of price competition going on with PC market -- companies
looking to develop alternative revenue streams," Mr. Russell said. Each new
PC user spends about $500 on joysticks, speakers and other additional
hardware and software within 90 days of their PC purchase, he said.
PC makers want consumers to spend that $500 on their Web site instead of
in brick-and-mortar stores like CompUSA -- particularly because profit
margins are much higher on peripherals than PCs.
But Compaq's changes to AltaVista to encourage user loyalty have been
slow in coming, as shown by the fact that the Zip2.com community site
doesn't show up at all yet.
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