AltaVista Could Be Big Traffic Booster for CMGI's Progeny
By George Mannes
Staff Reporter
6/23/99 7:49 PM ET
CMGI (CMGI:Nasdaq) looks like it's buying a bigger stage on which to work its magic.
The Internet incubator's reported plans for a $2 billion to $3 billion purchase of AltaVista search engine and other online properties from Compaq (CPQ:NYSE) haven't been confirmed. But if the the deal materializes, it would likely benefit the stable of three-dozen-and-counting companies in which CMGI holds a stake.
By purchasing the AltaVista site, a second-tier portal tacked onto a first-rate Web search engine, CMGI would increase the visibility of the many companies it nurtures. Alta Vista's Web site is one of the most-visited places on the World Wide Web. AltaVista "probably could be a good platform ... a launch platform for the incubators to get noticed," says one buy-side analyst whose firm has been a holder of CMGI stock. "There's lots of possibility here, so it's not shocking to me," he adds.
CMGI craves AltaVista's reach, or the percentage of users online who visit the site at least once each month. In May, 14.5% of the population in the U.S. who went online visited www.altavista.com at least once, according to figures from Media Metrix (MMXI:Nasdaq). That translates into 9.5 million visitors, which exceeds the 8.9 million that visited the Snap.com portal, and it beats the 8.5 million who showed up at least once at the fast-growing Go2Net (GNET:Nasdaq) network of sites. AltaVista, however, trails Lycos (LCOS:Nasdaq), in which CMGI holds a minority stake. Lycos had 30 million visitors in May.
Reach, however, tells only a part of the story. Though AltaVista has superior search technology, it lacks other features to make users linger on the site -- features that competitors such as Lycos, Yahoo! (YHOO:Nasdaq) and Excite@Home's (ATHM:Nasdaq) Excite site have added to transform themselves from search engines or directories into portals. AltaVista has no free email, no message boards, no chat, no place for users to build their own Web pages and no way to customize the AltaVista experience to build loyalty to the site.
That's where CMGI comes in, accompanied by the companies that it either controls or has a stake in through its @Ventures series of venture capital funds. By adding content and e-commerce options from its stable of companies, CMGI can juice up the appeal of AltaVista as well as boost traffic to those companies' sites. For example, CMGI could highlight content from the Raging Bull online investment community or promote the Ding! messaging system the company is grooming to compete with America Online's (AOL:NYSE) ICQ Instant Messaging Service. CMGI can also position its online stores like Furniture.com. AltaVista properties already include Shopping.com, but the shopping site isn't integrated tightly with the search engine.
That's not all. AltaVista could use ad-targeting technology from majority-owned Engage Technologies, which CMGI is taking public, and which already provides services to Lycos and other sites. "I think there might be some technology synergies," says one CMGI shareholder, speaking anonymously. (The strategy could work also with Zip2, a Compaq-owned company that helps media companies like The New York Times (NYT:NYSE) and Knight Ridder (KRI:NYSE) build and maintain local Web sites.)
It all fits into CMGI Chairman David Wetherell's strategy of stirring together all the companies in CMGI's pot. As Wetherell explained recently, the idea is that more established companies in the stew can drive attention to the smaller companies, while the smaller companies can achieve growth rates that the larger companies can't.
As beneficial as the possible deal might be for CMGI, it raises a myriad of questions. A beefed up AltaVista would be a direct competitor of Lycos, in which CMGI has an 18.3% stake -- and from whose board Wetherell resigned earlier this year in a disagreement over Lycos's subsequently-abandoned plans to create USA/Lycos Interactive Networks.
Would CMGI sell its stake in Lycos, buy it or stand pat? If Compaq were to receive CMGI stock as part of the deal -- a real possibility, since CMGI is not sitting on a bundle of cash -- it's unclear how that would affect CMGI's relationship with Gateway (GTW:NYSE), which recently agreed to invest $200 million in CMGI as part of an alliance between the companies.
Among Compaq investors, CMGI's gain is seen as Compaq's loss. At the PC Expo trade show in New York, where Compaq has a hefty-sized booth, Compaq-watchers lamented the possible loss.
"I think it's really going to hurt Compaq in the long term, because they lose their Internet-based presence completely," said Kevin Hickey, a LAN/WAN manager with Chase Manhattan Bank.
A Compaq spokesman declined comment, and a CMGI spokeswoman didn't respond to a request for a comment on the possible transaction, which was first reported by Dan Dorfman on the JagNotes.com Web site and in The Wall Street Journal.
Hickey said he believed that Compaq's short-lived Internet strategy was an unkept promise. (Compaq acquired Shopping.com in February and Zip2 in April, and has said it would spin off its Internet assets in a public offering.) "It seems like the only thing Compaq gets out of this deal is cash to build and buy more hardware. But that's nothing new and nothing that excites me at all," said Hickey, who doesn't own Compaq stock.
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