On the commerce and advertising deal front, we were heartened to hear that Yahoo! is being as
conservative as they can be in structuring and signing the deals they enter in to. Many of their deals, for
instance, arenít broadly exclusive. The underlying philosophy driving this strategy is that Yahoo! wants
these deals to work for their partners; forcing them to pay too-large up-front costs for completely
exclusive traffic may provide the necessary competitive blocking that online content providers or retailers
desire, but at the potential cost of putting them out of business. To this end, Yahoo! believes (as we do)
that 1999 will see a real shake-out of the companies that pursued these expensive and exclusive
distribution deals with portals.
Relative to the AOL/Netscape deal, Yahoo! was fairly neutral about its implications for their business.
They continue to see themselves as a strong player in the top tier (with MSN and AOL) and havenít
sensed that advertisers are going to change their plans for investing in the medium through one of these
top players. Though they shared some of our confusion about the logistics and strategy of the deal (see
The Week, above), they continue to believe that their position remains strong and, importantly, mostly
unchanged by the AOL deal.
>From our perspective, there can be no doubt, however, that the competitive landscape is certainly now
more robust; with Netcenter, tight browser integration, and a nicely expanded reach (work and home),
weíve got to believe that AOL is more able to compete for the Internet click-stream than they were with
AOL.com and ICQ alone. And remember, in the end (when AOL becomes a content destination just like
Yahoo! and the access portion becomes less important to the value of getting consumers on-line), AOL is
competing directly with Yahoo! for consumersí eyes and ears, for content providers attention, and for
advertising and commerce partnersí dollars.
Weí re not suggesting that Yahoo! should alter their course any (since our meeting provided further
evidence that they are executing as well against as sound a plan as we can imagine), but investors should
recognize the stronger role AOL will play in capturing some of the Internet click-stream now that they
own Netcenter and have an integrated browser play.
Yahoo! Takes Step 1 In A ëDevicesí Strategy
Much of the breathless enthusiasm from the press about the AOL/Netscape/Sun deal was sourced from
the three playersí plans to create software and services for alternative access devices or non-PC platforms.
(Our own view on this element of the deal is that it certainly makes sense, but investors should have a
healthy appreciation for the many obstacles, technological, behavioral, and economic, that stand in the
way of making this a full fledged reality).
Not to be outdone (and showing a proactivity of their own), Yahoo! announced plans to deliver Internet
content to users of the Palm VII connected organizer, a new wireless hand-held computing device from
3Com. Palm VII users will have access to Yahoo! People Search. This walk, not run strategy with
respect to alternative devices is entirely the right approach in our view, as the market remains completely
untested and un-proven (though recent Palm Pilot sales certainly give us lots of hope).
Excite (XCIT)
The Impact of AOL/NSCP/Sun Deal
The AOL/Netscape transactionís impact on Excite should be, on balance, positive. Excite has an ìoutî
clause for the $70mm Excite/Netcenter deal signed this summer with any change of ownership in
Netscape. Weíre hard pressed to imagine a scenario (as it currently stands) under which Excite would
want to back away from the Netcenter deal now, when the prospect of AOLís ownership of Netcenter
could prove to be the traffic boon we suspect it will become when AOL starts to manage Netcenter as part
of itís portfolio of properties.
To the extent that Netcenter was under-performing either Netscapeís or Exciteís expectations, one could
safely assume that that under-performance risk diminishes with Bob Pittmanís involvement. And because
Excite has a relationship with AOL (notice we didnít add a clarifying adjective one way or another), it
would seem to be, prima facie, a deal that both parties would want to maintain for the foreseeable future.
>From an industry perspective, the deal has started to gel the consensus view that, as George Bell, Exciteís
CEO, puts it, there is a "notion that there is a Microsoft Web and a non-Microsoft Web dominated by
AOL.î For our part, we donít believe that the notion of a Microsoft Web/AOL Web changes much, since
much of the industry have already aligned themselves with bigger players at some level already
(www.go.com, www.Snap.com, etc.)
It is now part of Valley shop talk that Excite has been in talks with Netscape this past summer to take
over their portal assets and understands that consolidation is a trend that will only get more pronounced
as the Web matures as a medium in 1999. That said, what role will Excite play going forward,
irrespective of how they play their Netcenter options? |
