Compaq to spin off AltaVista

Summary:Compaq will spend up to $60 million to promote the new company.

The new CEO of Compaq Computer Corp.'s AltaVista division says he will put e-commerce at the heart of plans to build the site into a power portal player.

Compaq announced earlier today that it intends to spin out the AltaVista search engine and portal on its own. New CEO, Compaq (NYSE:CPQ) Senior Vice President Rod Schrock, said the company will put e-commerce at the "front and center of our strategy."

Compaq did not say when it planned to hold the IPO, or what value it would put on the company.

Schrock did say that the IPO could happen by the end of the year, however. And while shares will be sold to the public, Compaq will likely continue to own a majority share in the new company.

"By establishing AltaVista as a separate company, it can better focus on providing the best user experience on the Internet, from search, to commerce, to communication and community," Compaq CEO Eckhard Pfeiffer said in a release.

"We see this as a significant opportunity for Compaq to expand its share of the rapidly growing Internet market for content and services and also enables us to unlock the tremendous value of AltaVista for our shareholders."

Internet stocks have been incredibly hot on Wall Street, with portal sites leading the pack. Piper Jeffrey analyst Ashok Kumar estimated that, based on page views, AltaVista could be valued between $2 billion and $5 billion.

Compaq acquired the search service as part of its $9 billion purchase of Digital Equipment Corp. last year. Recently, Compaq spent $220 million to purchase Shopping.com, an e-commerce company, in an effort to pump up AltaVista's portal capabilities.

Deals with Microsoft
Schrock said that AltaVista will empahsize the commerce angle as a way to differentiate itself from the other portal sites.

"Think of us as a combination of Yahoo and Amazon.com," he said. Plans call for e-commerce to be tightly integrated throughout AltaVista, either from Shopping.com or from partners. Schrock said he didn't think there would be a problem with competition from partners.

"Really what we're going to do is support in objective fashion all e-commerce," he said. "But if you want to go with a trusted name, there's the Shopping.com service available."

Also today, the company announced a deal with Microsoft Corp. (NYSE:MSFT) to license that company's Hotmail free e-mail service, another portal must-have. In exchange, AltaVista will become the primary search engine for Microsoft's MSN network, although Microsoft will continue its deals with other search companies.

This would not be the first time AltaVista has tried to go public. Digital dropped plans to spin off the division in 1997, deciding to focus on the business opportunities and to expand its role as a "portal," adding content channels and other amenities. But shortly thereafter, Digital was acquired by Compaq, putting plans on hold.

According to December figures from Media Metrix Inc., Alta Vista earned a 19.8 percent audience reach, making it the 12th most-visited Web site.

While AltaVista has gained popularity as a search engine, it's never had the success in consumer markets as portal sites like Yahoo Inc., Lycos Inc., Excite Inc. and Infoseek Corp. Compaq hopes to change that however, spending $60 million over the next year on marketing, including television ads.

Deal frenzy
The portal market has been in something of a deal-making frenzy lately, with the recently announced $6.7 billion acquisition of Excite Inc. (Nasdaq:XCIT) by @Home Corp. (Nasdaq:ATHM).

Before that Disney Co.'s (NYSE:DIS) investment in Infoseek Corp. (Nasdaq:SEEK) had sparked an increase in the competitive landscape.

The influx of major media brands and the highly competitive marketplace could make things tough for AltaVista, analysts said.

"AltaVista isn't a very consumer-centered search brand. They're going to have do very aggressive marketing if they want to be mentioned in the same breath as the other companies," said Patrick Keane, an analyst at Jupiter Communications in New York. "They're definitely getting in late. It's been around a long time but it's very tech-centric and business-centric. I don't see them building a real mass-market brand here. I'm not sure what they can do different from the competition."

AltaVista has to change the perception that it is merely a search engine. What the company needs to do is make the site a "destination, not just a gateway," Kumar said.

"AltaVista today in its current position isn't a portal, and the dollars are in eyeballs," he said. "They need to set up alliances, make acquisitions. They need to increase critical mass."

One way the company hopes to boost its traffic is through a tight integration with Comapq. Compaq's Presario line of home PCs features an Internet button on the keyboard that takes users to a default site on the Web.

One of those buttons had been sending users to Yahoo's MyYahoo personalized page. When AltaVista asked Presario users if they wanted to test a new MyAltaVista page, 95 percent said yes, Schrock said.

"Presario owners will generate 17 million user visits to the MyAltaVista site per month," he added.

But Compaq is not the only company to offer the one-touch button, and AltaVista is not the only firm to sign on as a default. Earlier this month, Hewlett-Packard Co. (NYSE:HWP) announced a similar deal with Yahoo!

AltaVista Co. will be based in Palo Alto, Calif.

Topics: E-Commerce, Microsoft, Start-Ups

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