Compaq to spin off AltaVista

Compaq Computer Corp. plans to spin off the company's AltaVista division as a separate company, hoping to capitalise on the boom in Internet e-commerce.

Compaq senior vice president Rod Schrock will become CEO of the new company, which will be based in Palo Alto, California. Compaq did not say when it planned to hold the IPO, or what value it would put on the 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 $2bn (£1.22bn) and $5 billion.

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

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 Digital had revived those plans shortly before it was acquired by Compaq.

While AltaVista has gained popularity as a search engine, its has never had as much success in the consumer markets as some of the other portal sites like Yahoo Inc., Lycos Inc., Excite Inc. and Infoseek Corp. The $220m Shopping.com acquisition was intended to increase the site's e-commerce abilities, the latest trend in portal sites.

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. Compaq hopes to change that however, spending $60m over the next year on marketing, including television ads.

The portal market has been in somewhat of a deal-making frenzy lately, with the recently announced $6.7 billion acquisition of Excite Inc. by @Home Corp. Before that Disney Co.'s investment in Infoseek Corp. 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-centred 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 differentiate from the competition."

Until now, AltaVista has been known more for its search technology than as portal. 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."

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