Compaq-DEC could put AltaVista in the cold

The most expensive partnership in computing history brings together two hardware heavyweights, but Compaq Computer Corp. also gains an Internet unit from its takeover of Digital Equipment Corp.: DEC's AltaVista search engine subsidiary.
Written by Maria Seminerio, Contributor

Some analysts believe AltaVista will be a valuable asset to Compaq (CPQ), while others expect a sale.

"For Compaq to be what it says it wants to be- a $50-billion, IBM-like, HP-like company, clearly what was missing was the services piece," said Bruce Stephen, an analyst with International Data Corp., in Framingham, Mass. "The Internet piece was the other glaring piece missing from Compaq's product line."

Since Compaq "was kind of late to market with an Internet strategy," it would be wise to hold onto AltaVista, said Kathy Hale, an analyst with Gartner Group unit Dataquest, in San Jose, Calif.

DEC (DEC), in contrast, saw the Internet's potential early but was dogged by unclear marketing strategies, she said, adding, "There's something for Compaq to leverage there."

Neither company has done a particularly good job of articulating its Internet strategy, so the two are likely to leave AltaVista alone until they can begin work on a Web road map as a combined entity, said Tim Sloane, an analyst with Aberdeen Group, in Boston.

But others felt the PC giants will be too busy trying to resolve redundancies in their product lines and merging their divergent corporate cultures to worry much about advancing the Internet business, at least in the short term.

What's more, the AltaVista competes for advertising with other search sites such as Yahoo! (YHOO) and Excite (XCIT), which could be an obstacle for Compaq in doing deals with those companies down the road, one analyst said.

"Any Internet business is going to be non-strategic to Compaq," said Rob Enderle, an analyst with Giga Information Group in Santa Clara, Calif. "Plus, if Compaq wants to work with somebody like Yahoo!, its hanging on to AltaVista could be perceived as a problem."

AltaVista, which started out as a vehicle for showing off the speed of DEC servers built around the Alpha chip, evolved into a popular search engine site. In 1996, DEC began offering intranet versions of the search engine and planned an initial public offering for the unit, but the IPO was canceled last June.

With anticipation running high ever since that DEC would try to sell the unit, momentum toward that option is likely to grow after the Compaq-Digital sale is completed, predicted Dan Miller, an analyst with Opus Research in San Francisco.

"I don't see how [AltaVista] fits in with what Compaq does for a living," Miller said.

Giga's Enderle said the Internet business would be a "distraction" to Compaq and DEC officials as they work to complete the merger. "I expect them to spin off or sell it," he said.

Officials at AltaVista refused to comment on how the merger would impact the subsidiary, saying it would be premature.

"We can't really speculate yet, since the deal probably won't be finalized until the Spring," said spokesman Don Bradley.

In other Internet initiatives, DEC last week began testing its MilliCent venture, a form of cyber-cash that will allow low-cost transactions to be carried out over the Web.

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