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Netscape gets Excited
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May 4, 1998: 8:08 p.m. ET
Companies enter two-year alliance to share ad revenues, co-brand content
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NEW YORK (CNNfn) - Netscape Communications Corp. Monday formed an alliance with Excite Inc. to provide content and search capabilities for its popular Netcenter Web site.
As part of the two-year deal, which takes effect June 1, Excite will program a portion of Netscape's Web site, as well as a new search service called Netscape Search Powered by Excite.
Netscape plans to launch its new search service and content channels by the end of June.
At the end of the agreement, Excite will provide Netscape with its search engine technology.
Although the companies would not disclose full financial details, Mike Homer, executive vice president and general manager of Netscape's Web site division, said Excite will pay Netscape $70 million in guaranteed revenues up front, which represents about 70 to 75 percent of the revenues Netscape expects to garner by the end of the two-year deal.
Homer said Netcenter generated $108 million in revenues in 1997.
In addition to the new search engine, Excite will program key Netcenter content channels, including classifieds, games, arts and leisure and education. The newly co-branded channels will represent about half of Netcenter's content channels.
Excite will also be responsible for all advertising sales for the co-branded channel pages on Netcenter and for both Netscape- and Excite-branded searches.
Advertising revenues from co-branded channel pages and co-branded search results pages will be shared by the companies.
The deal marks yet another consolidation of so-called Web portal companies, which offer links to third-party content such as news, entertainment and travel services.
Earlier Monday, Lycos Inc. and AT&T Corp. announced an alliance in which the companies will jointly offer a variety of services. In March, Yahoo! Inc. launched Yahoo! Online, a joint venture with MCI Corp.
This is the first such deal, however, between two competing firms, since Netcenter and Excite are both Web portals. Aydin Tuncer, Internet analyst at S&P Equity Group, said the agreement allows both companies to challenge perennial leader Yahoo! head-on.
"Netscape doesn't think they can go against Yahoo! in the portal space on its own," Tuncer said. "Netscape definitely wants to pursue this market aggressively. Microsoft is going after it, too. Now Netscape has the number-two portal site on their side."
Lise Buyer, a technology analyst at Deutsche Morgan Grenfell, said the recent wave of consolidations is a reflection of the way investors treat the perceived market leaders.
"If you look at the value the market has placed on Yahoo!, vis-a-vis the value they've place on other portal companies, those other companies are not that much smaller," she said.
"But it's safer for people to invest in the biggest company. Portal companies are recognizing that being the biggest is being best, and they're moving to add size quickly."
Tuner pointed out that Internet companies have been consolidating their efforts to ally themselves with recognizable brand names. In this case, both companies can leverage the other's name recognition.
But Tuncer does question why Excite would shell out $70 million up front for such an alliance.
"That's the big question," he said. "The revenues are still just trickling in for these companies. But a year or two ago, ad revenue on the Internet was a joke. That's not the case anymore. People are getting something now."
Buyer pointed out Excite has never been a company to play it safe.
"Excite has grown by taking big chances," she said. "So far they've paid off. This is their shot to supplant Yahoo!"
Another mystery is why Excite would agree to hand over its search engine technology to Netscape at the end of the two-year term.
When asked this question, George Bell, Excite president and chief executive officer, said the search business has diminished in importance as the company moves forward to providing more expansive online services.
Buyer said it's another example of the company taking a calculated risk.
"That's the interesting part of the deal," she said. "The bet [Excite is] making is that it's better to be bigger today than to control the [search] technology tomorrow. They're willing to trade the search technology for traffic today."
The announcement ended speculation regarding which search engine company Netscape would choose as its partner. Some observers had predicted Netscape would choose Infoseek Corp. as its partner.
Shares of Netscape (NSCP) finished up 1-7/8 at 29-9/16 at Monday's close, then climbed to 31-9/16 in after-hours trading as the deal was announced. Excite (XCIT) shares closed up 5-13/16 to 72-13/16 at Monday's close, then shot up to 80 in after-hours trading. 
-- by staff writer John Frederick Moore
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