CMGI-AltaVista integration expected soon

Consumers will be the first to see changes at altavista.com as CMGI takes over a majority stake in AltaVista's popular Internet site and search engine from Compaq Computer. The first step will be to integrate some of CMGI's Internet e-commerce holdings.

Consumers will be the first to see changes at altavista.com as CMGI takes over a majority stake in AltaVista's popular Internet site and search engine from Compaq Computer, officials said yesterday.

The first step will be to integrate some of CMGI's various consumer-oriented Internet e-commerce holdings into the AltaVista home site, said CMGI chief David Wetherell. He spoke at a press conference during which officials provided more details of the deal between his company, which operates and invests in Internet companies, and Compaq. CMGI holdings that are aimed at business-to-business Internet buying and selling will be integrated into AltaVista after the consumer links are launched.

CMGI's varied e-commerce holdings in specific markets like home furnishings, car parts and financial services will soon be seen at AltaVista, an Internet portal and search site located at http://www.altavista.com/. A specific timeline for the integration was not provided, but Wetherell said improvements to the site will be made first in its English version followed by international versions.

AltaVista under CMGI's leadership will become a "mega portal," Wetherell said. Portals are web sites that offer links to other Internet sites. AltaVista will offer more links, emphasize e-commerce and shopping by offering a range of products, and also incorporate technology that can target users the first time they use the site for shopping, sending them to preferred products and goods.

Other sites capture and store information about what users look at when they visit e-commerce sites -- Amazon.com, for instance, tracks the books that visitors check out at the Web site and then offers recommendations when customers log on again. AltaVista will be the first site to provide direction the first time a user visits the site, Wetherell said.

It also will be the exclusive search engine on Compaq consumer Presario PCs in a three-year deal that can be extended. Users of future Presarios will find that pre-loaded browsers will come with buttons that lead directly to AltaVista and they also will find links to the site from the Internet home page when they first log on with their new machines.

Compaq becomes CMGI's largest outside shareholder as part of the plan. CMGI, based in Andover, Massachusetts, will collaborate with Compaq's research labs and business units on new Internet technologies that also are expected to boost AltaVista.

Under terms of the deal outlined prior to the press conference, CMGI will have an 83% equity stake in AltaVista. Compaq will keep a 17% stake in the AltaVista business and have a board seat. Compaq will receive 19 million CMGI common shares and CMGI preferred shares equal to 1.8 million common shares for a combined fully diluted equity stake of 16.4 percent in CMGI. The complex financial arrangement also includes a provision under which CMGI will provide a $US220 million three-year note to Compaq, boosting value of CMGI's stake in AltaVista to $2.3 billion.

A Compaq spokesman earlier in the day downplayed the financial aspects of the arrangement, focusing instead on collaboration and partnership. Ben Rosen, Compaq chairman and acting chief executive officer, said during the afternoon press conference that there was one thing he wanted to make clear: "We did not sell AltaVista."

Compaq acquired AltaVista last year when it bought Digital Equipment . It spun off the AltaVista site as a separate subsidiary in January of this year, announcing plans to take the company public. But rumors that Compaq would sell AltaVista began to spring up soon after the Digital merger. Analysts said last week that Compaq's negotiations with CMGI were the result of the Houston-based computer maker's financial woes.

Compaq confirmed last week that it was in talks with CMGI. Wetherell said yesterday that the companies actually have been talking about collaborating for 15 months, but asked each other about a month ago how they could best work together to capitalise on their individual strengths. AltaVista apparently has been at the core of those discussions.

AltaVista yesterday outlined plans to offer a variety of new services, including a multimedia search engine, by the end of the year. AltaVista intends to become a network, with some 25 new services and an updated search engine with an index that refreshes at least every 28 days.

Those plans will be integral to the strategy CMGI and Compaq plan regarding AltaVista's future, Wetherell and Rosen said yesterday.

Compaq's own future has been in question. Two weeks ago, the company warned that it expects a second-quarter financial loss and also outlined plans for a major restructuring that would create three business units, with each responsible for its own loss or profit.

While some analysts and industry observers have wondered when Compaq was going to renew its focus on its core hardware business, Rosen said that yesterday's announcement should signal that the Houston-based PC maker is serious about developing its Internet strategy. While AltaVista could be a cornerstone of that strategy, it has at times been lost in the Compaq-Digital merger shuffle.

The pairing with CMGI could change that.

"We've seen that it hasn't been as heavily promoted as it could have been," analyst Jill Frankle of the Framingham, Masschusetts-based International Data Corp. (IDC) said of AltaVista, adding that it is "probably one of the best search engines out on the Web."

Although owning AltaVista was a good strategy, the company tended to languish because it was not a core business for Compaq. At the same time, Yahoo Inc., Excite Inc. and other Internet-based companies turned portals into a monster market, expanding to offer a range of services including free e-mail and chat.

Despite that AltaVista has seemed like less of a presence, it is among the top 10 US Internet sites and in the top five internationally, Frankle noted.

That makes it a good fit with CMGI, she said. The company's majority stake in a plethora of Internet-based subsidiaries, with a strong e-commerce portfolio, also includes Lycos Inc., a potential competitor of AltaVista.

While both Lycos and AltaVista boast search engines and links to other Internet sites, Frankle said that there might not be all that much overlap among users of the two. AltaVista claims it attracts the top 30 percent of Web traffic in terms of demographics and cyberspace sophistication while Lycos appeals to more of a mass-market audience, she said.

Although he tended to sidestep questions about the effect that AltaVista's entrance into the CMGI stable might have on Lycos, Wetherell also said that he doesn't believe the two will directly compete.

In Frankle's view, a lot will depend on CMGI's future relationship with Lycos.

Relations between the two have been strained. Wetherell had approved a proposed merger between Lycos and USA Networks, but then backed down when Lycos stock price tumbled. To further convey his unhappiness over the proposed deal, he quit the Lycos board and was said to be searching for other possible buyers for Lycos.

There was no talk at yesterday's press conference of shedding Lycos. Wetherell, who dominated the press conference, clearly wanted to focus on today's news and not speculation. Besides outlining the mega portal plans and trumpeting the collaborative effort to come between CMGI and Compaq, he also said that at some future point AltaVista will finally go public.

In the meantime, CMGI and Compaq have agreed to each ante up $50 million for a co-branding and marketing fund with AltaVista as the centerpiece.

Compaq, in Houston, can be reached at +1-281-370-0670 or at http://www.compaq.com. CMGI, in Andover, can be reached at +1-978-684-3600 or at http://www.cmgi.com. AltaVista, in Palo Alto, California, can be reached at +1-650-617-3400 or at http://www.altavista.com.

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