CEO, Analysts Herald AltaVista's Refocus on Search

Both AltaVista Co.'s chief and analysts Friday welcomed the company's decision to refocus its energies on its core Net search business as a way to increase its profitability. The vendor announced earlier Friday that it had laid off one quarter of its staff and was stepping down its efforts to establish a media portal business.

"We can confidently say we're on the short-term path to profitability," Rod Schrock, AltaVista chief executive officer and president, said in an interview with IDG News Service. "We are doing our realignment in the context of tremendous growth for AltaVista. Our revenue growth is faster than that of most Net companies." He added that the company hopes that AltaVista North America will turn a profit in the company's financial quarter due to end Jan. 31, 2001.

Schrock said that AltaVista had been notifying staff about the layoffs all Friday morning, with the ax primarily falling on the company's new media team. Job cuts have also resulted across the board with AltaVista consolidating three of its four California offices -- in San Mateo, Irvine and a second Palo Alto office -- into its Palo Alto headquarters and condensing its four business divisions into a single entity.

Prior to the job cuts announced Friday, AltaVista's headcount, including contractors, stood at 900 and, following the cuts, has fallen to 675 staff, according to Schrock. Excluding contractors, the previous headcount was 840 and is now 640, he added. The AltaVista CEO said that both the company's restructuring and associated job cuts are now complete.

Schrock discussed why AltaVista had originally chosen to go down the media portal path. "The conventional wisdom when I first joined AltaVista 18 months ago was that search engines had to evolve," he said. "There were very experienced leaders including David Wetherell, (chairman and CEO of CMGI Inc., which is AltaVista's majority shareholder), who were consistent in saying that AltaVista would be a media mega portal."

Since that time, AltaVista has come to a "fundamental realization" that the Net search business still presents a very high-growth opportunity, Schrock said. "We will become a very different company, more like eBay (Inc.) than Yahoo (Inc.)," he said. "We'll be the marketplace for exchanging information between information seekers and content providers."

Analysts applauded AltaVista's renewed emphasis on its Internet search technologies and the company's announcement of increased investment in that area. "AltaVista is doing the right thing, leveraging an asset they had for a very long time and had put on the back burner," Emily Meehan, analyst with Yankee Group Inc., based in Boston, Massachusetts, said. "It's wise to scale back in areas that aren't their core competency. They're focusing back on something that they're much better at."

She described the company's moves as "very timely and fortuitous."

"Net content is outgrowing the browser and content destination sites," Meehan said. "There's a huge need and demand where AltaVista can step in and play a role in next-generation Web navigation."

Rob Enderle, senior analyst with Giga Information Group Inc. in Santa Clara, California, pointed out that given Yahoo's success as a media portal, other search companies had thought emulating Yahoo was the way forward.

"The industry is maturing. People are looking at what works and what doesn't work," Enderle said. Trying to copy Yahoo's model resulted in plenty of costs for rival search engine vendors chasing the company's success. There are already industry examples, like search engine company Google Inc. who is "doing one thing well" and succeeding, he said.

However, Enderle sounded a note of caution about AltaVista's wisdom in adopting such a single-focus business model. "I'm not convinced it's sustainable in the long term, but for the short term it could work very well for AltaVista, particularly as they move into the corporate market," he said. "They should be able to execute (on their business strategy), but 'should be' is a long way from 'will be.' It makes sense, but execution is everything."

AltaVista may be able to leverage resources from its previous owner, Compaq Computer Corp., to help the company further establish itself as the search engine in the enterprise sector, Enderle said. Compaq acquired the search engine vendor when it purchased Digital Equipment Corp. in 1998.

The question remains whether AltaVista will be an "odd man out" in the Net search engine market, according to Martin Marshall, managing director of Redwood City, California-based market research company Zona Research Inc. "How many search companies can be supported by the Net? Are we going to see some fallout over time?" he asked. Within a year's time, it'll be clear whether or not AltaVista will be one of the survivors, Marshall estimated.

He believes the timing of AltaVista's announcement can be traced to the recent decline in parent company CMGI's stock, which reduced the financial "pad" the search engine company could rely on. "They couldn't sit around," AltaVista has to move aggressively to achieve profitability, Marshall added.

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