High Hopes for AltaVista: Compaq Announces Spin-off, IPO

Jan 27 1999

NEW YORK - Confirming intense industry speculation, Compaq execs announced Tuesday it will spin off its AltaVista search service as a separate business unit that eventually will file for an initial public offering.

AltaVista has remained under the thumb of Compaq for the past year, ever since the PC maker purchased AltaVista's original parent, Digital Equipment Corp. As part of DEC, then Compaq, AltaVista has become the poster child for the "neglected portal." Until last fall, it was run as a break-even business entity within each company, seriously impairing its growth. Despite its appeal to Web-savvy surfers, AltaVista has languished as the sixth-ranked portal in terms of traffic.

By granting AltaVista independence, Compaq believes the search engine has the potential to be a top Web destination. And Compaq intends to support it along the way, developing more Internet-ready computers that will use AltaVista as their gateway to the Web, said Eckhard Pfeiffer, Compaq's chief executive officer. "By spinning out the AltaVista company, it is our intent to become one of the leading Internet companies," Pfeiffer said. He added that by 2002 the retail market for Internet-related products will be $170 billion, "bigger than today's PC market."

Pfeiffer also stated - notably avoiding the word "portal" - that "a popular Web destination" will be an important outlet for Compaq to sell its computers to consumers. Pfeiffer added that Compaq had also explored keeping AltaVista in-house as either a separate search-engine business or a portal unit. It was the possibility to cash in on the e-commerce wave and take advantage of the public market valuation for portals that ultimately decided AltaVista's fate, he said.

The spin-off went into effect Tuesday, but the timing for an IPO is unknown. Pfeiffer remained cagey about the subject when questioned at Tuesday's press conference. Rod Schrock, the newly installed president and CEO of AltaVista, later explained that there are other priorities, including implementing Shopping.com into AltaVista as a primary commerce point, before the unit will focus on filing papers with the Securities and Exchange Commission. Schrock added that proceeds from the IPO primarily will be put to use for acquisitions and investments in product development.

Schrock, the former VP of Compaq's consumer products group, added that Compaq has agreed to fund the unit for 1999. Schrock has been overseeing the daily operations of AltaVista since the DEC purchase last January. AltaVista will continue to operate from it's headquarters in Palo Alto, Calif.

To emphasize AltaVista's reinvigorated position in the portal marketplace, company officials also announced that AltaVista has replaced Inktomi as the search engine of the Microsoft Network. In turn, Microsoft will provide AltaVista with the Hotmail e-mail service, a messaging service and a registration technology. As a result of the technology alliance, Inktomi's stock plunged more than 10 percent in early trading Tuesday, prompting Nasdaq to briefly suspend trading in Inktomi.

On the horizon, is AltaVista's biggest marketing push to date, Schrock said. It too will launch sometime after Shopping.com is integrated, and possibly before an IPO. Over the next two years, AltaVista will invest in all areas of the business in order to catch up with competitors Yahoo , Lycos and Disney's Go Network in attracting new users. The increased spending will mean AltaVista doesn't expect to operate in the black for another two years.